• by William Mougayar
    Venture advisor, 4x entrepreneur, marketer & strategist. I live in Toronto, curate a lot, blog a bit, and help startups.

Bitcoin is Undergoing a Governance Crisis, not a Block Size Dilemma

“Anyone can steer the ship when the sea is calm.” – Publilius Syrus, Roman author, 1st century B.C.

chain brokenI’ve been wrapping my head around the current Bitcoin block size debate, and the proposed Bitcoin XT hard fork.

Anyone following the online discussions could get easily wrapped-up in the technical pros and cons of the size increase, including the various methods to implement it. For background, here are 2 good summaries of where we are at, Everything You Need to Know about the Proposed Changes to the Bitcoin Block Size Cap, and What is the Bitcoin Block Size Debate and Why Does it Matter?

Depending on how you see it, you might think that the Bitcoin community is airing its dirty laundry in public, and that’s bad; or that the openness of the debate and positions are a healthy indication of decentralized decision-making and open-source processes in action, and that’s good.

Andreas Antonopolous has suggested that the drama will subside and everything will be fine, but I think the drama is the issue, and its negative effects cannot be ignored. Aside from the price of Bitcoin going down during this brouhaha, the level of uncertainty about Bitcoin’s future has risen. So many undesirable scenarios could take place, and they may not all be so orderly.

In my opinion, the current turn of events is a symptom of a governance and leadership crisis that is ailing Bitcoin. The fact that the current divergence of opinions is so loud but not so clear, and the fact that a forced, surprise event (hard fork proposal) has happened is not a sign of good things to come.

The issue is beyond just the control of the software release process.

What has happened is that the core engineers could not reach a sensible consensus. Instead, they stalled with a deadlock. But typically, a deadlock can be broken via mediation. So why didn’t the core developers invite independent mediators to arbitrate according to a formal process, once it became obvious that their blogging, forum discussions and Twitter tirades were not getting us anywhere?

Granted that the forced forked has raised the priority on the need to push the experimentation around the various scaling options as soon as possible, and this is a good thing. But I don’t fully buy the argument that one side has “gone rogue” and “cannot reform”, as a justification for a rebellion manifesting itself as a hard fork. This isn’t just about the core developers agreeing. This is about the future of a cryptocurrency ecosystem that has captivated the world, and carries with it a lot of expectations and high stakes. This isn’t just any open-source project that is forking. This is potentially the future of a new financial system, and the birth of a new applications development paradigm.

Maybe the current core developers model of governance which we started with is not suitable anymore for the future evolution of Bitcoin, especially that some of them are acting like prima donnas. I would expect the Bitcoin core developers to have the integrity of a Supreme Court judge. Instead, I feel compelled to cross-examine them in the presence of a jury in order to get to the bottom of it.

A hard fork is a serious thing. It isn’t an orderly walk in the park. We are in the “not in Kansas anymore” territory. So, we must understand the potential consequences of this hard fork. It sets a potentially dangerous precedent, and it indicates that Bitcoin is still the Wild Wild West, sadly.

Some are saying this is a coup. Others equated it to the passengers wanting to switch planes. To me, it looks like a rebellion within the core group of engineers who were entrusted to lead us. Instead, they disappointed us.

  • What if the 75% network support doesn’t happen, and we end-up with 2 weaker chains instead of one strong one?
  • What if two chains survive, but computer clients have to be continuously updated to support one or the other, or both?
  • What if Bitcoin XT is not entirely backwards compatible?
  • Is this the end of a unified Bitcoin? Is its future more like Android, i.e. a balkanization of versions more or less compatible, depending on the hardware you use (analogy would be the Bitcoin client, wallet or mobile App )?

Regardless of the outcome, some psychological damage has been done. Hard forking always has unexpected outcomes.

Crisis in Leadership is Real

The reality is that Bitcoin has a lack of governance leadership. The Bitcoin Foundation was supposed to be that trusted umbrella organization, but since their falling out, no one has stepped-up, and we are now seeing the results of that vacuum. We are seeing that Bitcoin Core developers were not able to self-govern harmoniously on their own.

