Bitcoin Governance

What is Bitcoin governance?

Bitcoin governance is the process by which a set of transaction and block verification rules are decided upon, implemented, and enforced, such that individuals adopt these rules for verifying that payments they received in transactions and blocks fit their subjective definition of “Bitcoin”. If two or more individuals adopt the same set validation of rules, they form an inter-subjective social consensus of what “Bitcoin” is.

What is the purpose of Bitcoin’s governance?

There is a wide range of views regarding what the purpose of Bitcoin’s governance should be. What outcomes should governance optimize for?

  • 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.”

How does the current Bitcoin governance process work?

The Bitcoin governance process maintains a set of verification rules. At a high level, this long set of verification rules covers syntax, data structures, resource usage limits, sanity checks, time locking, reconciliation with the memory pool and main branch, the coinbase reward and fee calculation, and block header verification. Amending these rules without tradeoffs is no easy feat.

Research

Every rule change begins with research. For example, SegWit began with research into fixing transaction malleability. Transaction malleability had become a serious issue because it prevented the Lightning Network from deploying on Bitcoin. Industry and independent researchers collaborated on what eventually became SegWit.

Proposal

When a researcher has discovered a solution to a problem, they share their proposed changes with other protocol developers. This sharing could be in the form of an email to the bitcoin-dev mailing list, a formal white paper, and/or a Bitcoin Improvement Proposal (BIP).

Implementation

A proposal is implemented in the node software by the researcher(s) who proposed it, or by other protocol developers who are interested in it. If a researcher can not implement a proposal, or the proposal does not attract favorable peer review, then it will linger at this stage until it is either abandoned or revised.

Deployment

Once implemented in the node software, users must be persuaded to use the node software. Not all node users are equal in their importance. For example, “blockchain explorers” have more power as many users rely on their node. Additionally, an exchange can determine which validation rule set belongs to which ticker symbol. Speculative traders, large holders, and other exchanges provide a check on this power over ticker symbols.

Enforcement

Changes to the validation rules are enforced by the decentralized p2p network of fully validating nodes. Nodes use the verification rules to independently verify that payments received by the node operator are in valid Bitcoin transactions and are included in valid Bitcoin blocks. Nodes will not propagate transactions and blocks which break the rules. In fact, nodes will disconnect and ban peers which are sending invalid transactions and blocks. As StopAndDecrypt put it, “Bitcoin is an impenetrable fortress of validation.” If everyone determines that a mined block is invalid then the miner’s coinbase reward + fees is worthless.

Has the current Bitcoin governance model resulted in more trustlessness?

In my opinion, the current Bitcoin governance model has prevented a degradation of trustlessness. The dramatic increase in on-chain Bitcoin transactions over the past 5 years seemed to have no end in sight. If Bitcoin’s governance model had not been resistant to last year’s miner signalling for a doubling the maximum block weight, a precedent would have been set of valuing transaction throughput above trustlessness.

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

I think it’s impossible to establish a causal relationship. The price is much higher than it was 2 years ago, but it seems to be an endogenous process driven by trader psychology, not technological fundamentals. Regarding fundamentals, it’s undeniable that Bitcoin’s governance has delivered on consensus changes which the Lightning Network depends on to operate. I’ve been experimenting with establishing channels and making Lightning payments: there is no doubt in my mind that LN increases Bitcoin’s value.

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