My speech at the Chain-In conference that this medium post is based on:

Why do we care?

Bitcoin’s governance matters because Bitcoin is the first successful, most liquid, and most widely known crypto-currency. In the words of Michael Goldstein, “Sound money is a foundational pillar of civilization, and Bitcoin restores this powerful tool for social coordination.” If Bitcoin’s governance model is flawed, it could prevent Bitcoin from reaching its full potential. If Bitcoin’s governance is flawed, Bitcoin’s stakeholders should work to fix it.

Conversations regarding Bitcoin’s governance tend to focus on who the decision makers ultimately are, perennial candidates include miners, nodes, and investors. The purpose and mechanics of governance are often just implied or even disconnected from reality. Views on the efficacy of past governance are often driven by who “won” or “lost” a specific decision, rather than the adequacy of the decision making process itself.

What is Bitcoin governance?

What is the purpose of Bitcoin’s governance?

  • Matt Corallo argues that trustlessness is the most important property of Bitcoin. Matt defines trustlessness as “the ability to use Bitcoin without trusting anything but the open-source software you run”. Without the property of trustlessness, all other positive outcomes are jeopardized.
  • Daniel Krawisz argues that maximizing the value of a bitcoin is what governance de facto optimizes for. Daniel states that “the general rule about Bitcoin upgrades […] is that upgrades which increase Bitcoin’s value will be adopted and those which do not will not.”

In the context of Bitcoin’s governance, these two views mirror the classic divide between deontological and consequentialist ethics respectively. I favor Matt’s deontological approach of focusing on trustlessness. Throughout monetary history, from ancient coin producers to modern central banks, trusting others to produce money has resulted in abuse of that trust. Compromising on trustlessness could help the Bitcoin price find a local maximum, at the expense of finding a much higher global maximum. Furthermore, there is no evidence that Bitcoin’s price has been correlated with upgrades to the Bitcoin protocol. Perhaps Bitcoin’s fundamental value is affected by upgrades, but Bitcoin is so illiquid and volatile that the price does not reliably reflect fundamental value. If we can’t observe the consequences of an upgrade on Bitcoin’s value, the consequentialist approach seems inadequate.

Before we can evaluate the current Bitcoin governance process against the stated goals of maintaining trustlessness or increasing the value of Bitcoin, we should attempt to define how the current Bitcoin governance process actually works.

How does the current Bitcoin governance process work?

Most of these rules were inherited from Satoshi Nakamoto. Some have been added or amended to address bugs and denial-of-service vulnerabilities. Other rule changes occurred to enable innovative new projects. For example, the new Check Sequence Verify opcode was added to enable new scripts.

Research

Critics have pointed out occasional disconnects between what researchers want to research, user expectations, and what is good for the network’s properties. Additionally, academic computer scientists prefer “scientific simulations” over “engineering experiments”. This has been a source of tension in the research community.

Proposal

Implementation

While this may give the impression that the contributors to Bitcoin protocol development can veto a proposal, a researcher can make their case to the public and route around existing developers. In this scenario, the researcher is at a disadvantage if they lack reputation and credibility.

Another problem at the implementation phase is that the maintainers of the reference implementation will not merge in an implementation if it is widely seen as contentious by the Bitcoin protocol developers and the wider Bitcoin community. The reference implementation’s maintainers have a deliberate policy of following consensus changes rather than trying to impose them. The C++ reference implementation, hosted at github.com/bitcoin/bitcoin, is the direct successor of Satoshi’s codebase. It continues to be the most popular Bitcoin node implementation due to its maturity and reliability.

To circumvent the reference implementation’s maintainers and make consensus changes regardless is as simple as copying the Bitcoin codebase and releasing the proposed changes. This happened with the BIP-148 User Activated Soft Fork (UASF).

A proposal to change validation rules can have a softfork or a hardfork implementation. Some proposals can only be implemented as a hardfork. From the perspective of pre-fork nodes, a softfork implementation is forward-compatible. With a softfork, the pre-fork nodes do not need to upgrade their software in order to continue validating the pre-fork consensus rules. However, these pre-fork nodes are not validating rule changes made by the soft-fork. From the perspective of pre-fork nodes, a hardfork is not forward-compatible. Pre-fork nodes will end up on a different network as post-fork nodes.

There has been controversy about the effects of hard and softforks on the network and users. Softforks are seen as being safer than hardforks, because they do not require an explicit opt-in, but this can also be seen as coercive. Someone who disagrees with a softfork must hardfork to reverse it.

Deployment

While individual users may signal on social media that they are using a certain version of node software, this can be sybil attacked. The ultimate test of consensus is whether your node software can receive payments that you consider to be bitcoins, and you can send payments that your counter-parties’ node software considers to be bitcoins.

Softforks have an on-chain governance feature called BIP-9 Version bits with timeout and delay. This feature measures miner support for softforks on a rolling basis. Miner support for proposals is used as a proxy measure for the wider community’s support. Unfortunately this proxy measure can be inaccurate due to mining centralization and conflicts of interest between miners and users. On-chain “voting” by miners also perpetuates the myth that Bitcoin is a miner democracy, and that the miners alone decide on transaction and block validity. BIP-9 is useful to the extent that we recognize and accept the limitations of proxy measurements.

Enforcement

The role of miners is to provide a proof of publication function (often referred to as “timestamping”) with a difficulty-adjusted proof-of-work for transaction ordering. The amount of hashrate provided is based on the cost of hardware and electricity on one hand, and revenue from the coinbase reward + fees on the other hand. Miners are mercenaries, and in the past they have provided their services without full rule validation. Due to mining centralization, miners can not be trusted to enforce the validation rules on their own.

Has the current Bitcoin governance model resulted in more trustlessness?

Has the current Bitcoin governance model resulted in upgrades that increase Bitcoin’s value?