It is primordial to have the right kind of governance. As blockchains mature and propagate, higher standards will be expected of them. For example, today, Ethereum has a more stable governance structure than Bitcoin’s, after its recent Foundation Board announcement.

What is mind boggling to me is the convoluted composition of the Bitcoin core developers group, where the source of this dispute is evidently emanating from. The current cast of Core developers is a collage of 5 engineers with Commit access and 5 others with previous Commit access. What is strange about this eclectic group is that some of them are funded by various organizations, others work for, or are affiliated with diverse Bitcoin related startups, and many of them have side projects, some pieces of which might be competing in the future with some part of Bitcoin’s blockchain. This is insane, and I don’t know why we continue to accept such as precarious arrangement, which was due to break at any point, as manifested on August 15 2015 when the Bitcoin XT hard fork was announced. What kind of neutrality is it when you work for another company or your salary is paid by companies whose own interests may conflict with the core direction of Bitcoin?

I cannot figure out anymore the real integrity of the various arguments, although each developer has proposed some good ideas, and the best solution is most probably somewhere in the middle of all of them. But no one has been able to draft a Bitcoin Improvement Proposal (BIP) that melds the various ideas into an acceptable consensus.

Why can’t we have a set of neutral core developers that don’t answer to anyone but the Bitcoin constituency they are meant to serve? Why can’t we find a stable budget that funds a real organization to continue maintaining and improving Bitcoin without any shadow of the doubt on their work?

Maybe we need a more diversified representation for governance related decision-making and direction. This isn’t just about developers and miners leading us to choose based on their political or economic allegiances which can easily taint any technical interpretation.

I believe that Bitcoin has grown enough that its future should be decided outside of a strict technical forum.

What Bitcoin needs is stable funding for core development, and expanded oversight on its future.

Stable funding

Why not fund a core team of people, including developers and others, and roll them into an independent non-profit organization that has credibility and neutrality. Why not skim 1% of the $400-600M transaction fees and fund a stable organization?

Expanded Oversight

What if there was something like a Bitcoin Assembly of sorts that included a comprehensive array of stakeholders that provided guidance and arbitrage during difficult decision-making moments?

The kind of coup or rebellion we need is a governance one, not technical bickering over a hard fork.

In my opinion, Bitcoin must remain strong and united, in order to instill more confidence in it, and especially as it hopes to continue infiltrating our economy and organizations, and grow its popularity among regular consumers.

Bitcoin is supposed to be that model of a decentralized organization that can take care of itself, reach consensus, and keep growing happily thereafter. Seemingly, all was good, but it is in the rough seas that the resiliency of the ship and captain are tested. This is a critical crisis for Bitcoin. How it emerges will either reveal its weakness or extol its eternal strength.

  1. professor rat

    Tony Curtis at an avanced age asked about his marriage to a much younger woman: ” She dies, she dies “

  2. bkminer

    Interesting viewpoint. But some of your statements are completely false. Without the 75% miner adoption nothing happens at all. You should really vett your facts before writing.

  3. Ferni

    Bitcoin can’t undergo a governance crisis because it is governed by no one. I guess that’s a hard pill to swallow for some.

  4. Victor Fomin

    Why can’t we…. Why can’t we…. Why can’t we…. turn Bitcoin into just another centrally “governed” project, in order to castrate it’s revolutionary potential? “No, you can’t” – because WE THE BITCOIN USERS won’t allow you to usurp or corrupt initial Satoshi’s vision of a free, voluntary, ungoverned, consensus-driven system.

  5. William Mougayar

    I didn’t say that. I’m implying to widen the current base.
    Otherwise we have some anarchy and developers calling each other “rogue”. Did Satoshi want that?

  6. William Mougayar

    Well, the Bitcoin Foundation was supposed to do that. If they had done a good job, we wouldn’t be where we are today.

  7. William Mougayar

    Of course I know that. Did you read the post carefully?
    What is currently happening whether 75% adopt or not, is the issue.

  8. Manfred Karrer

    Don’t underestimate the unpredictable things happening on the way. Bitcoin has lost already 1 billion in the last month, probably correlated to the hard-fork threat.

    And don’t underestimate the technical skills and creativity of the core devs to protect Bitcoin Core from a take over of the XT camp.

