Crypto as a “public good” in the 22nd century

It’s been said that “Blockchain technology is not as decentralized as we think” and that critical decisions are made, not democratically, but by a small group of “agents of influence” often including founders, software developers, miners and other parties with a monetary interest in the matter. 

This notion is open to debate, of course, but accepting that this is the case today, would it necessarily hold in the future too? Especially when Bitcoin or Ethereum, or any other blockchain network, has billions of users and, for the sake of argument, plays a critical role in the world economy?

Say Bitcoin’s network becomes the platform upon which most global payments are made. At that point (if not before) would the network be deemed a “public good” that is subject to some sort of government or a super government oversight? 

That is, key decisions would now be made not just by developers and node operators, but also by an international consortium of economists, scientists, engineers and public administrators. Perhaps even headed by a political appointee? 

In the event of a global cataclysm, could this governing consortium even change some of Bitcoin’s foundational principles, like its issuance limit of 21 billion BTC?

A utility working for the common good?

This notion of a public good or utility that operates in the public interest goes back to English common law “when key economic players such as ferry operators had to fulfill certain obligations to the public,” writes Dave Yost. In the 1890s, the United States began codifying common-carrier and public-utility law after predations by railroad barons like Cornelius Vanderbilt, who once shut down a bridge he owned to rival railroads trying to enter New York City, causing market havoc. 

While “public goods” have a technical definition, they are usually recognized as commodities or services available to all members of society — local, national or global — like highways or public education, or clean air. They are often regulated by governments.

 

 

 

 

“In some ways, blockchain networks like Bitcoin already meet the economic definition of a public good,” Garrick Hileman, head of research at Blockchain.com, tells Magazine. After all, anyone can use the Bitcoin network, even users or builders of rival networks. As for governance, blockchains also possess “a very effective means of settling governance disputes,” adds Hileman. “Participants that aren’t happy with a change — or the lack of change — can simply fork a blockchain to implement their idea. The marketplace then serves as an arbiter over competing blockchain design choices.”

That sounds fine in principle, but in the real world things don’t always work out so neatly, others counter. “You may have heard that in cryptosystems, you don’t have to trust humans and their fallible corrupt natures — you just have to trust math. […] this statement is just inaccurate,” said Angela Walch, a professor at St. Mary’s University School of Law, while testifying before the United States Senate Committee on Banking, Housing and Urban Affairs in July: Walch added:

“Crypto economic systems remain subject to human flaws and corruption, whether in how the software is coded, whether the game theory designed to operate the system is robust, or whether miners collude to exploit their power to order transactions in the blockchain record to their benefit.”

The Economist, too, recently questioned the governance bona fides of decentralized finance projects built upon blockchain networks: “Despite the claims of decentralization, some programmers and app owners hold disproportionate sway over the DeFi system,” adding for good measure that “governance and accountability in DeFi-land are rudimentary.” 

“For a long time, crypto people tried to avoid this [governance] question by simply saying that ‘the community’ or ‘the market’ should decide,” Vili Lehdonvirta, professor of economic sociology and digital social research at University of Oxford, tells Magazine. “There’s this romantic idea of a hive mind that everyone can feel part of. But, in practice, this answer is so vague that it tends to allow powerful people and companies to pull the strings in the background.”

 

 

Decentralised finance is one of three tech trends disrupting finance—and it has the potential to rewire how the industry works. In our cover this week, we go down the “DeFi” rabbit hole https://t.co/j7G04qDCJ3 pic.twitter.com/UO2mp6ejVG

— The Economist (@TheEconomist) September 16, 2021

 

 

Projecting “billions of users”

In a recent interview with Cointelegraph, Dan Held imagined Bitcoin ten years hence following a period of “hyperbitcoinization,” starting with retail users then institutional investors, “and finally, governments getting involved,” at which point Bitcoin has been adopted by billions of users and is the world’s reserve currency. 

Is it too much to envision that some government(s) might, at this point, want to have a say in how the network — this global “public good” — is run? 

