“For a long time, crypto people tried to avoid this [governance] question by simply saying that ‘the community’ or ‘the market’ should decide.”
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.