On Bitcoin and public blockchain cryptocurrencies
I think that Bitcoin is a piece of art. Blockchains, Proof-of-Work, Proof-of-Stake, all these crypto developments are awesome. Bitcoin has brilliant ideas and engineering behind it, with lots of well-rounded incentives baked-in to keep the network working. But, it’s practical technical limitations and poor design of socio-economic incentives leads to, what I think, very different real outcomes from what most of it’s hype creators usually preach. It has issues. Big ones. But let’s go one thing at a time.
I’ve been working on a decentralized software project for a few months and it got me thinking about integration with cryptocurrencies. After reading all these articles explaining how Bitcoin is going to replace gold, fiat currencies, banks, all financial institutions and give a better alternative, I thought it should definitely be a 1st class citizen there. Digging deeper into it’s protocol, code, history and current state made me think that it’s a proof of concept and nothing more. Yes, it’s working. No, there are almost none positive use cases for it. Current financial system beats it in almost all respects regular people care about by a significant margin. And no, it’s not just some technicalities that would be fixed in the next patch, or the one after that. I think one day it will mature enough to become what hypers credit it for, but I can’t even imagine any of the current public cryptos surviving to this day.
First of all, most of the Bitcoins, almost 90%, have already been distributed. It means that if people around the globe will accept Bitcoin as the global currency, those who already own these 90% will run the world economy. This basically means that they will “own” the world: from oil trades and conflicts in the middle east, down to your local schools and hospitals. And this can happen while many of them will remain completely anonymous. Would you bet the world that they will run everything better than people who own the power right now? I, personally, don’t feel like it. I sympathize with what Anonymous group is doing most of the time, and think that privacy is a basic human right. But this is not even remotely the same.
Next, Bitcoin was designed to be secure and to prove that decentralized accounting might work, not to be a convenient product for regular consumers. One might argue that there are plenty of services around it that can make it more handy, but it requires trusting someone, which breaks trust-only-protocol philosophy that underlines Bitcoin. Also, most people don’t need such paranoid level of security that also requires learning how to handle your crypto keys. Bitcoin doesn’t support chargeback, insurance and other services that regular financial institutions can provide. Once you lost your key or got hacked — bye bye moneys. This system is good when you need to make sure that your money cannot be traced to you. But, such requirements are extremely rare if you don’t have something bad in mind.
It’s not a currency for the masses, but mostly for black market merchants, hyping crowd, current financial institutions, and crypto software&hardware devs. While investing in developers seems reasonable to me in many cases, it’s not really what is going on with most cryptocurrency trades. Mostly it’s just about inflating the bubble to get some easy cash. Some pennies out of it go to honest devs pushing the industry forward, but much more to black markets and wallstreet-like traders whom cryptos are supposed to replace. If you honestly want to support the development, direct donations and investments would be a lot more effective. Otherwise, stop lying.
Personally, I think that the amount of power one holds should be directly proportional to the amount of privacy he or she gives up. I dislike most of the politicians that I heard of, yet I think replacing them with random geeks who happened to mine bitcoins in the early days, black market folks who’d seen how this tech could simplify their lives and casual traders is not a solution. Imagine that owners of the largest banks and all other financial institutions, while still being humans and capable of dirty doings, also remain completely hidden from the public eyes and without any mechanisms to control or stop them. Seems like a hell of a distopia to me. Conspiracies about “secret government running the world” will actually have a chance to materialize in this case. Gosh, even Qanon might make sense in such a world. So, do you want to sign up?
Back to what is going on today. Full nodes are getting more and more expensive, gravitating towards few powerful players controlling the network. Somewhat like modern financial system, but with a shiny Bitcoin logo and nearly insane levels of power consumption. Ideological followers who ran the network in the early days are long gone or went into industrial mining and related services. Now it’s all about farms and profit. Given that downscaling farms doesn’t make sense for any single one of them, how much power consumption has been growing and that equilibrium is only expected in over a hundred years, it will become one hell of a monster. Growth is often a good thing, but when something useless is taking over the system doctors tend to call it cancer.
The dream of using mining for heating going nowhere because such projects are still a lot pricier than casual heating. Also, hypers usually describe Bitcoin like it was envisioned by Satoshi Nakamoto as something it is today, but I think it’s just wrong. From his communications that are still available, I don’t think he had seen something more than a proof of concept in it.
Another misleading connection that hypers like to make is between bitcoin and gold, mostly because of the limited supply. Yet, differences are enormous. First of all, bitcoins limited supply is purely artificial. We can agree to create as many bitcoins as we want, the main obstacle is that early adopters would like to get rich as hell and would resist such change. Second, gold has practical value on its own, at the very least as a conductor. Fiat currencies don’t have value on their own either, but you can easily buy food, rent a house and do almost anything with them.
Many regular merchants have tried to use Bitcoin and moved away because of technical difficulties and relatively long transaction confirmations. It only strives where anonymity is critical, such as dark web marketplaces, but they could have been implemented with current fintech as well. They are just outlawed everywhere, because they enable absolute capitalistic nightmare where anything could be sold or bought, even actual human beings and assasination contracts.
