Understanding Bitcoin's Scaling Debate: Politics Comes First

Jim Harper is vice president of the Competitive Enterprise Institute, where he works to adapt law and policy to the information age. A former counsel to committees in both the US House and the US Senate, he served as Global Policy Counsel for the Bitcoin Foundation in 2014.

In this opinion piece, Harper lays out how politics controls many of the decisions being made in the bitcoin scaling debate, offering a solution for those involved.

Software programmers are usually collegial and collaborative, but parts of the bitcoin developer community have been displaying the kind of acrimony familiar to political capitols like Washington, D.C.

Understanding the nature of the scaling debate might help the bitcoin community better iterate on the protocol and software in the future. What's behind the strife when amendments to bitcoin's rules – or stasis – become so controversial? What unrecognized dimensions of the debate have allowed it to become so divisive and debased?

One is collective resistance to the fact that decisions about bitcoin's direction are political decisions, which technical decisions must follow. Priorities vary, but the bitcoin community's aims include global financial inclusion and economic development, human liberty and dignity, privacy and a truly stable money supply.

By debating only in terms of technology, the leading advocates for different paths have failed to articulate any unifying human vision for bitcoin's future. That's a recipe for alienating intellectual war.

The news isn't all bad: The scaling debate will be concluded using market forces. Bitcoin escapes politics as practiced in coercive government.

It just doesn't escape politics all the way.

Group choices are political

The bitcoin protocol and software are technical, obviously, in that they involve the application of technology to interesting challenges. How to configure bitcoin is political, though, because it involves choices made by groups.

Choosing in groups is no simple thing. The first step in group decision-making is to constitute a group. People are usually better off when they work together under a common set of rules. Bitcoin's protocol is a clear example. But what commits them to any group?

Social contract theory is the leading explanation in modern Western philosophy for life under governments. Nobody ever actually signs that contract, so it’s a little dissatisfying.

Bitcoin's version of the social contract is "consensus." That commonly used word contains the idea that using the bitcoin protocol reflects agreement with its terms. But this isn't necessarily the case. Treating use as agreement is probably insulting to dissenters from the status quo – just like "social contract" dissatisfies many U.S. citizens obligated to pay taxes for unending war.

Confusingly, "consensus" is also used to denote synchronization of blockchain data among bitcoin nodes.

However they feel about it, bitcoin users have joined a group, and they have choices to make together.

Open-source despotism?

Once a group is constituted, "it may appear that the chiefs, leaders or shamans of the group exert coercive force on members." Those are the words of public choice economists Michael and Kevin Munger in their book Choosing in Groups.

Happily, there is no literal coercion in bitcoin-land, but it harkens to the observation of Konrad Graf that the maximum block size, a "production ceiling" on transactions, is economically equivalent to a government intervention. Dissenters from the status quo feel the familiar strains of tyranny, which they thought bitcoin would help everyone escape.

That is nonsensical and shocking to the Core side, who see themselves as following standard open-source development processes. Their conservative approach, including maintenance of the 1MB limit on bitcoin blocks, safeguards a $40 billion asset, securing it against the predations of real governments.

To them, the most satisfying explanations for opposition to their approach range from simple ignorance to profit-hungry short-termism on the part of bitcoin companies.

Open source in the commercial layer

The software development mode exemplified by Internet Engineering Task Force (IETF) standard-setting processes is an attractive and successful model of cooperation. But bitcoin development may diverge from the theory about open source that the IETF helped spawn.

Open-source development does not automatically digest and balance community values, enshrining them in code. In the dominant bitcoin implementation, a small number of people have commit access, and they have disproportionate power to determine what goes into the code base. These humans, intending only the best, are subject to the influence of their own premises, their social circle and a simple incapacity to capture and prioritize all the interests that would be served by a global public utility such as bitcoin.

The user side of the equation also fails the theory, stated well by economist Vili Lehdonvirta that "Bitcoin is purely 'math-based money,' and all the developers are doing is purely apolitical plumbing work."

Developers have relatively greater power because many bitcoin users do not have the technical capacity to reconfigure their own code or to choose wisely from among competing implementations.

Bitcoin developers have also had far fewer meetings than the IETF did at a similar stage. The reservoir of goodwill was already low before the scaling debate drained it.

And bitcoin development may be materially different from other standards-setting efforts. We may be seeing for the first time what happens when open-source software development hits the commercial layer.

Technical communications standards are essentially neutral as to the content or meaning they will convey. Bitcoin standards define and shape markets.

One illustration of the power of the protocol is the rise in transaction fees, which for the time being has cut off use cases such as payments and savings for people in poorer parts of the world. That is no technical engineering decision. It delays crucial economic development that otherwise would sustain and bring joy to potentially millions or even billions of people.

Needed: visionary leadership

That vision – of bitcoin at its best, having its most tremendous consequences – has been notably absent from the scaling debate. If at all, the sides represent their animating goals ambiguously as "payments" on the one hand or "digital gold" on the other.

Among many of its social capital deficits, bitcoin lacks visionary leadership.

The outcomes sought by the bitcoin community are widely agreed upon, but they are typically left unspoken.

A development team that articulates a view of bitcoin's horizons in human terms could unify the community. Then, given more study of the economics of bitcoin's systems, technical decisions could follow. Such decisions could be made with wide understanding that the trade-offs involved are faithful to the bitcoin community’s widely agreed-upon goals. At present that is left unclear.

Network effects

Network effects, of course, are the shackles that keep many dissenters chained to bitcoin, and (they feel) under the yoke of Core. The current threat of chain splits may produce a real-world test of how many bitcoin versions can exist.

Experience with ethereum and ethereum classic suggest that multiple chains can co-exist. And, for three reasons, network effects don't dictate disaster from chain splits:

• It is easy to transfer among cryptocurrencies, for instance via Shapeshift.io. This means there can be a viable digital gold, a viable payments crypto and many others.
• At a global scale, there are enough users to maintain several currencies. A global niche market may still be a big market.
• It is a relatively small technical iteration to make all wallets, exchanges, payments gateways, etc. accept all major cryptocurrencies. The relevant "network" may not be any one cryptocurrency, but all of them.

The bitcoin community has a lot to learn about itself and what it is doing in the scaling debate.

The debate's tenor – those angry words and base insinuations – are commonplace in political capitols like Washington, D.C. But at the end of the day in those places, vicious political opponents can also get together to cooperate on matters of agreement.

Whatever the outcome, bitcoin users should expect that kind of professionalism and maturity from all participants in the scaling debate.

Political gridlock image via Shutterstock