The following article is an exclusive contribution to CoinDesk’s 2017 in Review.
This year has been pivotal for digital assets like bitcoin and ether, leading to unprecedented price increases, capital investment and general awareness.
But despite these successes, one among the elemental properties of all cryptocurrencies – their decentralized nature – has been under fire in 2017.
With this in mind, it’s worth remembering that a core value proposition of blockchains is that there’s nobody central intermediary or organization that controls them. Instead, these protocols are wont to enable the network to return to a consensus on the validity of transactions and data.
Bitcoin was the primary digital payment system to function without a central repository, and therefore the concept (fairly novel in 2009) is now widely accepted and becoming more ubiquitous. But the world’s first blockchain has evolved since its humble beginnings, and today there are variations on the first – most notably, bitcoin cash and bitcoin gold.
Forks became so prevalent one might call the model an initial fork offering (IFO).
Not just bitcoin gold and bitcoin cash, but more bitcoin variations initiated by Chinese companies like “super bitcoin,” “bitcoin diamond” and “bitcoin god” are on the way.
And while all could also be finding a market, it’s worth asking the question, are these networks delivering on the promise of the technology? and will consumers care?
Framing the question
An argument are often made that the three cryptocurrency networks are all different in how well they encapsulate the vision of bitcoin as a decentralized network.
But it’s worth noting, too, that decentralization is usually achieved by market economics.
When brooding about this, I’m reminded of the classic question asked by Soviet leader Gorbachev in 1988:
“I haven’t seen one bread queue. Please take me to satisfy the person responsible of supplying bread to London. i need to learn his secret.”
In fact, there was nobody responsible for supplying bread to the town of London, that’s why there have been no queues.
Though bitcoin was the primary so-called “decentralized” product built on blockchain technology, there are arguments within the community on whether it constitutes real “decentralization.”
There are those that argue that the facility and influence of the mining industry leads to the network being more centralized than most of the people expected. To support now of view, it’s valuable to revisit Satoshi Nakamoto’s email regarding the first design of bitcoin.
“Long before the network gets anywhere near as large as that, it might be safe for users to use Simplified Payment Verification (section 8) to see for double spending, which only requires having the chain of block headers, or about 12 KB per day. Only people trying to make new coins would wish to run network nodes. At first, most users would run network nodes, but because the network grows beyond a particular point, it might be left more and more to specialists with server farms of specialised hardware. A server farm would only got to have one node on the network and therefore the remainder of the LAN connects thereupon one node.
The bandwidth won’t be as prohibitive as you think that . A typical transaction would be about 400 bytes (ECC is nicely compact). Each transaction has got to be broadcast twice, so let’s imagine 1KB per transaction. Visa processed 37 billion transactions in FY2008, or a mean of 100 million transactions per day.
That many transactions would take 100GB of bandwidth, or the dimensions of 12 DVD or 2 HD quality movies, or about $18 worth of bandwidth at current prices. If the network were to urge that big, it might take several years, and by then, sending 2 HD movies over the web would probably not appear to be an enormous deal.”
This email makes clear that Satoshi Nakamoto predicted that running network nodes would become the responsibility of a couple of mining pools or “specialists” instead of individual users.
What’s less clear is what he would have made from the results of his plan.
The bitcoin cash problem
So far, it seems Satoshi’s original scaling proposal actually increases the facility mining pools have choose the longer term of the network.
We saw an example of that firsthand when China’s developers and miners tried to return up with a replacement solution to perceived network congestion – forking off to make bitcoin cash.
Bitcoin cash is actually a blockchain asset created employing a software implementation called Bitcoin ABC. The software excluded a somewhat controversial code change called SegWit and features a block size of 8 MB, up from 1 MB on bitcoin. The new rules created a replacement network.
Now, there’s still some ongoing disagreement among the community on whether bitcoin cash constitutes a tough fork of bitcoin or should be considered a separate “altcoin,” but we’ll save that for an additional time.
Relevant for this conversation is that the incontrovertible fact that 70% of bitcoin’s mining power belongs to China’s miners, and therefore the fact is that these entities can easily collaborate . Bitcoin Cash, I believe, may be a prime example of that.
Thanks to the support of BTC.com, BTC.Top, ViaBTC, AntPool (all of which have direct or dubious connections to Bitmain), it are often argued that bitcoin cash became a centralized commercial product controlled by China’s miners.
Weak links in bitcoin gold
With the increasing price of bitcoin cash as a backdrop, others followed the model.
Another fork of bitcoin happened this fall, bitcoin gold, which sought to include technology employed by other cryptocurrenices designed to dam factors that led to more centralized mining.
Less is understood about bitcoin gold, but consistent with its website:
“Bitcoin gold decentralizes mining by adopting a PoW algorithm, Equihash, which can’t be run faster on the specialty equipment used for bitcoin mining (ASIC miners). this provides ordinary users a good opportunity to mine with ubiquitous GPUs.”
Efforts are underway already to make FPGA chip miner for zcash, though, and with progress here, it’d only be a matter of your time before they develop an ASIC chip. If that’s the case, then mining might again shift faraway from users back to traditional mining pools.
To this possibility, we’d ask, what was the purpose of the fork to start with?
One possible reason: since initial coin offerings (ICOs) are banned by the Chinese government, there’s an appetite by Chinese-based crypto companies to develop new business models.
Entering 2018, i think it’s important that we answer key questions on this trend.
These include whether forks of bitcoin might actually be weaker in providing consumers with decentralization, whether buyers want access to those properties or if “decentralization” is just a buzzword and marketing ploy for all cryptocurrencies.
Ultimately, time will tell whether bitcoin, bitcoin cash, or bitcoin gold becomes the foremost prevalent, but the good thing about an open market is that users get to make a decision what has the simplest value or utility.
If the groups behind the scenes can’t offer more value than competitors, then their asset will struggle to survive.
That said, I don’t expect to ever see full consensus across any of those crypto assets. As prices still rise, i think more external powers, whether they’re government, institutional or within the bitcoin community, to undertake and exert their influence and power.
When the time comes, we could also be thankful that we took the time to know the way to fulfill Satoshi’s vision within the way he wanted it to be, if not exactly how he expected it to be done.
Disagree? CoinDesk is trying to find submissions to its 2017 in Review series. Email [email protected] to pitch your idea and make your views heard.
Disclosure: CoinDesk may be a subsidiary of Digital Currency Group, which has an ownership stake in Blockchain.