Primavera De Filippi, a Hacker and Blockchain researcher at Harvard, together with Benjamin Loveluck, Associate professor at Télécom ParisTech and research associate at CERSA, argue in a new paper that bitcoin has evolved into a highly centralized network under the technocratic governance of a small number of individuals.
After providing a brief history, the researchers analyze bitcoin’s governance in a first paper of its kind, stating that the aim of “Satoshi Nakamoto and the early Bitcoin developers was to create a decentralised payment system that is both self-sufficient and self-contained.” However, they argue that they, perhaps naively, “thought it was possible to create a new technological infrastructure that would be able to govern itself – through its own protocols and rules – and that would not require any third-party intervention in order to sustain itself. And yet, in spite of the mathematical elegance of the overall system, once introduced in a particular socio-economic context, technological systems often evolve in unforeseen ways and may fall prey to unexpected power relations.”
After analyzing the overall open source ecosystem, the researchers state that open source projects largely fall into two types of governance, “democratic-organic” or “autocratic-mechanistic”. As the name implies, the former is a “meritocratic governance system”. The latter, instead, has no formal governance structure, only implicit, with the project often relying on a “benevolent dictator.” Bitcoin, the researchers say, “definitely falls into the second category.”
Elaborating further, the paper states:
[T]here is a discrepancy between those who can provide input to the project (the community at large) and those who have the ultimate call as to where the project is going. Indeed, while anyone is entitled to submit changes to the software (such as bug fixes, incremental improvements, etc.), only a small number of individuals (the core developers) have the power to decide which changes shall be incorporated into the main branch of the software.
The researchers argue that Bitcoin does have some formalized process for “consensus formation among the Bitcoin core developers,” but they maintain that “the final call as to whether a change will be implemented ultimately relies on the core developers assessing the degree of public support which a proposal has built, and finding a consensus among themselves.”
Others, including miners, are relegated to only “vetoing power” by refusing to run the code, with any conflict management “to avoid both paralysing deadlocks and divisive fights,” as good as nonexistent, according to the researchers, as shown by the “recent crisis” which “revealed the limits of consensus formation between individuals driven by sometimes diverging political and commercial interests, and underlined the discrepancies between the overall goals of the project (a self-regulating decentralised virtual currency and payment system) and the excessively centralised and technocratic elites who are in charge of the project.”
The paper argues that the bitcoin community was mistaken to believe technical governance makes “government institutions and centralised organisations” unnecessary as “one cannot get rid of politics through technology alone, because the governance of a technology is – itself – inherently tied to a wide range of power dynamics.”
The most potent paragraph in the paper argues that there is a conflict between the libertarian vision of bitcoin and its governance structure which is highly centralized and undemocratic:
“Implicit in the governance structure of Bitcoin is the idea that the Bitcoin core developers (together with a small number of technical experts) are – by virtue of their technical expertise – the most likely to come up with the right decision as to the specific set of technical features that should be implemented in the platform. Such a “technocratic” approach to governance is problematic in that it goes counter to the original conception of the Bitcoin project. There exists, therefore, an obvious discrepancy between the libertarian vision of Bitcoin as a decentralised infrastructure that cannot be regulated by any third party institution, and the actual governance structure that dictates the technological development of Bitcoin – which, in spite of its open source nature, is highly centralised and undemocratic. While the (a)political dimension of the former has been praised or at least acknowledged by many, the latter has remained, for a long time, invisible to the public: the technical decisions to be taken by the Bitcoin developers were not presented as political decisions, and were therefore never debated as such.”
While in its early days bitcoin was closely associated with anarcho-capitalism, that subreddit has removed r/bitcoin from its sidebar, arguing that certain decisions and actions made by Michael Marquardt, the top moderator of r/bitcoin, go against ancap’s general principles as the use of metaphorical force through banning and censorship violates the non-aggression principle. Marquardt has argued that he owns the subreddit, therefore he is free to make any decision he pleases, but he has no legal title to r/bitcoin nor can one say his moderation amounts to ownership, rather than a fiduciary relationship where power is meant to be exercised for the beneficial owners – the subreddit contributors. There does, therefore, seem to be a contradiction between bitcoin’s libertarian principles and the current highly centralized governance structure.
Should Bitcoin Have Formalized Governance?
The paper closes by arguing that “a proper governance structure for Bitcoin can only be achieved by publicly acknowledging its political dimensions, and replacing the current technocratic power structure of the Bitcoin project with an institutional framework capable of understanding (and accommodating) the politics inherent in each of its technical features.”
That seems to argue that the relationship between the five core developers, the maintainer and the rest of the ecosystem should be formalized so that there are methods of holding them to account, rather than maintaining the current non-transparent and arbitrary granting and removing of such power which has already arguably been abused when Gavin Andresen’s Git commits rights were removed without any public discussion.
Learning from Bitcoin’s experience, Ethereum has set up a foundation funded by the ICO sale and tends to make decisions in a democratic way while Zec’s foundation is funded by 10% of all coins mined, formally tying up developer’s financial interests with the interests of the wider community, allowing public opinion to directly influence decisions by reducing the price and, therefore, developer’s earnings.
Bitcoin largely lacks any such formalized tie-in between developer’s financial interests and those of the wider ecosystem. An attempt early on to create a Bitcoin Foundation funded by the wider ecosystem faced a yearlong smearing campaign by Peter Todd and others, who often loudly argued it was a centralizing force. However, he has failed to apply the same argument to Blockstream, a for profit company that employs 12 or more bitcoin developers and, unlike Ethereum or Zec’s foundation or even, arguably, the Bitcoin Foundation, lacks any formalized or publicly proven structure to financially align the developer’s interests with those of the wider ecosystem.
A Fiduciary Duty for Developers?
Although one can fork a currency, the way decisions within a digital currency are made, especially when controversial or affect certain parts at the expense/benefit of other parts, has become subject of much debate with Angela Walch, Associate Professor at St. Mary’s University School of Law, arguing that developers are in a position of trust, therefore burdened with a fiduciary duty towards digital currency users and ecosystem participants, an opinion shared by Andrew Hinkes, a lawyer at Berger Singerman, who stated during the OnChainScalingconference that he believes, regardless of whether public blockchain developers should or should not have a fiduciary duty, “they do” have such obligation.
I argued in an editorial that the imposition of such duty is far too early as it pertains democratically governed digital currencies such as Eth and, perhaps, Zec, but for highly centralized currencies governed in an arbitrary method and, apparently, through “agreements” with miners, any counter-argument to Walch is necessarily weaker as one cannot raise the legitimization of any decision through tokenholders voting.
The implications are, however, both practically and principally, not quite well understood as the governance of digital currencies has only recently become subject of debate. In furthering the conversation, the published paper is very much timely and, if its conclusions find further academic support, may well tilt the debate towards how a governance system should operate, rather than whether there should be one at all.
Image from Shutterstock.