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Bitcoin's Anarchists Can't Make Up Collective Mind

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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We are now in Day 5 of the Post-Bitcoin-Fork Era, and the Earth is still orbiting around the sun. Bitcoins are still being mined and traded, too, although the price in dollars is down this week. We will all be OK, I think. Although there is at least a chance that bitcoin won’t be.

Since Sunday there have been two versions of the cryptocurrency making the rounds: Bitcoin Core, which is just what it sounds like it is, and Bitcoin XT, which sounds alarmingly like a Microsoft upgrade but is basically just Bitcoin Core with some added transaction-processing capacity.

Transaction-processing capacity is important because bitcoin’s blockchain system, which currently maxes out at about seven transactions a second, is going to have to get a lot faster if it’s going to compete with the Visas and MasterCards of the world. It could run up against that limit as soon as next year unless something is done.

QuickTake The Rise of Bitcoin

The simplest way to increase capacity is to let the blocks of bitcoin transactions that are verified on volunteers’ computers around the world get bigger -- they’re currently limited to one megabyte. Technically this isn’t hard, but it is a more-than-superficial change that would push the bitcoin ecosystem of mining coins and verifying transactions at least a little bit more in the direction of concentration and centralization.

My attempt at technical explanation will end there. Bitcoin-fork explainers are a dime a dozen this week. You can take your pick from the Wall Street Journal, the Economist, Vox.com, Business Insider, the BBC, Coindesk, venture capitalist Fred Wilson and others. Plus, the really interesting issue here isn't bitcoin’s software but how hard it can be for a group -- especially a globally dispersed group known for its libertarian and in some cases anarchist leanings -- to make decisions.

The debate over what to do about bitcoin’s looming capacity limit has been going on for a couple of years. As best I can tell, the main alternatives to increasing the block size would be a more radical redo of the blockchain system -- a proposal for something called the Bitcoin Lightning Network has gotten the most attention -- or simply waiting around and seeing how the system organically adjusts to hitting its capacity limits.

If bitcoin’s mysterious and probably pseudonymous creator Satoshi Nakamoto were still roaming the message boards, his (or her, or their) words would probably carry the day. In that case bitcoin would resemble the massive open-source software project Linux, where creator Linus Torvalds continues to play the role of benevolent-if-crotchety dictator. But Nakamoto left the scene in 2011, perhaps intentionally trying to avoid such dictatorial tendencies in his (or her, or their) anarchist project. (Somebody posted a message over the weekend purporting to be from Nakamoto that opposed the block-size increase, but hardly anybody in the bitcoin world seemed to believe it was real.)

Gavin Andresen, a software engineer in Amherst, Massachusetts, who is now chief scientist of the Bitcoin Foundation, took over from Nakamoto as keeper of the Bitcoin Core software, but his role was that of caretaker, not dictator. He handed day-to-day management last year to Wladimir van der Laan, a Dutch software engineer, but remains one of the five “core developers” along with Van der Laan, Jeff Garzik, Gregory Maxwell and Pieter Wuille.

Andresen, worried that the looming capacity limit would begin to endanger the burgeoning ecosystem of companies trying to build bitcoin into a practical alternative payment system, began pushing last year for an increase in the block size. He was joined in this effort by Mike Hearn, a former Googler who has been involved with bitcoin from the early days but isn’t part of the core developer group. They eventually settled on a plan to increase the block size to eight megabytes.

Lots and lots of long, long back-and-forths at Bitcoin Forum and elsewhere ensued, with no clear idea of how to bring the discussion to a resolution. Of the core developers, only Maxwell seems outright opposed to increasing the block size. Garzik has proposed a smaller block-size increase. And Van der Laan and Wuille seem mainly to be uncomfortable with the idea that they and the other core developers should make such an important decision for the bitcoin community.

The different views about how bitcoin’s decisions should be made played out in a fascinating discussion thread in June involving all the above characters except Maxwell. It started when another bitcoiner noted with outrage that Hearn had suggested in a video interview that Andresen should just revoke the access of the other developers to the Bitcoin Core software and make the block-size change unilaterally.

Hearn then jumped in. “You cannot run a codebase like Wikipedia,” he wrote -- somebody has to have decision-making power. He went on:

Core is in the weird position where there's no decision making ability at all, because anyone who shows up and shouts enough can generate 'controversy', then Wladimir sees there is disagreement and won't touch the issue in question.

To which Van der Laan responded:

Bitcoin is supposed to be a robust, global, decentralized network beyond anyone's control. It makes *no sense* to try to run it as a dictatorship.

Garzik chimed in that Hearn was talking about making a change to “Bitcoin’s Constitution,” which required consensus:

Changing bitcoin's rules IS IN NO WAY like Wikipedia or other open source software.

But that might be exactly bitcoin’s problem, Andresen wrote:

Even before stepping down as Lead I was starting to wonder if there are ANY successful open source projects that didn't have either a Benevolent Dictator or some clear voting process to resolve disputes that cannot be settled with "rough consensus."

Wuille didn’t buy that:

I think maintainers of particular software should not be, and are not those who decide the network's rules. People running the code are.

And that’s exactly to whom Andresen and Hearn have decided to take their proposal. The Bitcoin XT code that they released Saturday is essentially a trial balloon. Right now it doesn’t yet allow for blocks of more than one megabyte, and it's compatible with the existing Bitcoin Core software. If by the end of the year fewer than 75 percent of the bitcoins mined are being mined with Bitcoin XT, Andresen and Hearn will drop the effort and everything will go back to Bitcoin Core. If they do hit the 75 percent target, though, they would -- after a few weeks’ transition period -- increase the block size and force other bitcoin users to either switch over to XT or be left behind. That would be the “hard fork.”

I asked Brian Behlendorf, a leader of the open-source Apache Web server project in the late 1990s and early 2000s and a long-time board member of the open-source Mozilla Foundation, to put this chain of events in a broader open-source context. “This right to fork is pretty much the defining characteristic of open-source communities,” he said. Then again, he added, “forking is the nuclear option.”

So bitcoiners are being asked to decide whether to go with Andresen, who has done more than anyone to keep the bitcoin project alive since Nakamoto left the scene -- at least, that’s the impression one gets from Nathaniel Popper’s great Bitcoin history “Digital Gold” -- or trust that some other solution to the capacity problem will turn up.  

In one characteristic exchange, Ryan Selkis, director of investments at the bitcoin venture capital firm Digital Currency Group, explained his choice this way on Twitter:

To which one teenaged cryptocurrency enthusiast responded:

As of 2 p.m. Wednesday U.S. Eastern time, only one block of bitcoin had been mined using the Bitcoin XT software, according to XTnodes.com. But of the bitcoin nodes -- the computers around the world on which transactions are verified -- 12.7 percent had already made the switch. In a column about Popper's book a few months ago, I wrote that Bitcoin was entering a "boring era" in which corporate interests played a leading role and the currency gained in respectability. Well, not yet. The next few months may actually be really exciting.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net