Crypto governance has manifested itself throughout the crypto world in various ways. We have had various implementations of Proof of Work (PoW) and Proof of Stake (PoS), amongst many other innovative means of achieving consensus.
We all talk about consensus; but what is the point of consensus? Many people within crypto regard “consensus” to be as high in importance as “decentralization.” Very few people have a clear reason as to why consensus is important.
From the Anarcho Capitalist perspective, consensus is the building towards a greater market environment where the greatest value for all participants is constantly sought after.
We have seen many reasons and understandings of the term “consensus.” Socialist and communist tendencies have been sought after under the guise of “consensus.” We have also seen the benefit of various different groups of central planners dubbed as “consensus.” Crypto-consensus is both important in keeping the network of a coin secure, and in guiding it as it develops.
PoS models hold the producers of blocks accountable via the money that they have put up at stake. PoW models not only hold the miners in a similar form of accountability- for having a staked investment capital in the form of mining equipment- but the equipment itself commits the miner further to the success of the network. This is because mining equipment is not as liquid to an investor as money that is at stake.
Arguably, PoW is a higher commitment than PoS because your competition within PoW requires more investing. This higher commitment is signaled by the purchasing of specialized mining equipment. Upon getting this equipment, you still are not yet guaranteed blocks to mine- you must also compete constantly and consistently with other miners.
No crypto governance experimentation has been more important than that of Bitcoin’s PoW. Bitcoin’s crypto governance model has evolved in two main distinct directions since the fork of August, 2017, which created Bitcoin Core (BTC) and Bitcoin Cash (BCH).
Within BCH development, upgrades are done via hard forks. This does not necessarily mean that a new coin is to be created during each BCH upgrade. Although this is possible, this is a risk the entire community takes. Along with this risk, the community has also been open to the possibility of a contentious hard fork. This is where competing implementations are vetted and chosen within the BCH market.
Unlike other BCH upgrades, the scheduled BCH hard fork of November 15, 2018 has the potential of ending up in an actual split into two competing chains. This stems from a disagreement in the code between nChain and Bitcoin ABC. The prevailing thought has been that the majority of the community would follow Bitcoin Unlimited, since its game plan has been to act as the mediating implementation between the upgrades nChain and Bitcoin ABC.
On August 16, 2018, nChain unveiled a new Bitcoin Cash full node implementation called Bitcoin SV, at the request of the miners and the mining pool Coingeek. Bitcoin SV will implement 128mb blocks, remove the 201 limit op-code per script, and will restore original Satoshi op-codes.
Bitcoin ABC was the first software to implement Bitcoin Cash’s on-chain scaling. Their two-prong approach is to eliminate immediate implementation bottlenecks to increase the blocksize limit. On November 15 they plan to layout the technical groundwork for massive future on-chain scaling. The ABC team claims that the protocol needs this technical groundwork, that they want to first implement, before scaling to 128mb per block.
Many individuals throughout Bitcoin’s history have aimed at preserving the capitalist purity of Satoshi’s design. There are many others that do not desire this. For the most part, these individuals don’t understand free market economics. Not understanding market economics has led many actors within crypto to waste their time experimenting without any guiding understanding.
Statists are not comfortable with the idea of Spontaneous Order. Statists are also not comfortable with thesimple idea of human persons being completely free in a radical free market. People that are not comfortable with laissez faire become anxious and controlling. We have seen this phenomena manifest itself various times throughout the development of various cryptocurrencies.
As we look at different scaling options within crypto, it is important to examine the economic motivations behind these initiatives. While examining these options, it is important to always champion the market, competition, and creativity. If we don’t do this, the otherwise free market of crypto could be co-opted by anti laissez faire initiatives.
The BTC/BCH fork is a good example of a fork that resulted because of differing philosophical perspectives on scaling. This fork resolved its philosophical dispute by splitting into two different communities, coins, blockchains, and economies. The Bitcoin community at the time had the means of allowing the market to decide what was the best implementation for bitcoin to scale, which would have avoided the split. Anti-market actors within Bitcoin prevented this from occurring.
On the BCH side of that fork, it was held that miners are crucial in determining the direction of Bitcoin development. This is because miners have the most to gain and the most to lose in Bitcoin. The miner’s wellbeing is align with the wellbeing of the market. You can trust that the miners will always choose to support the implementation that is most beneficial for everyone in the market. For BCH, the only true Bitcoin node is a miner.
The BTC community considers other user nodes to also be true nodes, not just the miners. For BTC, miners don’t have a place in determining crypto governance. This anti-mining stance resides in fear of mining centralization. It is important to point out that mining centralization, if it were to ever be an issue, would affect miners the worst. This is because an ineffective centralized blockchain would disincentivize investment into the blockchain that miners are already invested in.
For the BTC community, the core developers are seen as the guides for disputes and consensus not the miners.