    That is a war over the control of the network not a software fork. The governance model XT is using (https://bitcoinxt.software/faq.html#who-is-involved is that of a benevolent dictatorship, which would change Bitcoins constitution fundamentally.

    In such a model the other 4 core devs with commit rights (3 of them are very strongly against XT) would be locked out in a much stronger sense as Mike Hearn feels to be locked out because of the frustrating communication and consensus situation they have the last few years.

    Do you really think that the 90% of core devs who are strongly against XT and who are working pretty well together (see Blockstream) that they simply give up easily if XT succeeds? There are already first flavors of such war tactics (see the Non-XT-version), I am sure we will see much more of the like and precious developer resources are wasted in arm races. Those resources will be missing to solve real problems of Bitcoin like weak Anonymity properties and mining power concentration or to develop scalability solutions which are more sustainable and complex as changing a parameter.

    And that is another negative effect of all that situation. The whole ecosystem is now focussed on the Block size topic, they managed to occupy a majority of the resources to that. But is that legitimate? Is this really the most important problem to be solved now? They did not succeed with normal communications strategies so now they use the hard fork threat to blackmail all to step into that arena. I would prefer to work on my project, but if Bitcoin fails my project will be pointless as well. So I really hate that I got forced to bring myself in here.

    And isn’t the problem of mining power concentration much more critical? Would that XT take over attempt be feasible without the situation that there are a handful of miners you need to convince? Would it be so easy to blackmail others when they need to convince all users and stakeholders and not only a few miners? That has nothing to do with a democratic election but is a voting inside a mostly anonymous cartel.

    What would a winning XT chain protect from repeated hard fork attacks? It will be logical that others will follow when they disagree with XT, and there is already a lot of disagreement beside the block size topic, e.g. blacklisting TOR IP addresses,…).

    So if that XT succeed, Bitcoin will not succeed. The security model of Bitcoin is consensus and not 75% voting of miners.

  9. Sam Phontell

    Bitcoin started as a benevolent dictatorship and it is an incredibly efficient governance model to bring bitcoin to where it needs to be. After trust is established, more commiters will likely be allowed, but similar to linix instead of a meritocracy of stonewallers with conflicts of interest.

  10. Uno Hansson

    do you understand who the Bitcoin working? I don´t think…

  11. fredwilson

    I think the current system is just fine and things will work themselves out. I wrote about this on AVC a week or so ago. This is decentralization and its messy. But i think the benefits of this model massively outweigh any of the models you are suggesting

  12. Uno Hansson

    They can´t !

  13. Uno Hansson

    … how… I can´t write english… jag är svensk…

  14. Manfred Karrer

    Sure nearly all projects start as that model. Nothing wrong with that. But what do you think was the reason why Satoshi faded out and don’t execute his role as benevolent dictator anymore? I think he knew that Bitcoin is already too big that this model is appropriate. If he would and Bitcoin became a trillion dollar project he would be exposed to tremendous pressure.

    Here a quote from the article I posted yesterday regarding that topic:
    “Imagine Bitcoin scales to become a globally-used currency with orders
    of magnitude more market capitalization than it has today. Bitcoin’s
    “benevolent dictator” – whomever it happened to be – would not be able
    to withstand the pressure that such a position would bring. No one
    What kind of pressure would this be? When one individual’s actions
    have the power to affect billions of dollars worth of other peoples’
    outcomes, that person becomes a magnet for bidders looking to purchase
    the most favorable outcome – for themselves. The actions of Bitcoin’s
    benevolent dictator would truly be up to the highest bidder or the most
    coercive criminal or government.
    So we have a contradiction: those who argue for more scalability – the XTers – want to implement an even more vulnerable bottleneck to scalability. ”

  15. William Mougayar

    If one side wins, that’s great. But if there is some divisive outcome, it may not be as good.

  16. William Mougayar

    I understand it very well. How the network works, and how to determine its future are 2 different things.

  17. Manfred Karrer

    Even if XT wins and the hard fork pass without big damage, when will be the next situation like that? A success would even provoke a follow up. And even if a series of hard forks would not cause damage, is it a democratic model if a handful of miners decide the future development of Bitcoin?
    There will be certainly other projects which are doing a better job regarding governance (Ethereum, experiments with DAO,…). So I cannot see any outcome which looks like a success for Bitcoin if the XT fork wins.