“For now, Bitcoin and Ethereum probably remain a ‘public bad’ insofar as their environmental cost is gargantuan compared to their day-to-day usefulness,” Lehdonvirta says, adding: 

“But, if someone got proof-of-stake to work and the network got widely adopted in an infrastructural role, then it’s not inconceivable that governments could get interested in how and to whose benefit it was being governed, in the same way as governments are interested in the governance of other essential infrastructures such as water and energy.” 

Are devs getting a bad rap?

Maybe this is all just so much alarmism. The networks are working fine, and will continue to operate well when scaled up, and software developers are just convenient scapegoats for critics who never liked crypto much to begin with.

“It is a misnomer that developers ‘run’ or control any relatively decentralized network,” Joe Carlasare, partner and co-chair of the cryptocurrency, blockchain and fintech practice group at SmithAmundsen LLC, tells Magazine. “It is true that many chains have a centralized structure where individual actors and entities have outsized influence.” Carlasare further adds: 

“In highly decentralized chains such as Bitcoin, the distributed network of thousands of nodes determines whether to accept any suggested revisions to the core protocol.”

Moreover, the network is designed so that as Bitcoin gains in adoption, those node operators become more — not less — responsible, Carlasare suggests. “As adoption increases to billions of users, individuals will be incentivized to run a node and protect the assets they hold on-chain.”

Anatoly Yakovenko, founder and CEO of Solana, one of the fastest growing layer-one blockchain networks, agrees. At the recent SALT Conference, when asked about his network’s volunteer coders, he told Cointelegraph: “Hardware changes. You need to rewrite some of the code. But, the expectation is you build the best implementation. The work is often obvious. It’s not like it’s governed by some decision makers who say that Bitcoin is going to do this or Bitcoin is going to do that.” 

For Yakovenko, “It’s more like: ‘There’s a technological change that needs to happen.’ People will discuss and argue about the engineering merits of one solution or another,” but at the end of the day “they pick one that will win because of the engineering reasons behind it.” 

More government intervention?

Many in the crypto/blockchain community are confident that no government or governments will ever succeed in co-opting Bitcoin or other truly decentralized crypto networks. Others aren’t so sure. 

Professor Ehud Shapiro of the Weizmann Institute, notes: “If we had a reasonable global government, it would outlaw proof-of-work currencies,” presumably because of their profligate energy consumption. “This is an aspect of cryptocurrencies that must be stopped, and every minute that it continues simply constitutes global irresponsibility.”

“My expectation on future government oversight is we’ll see more of what we have already seen: no direct regulation over open-source software protocols, but regulation around the use of cryptocurrency and the various entities that provide services to the cryptocurrency ecosystem,” says Hileman.

 

 

 

 

“The governance of the Bitcoin blockchain is more decentralized than other blockchains, such as Ethereum,” Michele Benedetto Neitz, professor of law at Golden Gate University School of Law, tells Magazine, but she believes that ‘some aspects of Bitcoin are moving toward centralization.’ 

“Bitcoin’s mining architecture has become centralized in mining pools focused in particular areas, which raises both privacy and security concerns. Countries hosting this increasingly centralized infrastructure such as China until recently certainly have the power to affect Bitcoin mining. Also, most Bitcoin transactions happen on centralized exchanges.” 

Will the networks’ self-righting mechanisms be sufficient for the longer term? “It’s not inevitable at all that the governance arrangements will just somehow improve by themselves,” says Lehdonvirta, adding: “People will have to put lots of effort into making that happen. If they don’t, and cryptocurrencies become increasingly influential, then some kind of government intervention seems more likely.”

How are coders funded?

As crypto’s market value continues to grow — its global market capitalization reached $2.5 trillion in mid-October — people in the academic community have been raising more questions about the governance of these decentralized projects. 

“The current point of most concern is in the funding of code development for various projects,” Gina Pieters, assistant instructional professor in the department of economics at the University of Chicago, tells Magazine. “Creating or maintaining code for these projects is obviously paramount, and yet, there is limited discussion at the regulatory level on how coders are funded for their efforts, and even less in considering how those funding decisions can distort the code of a project as it evolves.”