This is one of the BTC motivations for scaling unto a second layer like the Lightning Network (LN), where miners are barely necessary for transactions. LN hubs are proposed as true Bitcoin nodes. Consensus is determined by agreement of the BTC core developers. As time goes on, mining on the BTC blockchain is planned to decrease. Transaction fees for on-chain BTC settlement are expected to be very expensive in the future. The BTC community and core developers justify this as the proper price you pay for moving around “digital gold.”
As a result of these drastic philosophical differences between BTC and BCH, both communities decided to fork and split unto their own ways. Miners simply mined the forked coin that they desired. This was possible because there was no registering of both new transaction histories unto both chains. That is, the BTC/BCH fork was a fork with replay protection. Replay protection means that the transactions of the two new coins do not register on both blockchains after a fork/split.
In other words, replay protection was what turned BTC and BCH into distinct coins with distinct software/rules. This resulted in two distinct blockchains right after the fork. Replay protection created two coins, BTC and BCH, that now compete with one another in the open market.
Contrary to the BTC/BCH fork, the BCH fork of November 15, 2018 will be one without replay protection. In not having replay protection, the winner of this coming fork will be decided by market forces built within the Bitcoin protocol. This is what we refer to as a hash-war. It’s a hash-war because the miners will decide which implementation is most profitable for both the BCH market and themselves as miners.
Many within the BCH community view miners as the preferred party for dispute resolution. This is because a hash-war is a market driven transition that will eventually lead to the re-unification of the BCH community. That is, the community wants the miner’s to objectively signal the use of the implementation that is most profitable for the entire BCH community. The profit driven crypto-governance of the miners is part of what is known as “The Nakamoto Consensus.”
It is important to reiterate that miners, unlike entrepreneurs and developers, have the most to lose within BCH. Their entire investment- their mining equipment- is manufactured with the sole purpose of mining BCH. A miner’s profit or loss is intrinsically tied to the state of the entire BCH network. It is counterproductive to a mining operation that they mine any software/rule that is not in line with what is best for the entire network.
Miners hold the network together because they were designed as the impartial profit seeking entities within Bitcoin. So for the BCH fork, miners will simply aim their computers towards that software/rule which is most profitable.
Since the BTC/BCH fork, BCH has gradually become more profitable for miners to mine than BTC. We expect this trend to speed up once BTC enables the LN. The LN discourages transactions on the BTC blockchain. Once the LN is enabled, miners will only mine BTC on the opening and closing of LN hubs. Most BTC transactions will occur on the LN, as the BTC blockchain will by then only be a very costly settlement layer. In other words, once LN is enabled Bitcoin mining will mostly take place on the BCH blockchain, not the BTC blockchain. We can qualitatively speculate that the BCH blockchain will be the most, if not only, profitable blockchain for Bitcoin miners to mine.
The profit seeking competition between miners is what has for the most part been expected to resolve any BCH dispute, since before the BTC/BCH fork. That is, many within the BCH community welcome direct competition in figuring out what is best.
Some within BCH do not want this to be the case, they just want to create two distinct coins out of the fork- as it occured within the BTC/BCH fork. That is, they want to enable replay protection. Amongst this crowd we find Bitcoin ABC, Bitcoin.com, and Bitmain.
Unfortunately for them, nChain, CoinGeek, Bitcoin SV will not mine with replay protection. This will lead for all transactions to be registered in both blockchains. That is, ABC and SV will both be registered on the ABC blockchain and on the SV blockchain at the same time. The Bitcoin ABC camp can’t avoid not having replay protection. When one party goes without replay protection, all parties have to deal with the consequences of not having replay protection.
The implementation most profitable for miners will be the one that will also be able to hold both implementations the longest. For example, if both chains were to run parallel, any profitable advantage of one implementation over the other would be enough for miners to capitalize on its advantage and leave the other implementation behind. The most profitable implementation will be the dominant implementation on the BCH blockchain.
Many people within the BCH community are seeing not having replay protection as an attack by nChain, Bitcoin SV, and CoinGeek. Others see the desire of Bitcoin ABC, Bitcoin.com, and Bitmain to split into two coins also as an attack on the BCH network.
It is important not to take sides during a hash-war. The miners will decide what is best for everyone. Wallets will be ready to register all three blockchain transactions until the transitional hash-war passes; i.e., SV blockchain transactions, ABC blockchain transactions, and the unified non-replay protected blockchain.
Again, it is important not to take sides here as investors. The only side we should be taking is the side of the market. It is market that will discover what is best for itself by seeking for what is most profitable for the miners that secure the network. Profit seeking good. Miners were designed by Satoshi to capitalize by choosing what is best for the network. We expect for this hash-war to transition us into a more robust and profitable Bitcoin Cash.
By Rafael LaVerde
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