  18. William Mougayar

    So, what do you propose that’s a better path forward?

  19. Manfred Karrer

    Short-term I would love to see that the XT camp join back to the core developers consensus model using the infrastructure in place and upcoming as at https://scalingbitcoin.org.

    Unfortunately it seems that they have already closed that door. If so I see the only legitimate option that they create their own Altcoin. If they continue to threaten the Bitcoin network to force all users into their model, I expect a lot of damage and arm races.
    A strategic maneuver to take out the wind of XT would be if the core devs agree fast to a block size increase which follows at least closely the XT proposal. I don’t think that this is a good thing but it might be the safest to protect Bitcoin short term.

    Mid-term I think the governance model of Bitcoin needs stronger infrastructure and foundations. I fear that such a model will not work well together with innovation and flexibility. Politics cannot be avoided, so when there is much power in place you need to protect with a system of laws which by definition will create a conservative environment. So having a solid protection shield will likely be an innovation killer.
    Thats why I think a better solution is to try to avoid that concentration of power. Of course that all will be lot of work but the basics are already in place and should work.
    In my posting I described closer how that can look like:

  20. Ferni

    The Bitcoin Foundation can pretend to govern bitcoin all it wants, but at the end of the day, bitcoin is controlled by its users. The already growing support for Bitcoin XT is a testament to that.

  21. Joel Dietz

    I think the situation we are in is analogous to the United States before it had a constitution. Sort of worked. What we need is a new set of founding fathers for a new Blockchain age.

  22. William Mougayar

    It will depend on how it unravels.
    But it begs the question on setting a precedent for conflict resolution method.

    Is the evolution of innovation continuous or discontinuous in this case?

  23. Tony

    There is a built in economic incentive to actually achieve consensus and prevent that to happen…

  24. William Mougayar

    Agreed, but there is technical consensus and there is strategy consensus. The strategy is the “How” of the technical, and that’s what failed.

  25. bruno cecchini

    Melodrama is part of the game, just to think about the creation of the Fed in 1913.

  26. Tony

    I don’t think it failed, it just give the market a choice. It created a lot of turmoil but I’m pretty sure the market will figure out what’s best for it and will choose the best option and finally achieve a consensus. There is no incentive for any of the participant to separate the network in two. Time will tell.

  27. bruno cecchini

    One of the major fallacy is to think that the cryptoconomy will be build around bitcoin blockchain that would set us back
    to the equivalent of the gold standard, that will not be effective at all.

  28. Uno Hansson

    Yes… I too… mean; nobody realy anderstand “the processes of interaction and decision-making among the actors involved in a collective problem” You most try and see what happens…


  29. TrustEnabler

    What insights could we apply from the way Unix was governed?

  30. Sam Phontell

    IMO, the ideal is multiple implementations of the consensus protocol, core/xt are in c, the one in go, bitcoinj, libbitcoin..

    This is decentralization of development at its finest. You may be able to buy out one project, but that one project still doesn’t change consensus rules without the other implementations being on board…

  31. Manfred Karrer

    Would not help in an attack scenario as we have with XT. If the majority of the miners support one version of consensus rules the other are forced to follow or risk to get a minority and lose all. Fork scenarios where the minority will not follow the majority are very feasible as well. The damage of loss of confidence in the process of the fork is another big issue as we saw already in the price decline recently.
    I am also wondering which creative arm races we will see in such cases. To try to kick a bigger group of developers out of a large network like Bitcoin is an aggressive move that will not be accepted by those. Forking with an altcoin is the only valid option.

    The consensus cose is also very difficult to port to other implementations and any timy mistake (or lack of reproduction of an incorrect behaviour of the original code base) can lead to forks.

    Ethereum started with 2 or 3 parallel implementations and that was for sure a very good decision, but its different if you start early with such a strategy then to add it later when there is already a lot of complex code and lacking test coverage.

  32. William Mougayar

    well, for one, Linus Torvalds is still alive and managed the divergences, as a benevolent dictator.
    bitcoin doesn’t have that now.

  33. Sam Phontell

    I agree with all those points!