If a group of coders can secure the funding that allows them to work on a project full time — not just coding but also the social advertising required for code adoption — “then that can clearly give that group an advantage over coders who are juggling full time jobs,” explains Pieters.

“‘Accountable leadership’ is clearly something you need if your project is not decentralized,” adds Pieters, but even if it’s “mostly decentralized, the parts that are in the grey area need accountable leadership.”

Pieters participates in the Wharton School’s Cryptogovernance Workshop, which is working to develop a common governance framework for blockchain networks, applications and consortia. The group recently devised a questionnaire for decentralized projects that asks questions like:

Who has the power to introduce governance proposals, and how does that process operate?Who has policy-setting, or “legislative,” power to decide on proposals?Who has implementation, or “executive,” power to execute proposals once decided upon?Who has interpretive, or “judicial,” power to resolve disputes over-application of a policy to a specific instance?

There may be no right answer to these questions — at least for every use case. The best governance solution may depend upon a project’s goals. “There is a good debate around how much blockchain decentralization is needed or desired,” Hileman tells Magazine, adding that the use case in question will play a big role in determining that: “Certain use cases, such as Bitcoin’s role as global store of value, arguably warrant greater decentralization than something like a blockchain seeking to offer a relatively less centralized platform for social media DApps.” 

In any event, continues Hileman, “smart government oversight will happen around the use and services surrounding blockchain networks, and not around how they evolve technologically.” 

Where to begin?

If governance does indeed need to be more explicit with regard to these networks and projects, where does one start? “The first challenge in improving the governance of any community project is that stakeholders would need to define explicitly what constitutes a ‘good’ governance to them,” Lehdonvirta says. Who should ultimately have power? 

 

 

 

 

And it’s better that this key question is dealt with right at the beginning, Lehdonvirta adds, because “setting up desired governance arrangements is much easier while a network is still relatively small and the stakes are low. Any changes to governance arrangements once the stakes are big are going to be contentious and difficult.”

Carlasare believes any changes to these decentralized networks like Bitcoin must be considered very carefully — and in accordance with principles of fairness, and only if the majority agrees to it: “This should be increasingly difficult to do because changing the rules in the middle of the game is contrary to fundamental notions of fairness. However, agents of influence will always have the soft power of persuasion to effect change when it is in the best interest of the majority of actors.”

Will BTC ever abandon its issuance limit?

As for really fundamental changes like raising BTC’s issuance limit, Carlasare is more skeptical. “If the supply issuance limit was raised, I think it would be catastrophic for the price of Bitcoin,” says Carlasare. “It could also have negative economic effects depending on how intertwined Bitcoin has become in the global economy.”

“Bitcoin’s hard cap of 21 million provides scarcity, which is a critical part of the currency structure,” adds Neitz. “Without scarcity, Bitcoin’s store of value proposition becomes less valuable.” 

“I don’t know what the particular scenario might be, but it’s certainly not impossible,” comments Lehdonvirta. 

Moreover, if and when Bitcoin were to be recognized as a global public good, Neitz, among others, is doubtful that some sort of super-government oversight would follow — a global version of the U.S. Federal Reserve Board, say. 

 

 

 

 

“Part of Bitcoin’s allure is that it is a ‘global’ currency. Although there are promising international consortiums exploring governance for blockchain generally such as BGIN (the Blockchain Governance Initiative Network) an international coalition for Bitcoin governance would not work for several reasons.

“First, many Bitcoiners joined this industry/movement because they do not trust domestic or international institutions. In addition, many jurisdictions are racing to be the next Estonia (or Wyoming) by implementing crypto-friendly regulations. El Salvador took it one step further by declaring Bitcoin a legal tender under the Bitcoin Law. These jurisdictions could endanger their crypto-friendly reputations by volunteering to be part of a group forced to make tough decisions governing Bitcoin.” 

 

 

2 new Chivo Facts:

1. People are inserting way more USD (to buy #BTC) than what they are withdrawing from the Chivo ATMs (any media outlet can independently confirm this by visiting the ATMs).

2. Today, we received 24,076 remittances, adding up to $3,069,761.05 (in one day).

— Nayib Bukele