Actually, I’m for enabling peaceful trade of most drugs, as well as decriminalization of drug use. But it will require more research and public awareness to become acceptable and legal. Such things cannot be changed from the darkest corners of the internet.
World moved away from gold being the standard medium of global exchanges a while ago simply because we have communication tools to trade currencies and goods directly across thousands of kilometers. There is no real need to bring this bottleneck back, and the same goes for it’s “modern digital replacement”. Bitcoin is nothing without the hype. Just a bunch of numbers with fancy mathematical properties.
The fall of the bitcoin won’t be a problem for overwhelming majority, except huge black market players and dishonest hypers. And unlike commodities such as gold, that have value on their own, Bitcoin’s price may easily fall x1000 in a span of a few hours thanks to zero inherent value and rapid information spread over the internet. Even Satoshi, Bitcoin’s inventor, has seen rapid growth of Bitcoin users as something unhealthy. And it got a lot worse after Satoshi’s dissappearence. Also, this dissappearence is questionable on its own. If the project started for ideological reasons, why would Satoshi abandon it? If not, then what? Public cryptocurrencies require trust in the protocol to work, but how one can be sure when even the creator of the protocol abruptly left the stage?
Analysis of all public blockchain altcoins would take forever, but basically they all share the problems of Bitcoin with some trade-offs, just not as hyped up and therefore less valuable. For example, Ethereum has some interesting theoretical properties with a turing-complete programming language, but it is limited as hell in comparison to even 40 years old languages, and it is very complicated to make something useful and secure that couldn’t be done with Bitcoin.
On the security side, Bitcoin evangelists often claim that it can’t be broken. Yet, all legacy cyphers made security garantees somewhat similar to that of Bitcoin, and all have been broken. That’s how they became legacy. Together with the assumption that only a few users will store the full blockchain, such break would be an opportunity for some of them to fill-in changes. Also, while most Bitcoin hypers tell that Bitcoin is more secure than regular banking, it is not bulletproof and huge funds are being stolen on a regular basis. Also, cybersecurity practices are poorly understood by the majority of people, which makes hacking them much more profitable if they have some crypto wallets on their devices. Well, Bitcoin is more secure if you need to run global secret operations and you know what you are doing. But, if you want to get your salary and buy groceries, casual card would be way more secure and convenient.
Arguments that people shouldn’t expect too much from Bitcoin because it is still in beta can’t hold any longer after all the hype and over half of a TRILLION dollars market capitalization. It even gets over a trillion if combined with the altcoins and projects that rely on them. You can’t seriously call it beta when it’s bigger than economies of many countries. I do think it is fair to call it awfully underdeveloped though. With free open-source software, developers can’t really arbitrarily decide if the project is ready to be released, it’s up to community to make the actual judgement.
Another sidenote: Dota 2 was in a somewhat similar situation when the game was still called “beta” during global tournaments with millions of dollars in prize pools. However, every player was just memeing about it.
While Bitcoin, similar to most altcoins, is open for anyone to see and participate, its development is not truly decentralized. It’s still mostly about small core team that controls the direction of the development. They give everyone an option to leave, make their own forks, and start working on a worthless chain. They don’t have totalitarian control over the network, but they do have authoritarian control over the vector of future development. It’s not like Bitcoin protocol runs referendums whether to accept new changes: you either following the same protocol as others or you are out.
From research perspective, I think it is fair to compare the current state of public ledgers with what artificial neural networks were about 30–50 years ago. Fundamental theories and proofs of concepts are here for anyone to observe. But, due to technical limitations, they can’t scale enough to become what hypers preach to the masses. There is also potential danger here: unfullfilled promises of NN hypers discredited the whole idea and research in this direction almost stopped. Now, when hardware caught up to make NNs work, we don’t have enough theoretical research of them to understand and find solutions to problems like racial bias and many others. And, if public blockchain cryptocurrency like Bitcoin will turn int world’s money — we’ll have much bigger problems on our hands than mislabeled photos on instagram.
Another interesting public project to compare with, in my view, is Wikipedia. It is much simpler from engineering standpoint, exists almost twice as long, contains much less incentives to abuse, much smaller risks in cases it gets abused, and is useful for extraordinary amount of people around the world. Yet, we’re not replacing our school textbooks with it. It has not reached the idealistic dream of becoming the global source of truth. And probably will not for a long time, maybe even never. Cooperation is not easy to scale. And it is extremely hard to scale worldwide. We haven’t even got to the point of not shooting into each other. Building stuff together requires even more effort.
Don’t get me wrong, I don’t think we should bury the ideas behind Bitcoin, but I think pretending that current solutions provide real benefits for the masses relative to the amount of investments such projects receive isn’t healthy or sustainable. Let’s move public cryptocurrencies back into the hands of geeks and researchers where they actually belong until we get something ready for the public to benefit from. Until then, let’s explore how cryptography, peer-to-peer communication, and related technologies can actually make our lives better in the present and observable future. Hopefully, we would be able to turn this bubble into something useful for regular folks and not inflate it until it’s burst will feel like a global crisis.
