For many events, roughly 80% of the effects come from 20% of the causes.
After considerable volatility in the market share of different cryptos, bitcoin has once more risen to nearly 70% of all crypto value.
That’s the highest it has ever been since it began falling in February 2017 from 85% to 37% in June of that year, to then fall even lower in January 2018 to an all time low of 32%.
Despite this volatility bitcoin has never been overtaken in market cap. Ethereum came close, but bitcoin saw off that challenge too among many, many challenges.
Has Bitcoin Won?
As another year comes to a close, with bitcoin the biggest gainer out of top cryptos and the best at retaining value for 2019, many are wondering: has bitcoin won?
The market seems to think so, and the primary reason is probably because bitcoin is the most decentralized, and thus the most trusted.
Even Joseph Lubin, the biggest eth holder and one of the biggest ethereum proponent, admitted that bitcoin is the most decentralized crypto in a speech he gave in April this year.
Measuring decentralization on a scale of 0 to 1, he gave bitcoin 0.8 and ethereum 0.7, with the rest lower down the scale.
Recent analysis that shows the considerable influence of Vitalik Buterin, the debacle over monetary policy, the backdoors in smart contracts, the chaotic last minute complete redesigns or even scraping of projects that were just days before imminently to go live, suggests just a 0.1 – as in 10% – difference in decentralization between bitcoin and ethereum is far too generous to the latter.
Any one of these in bitcoin would have been a festival of chaotic debate, furnished with a messy split, but in eth there’s little attempt to maintain, let alone force, decentralization at a community level.
The F You Boys
Bitcoin is unique because its inventor spent considerable time to ensure it is uncontrollable, and because circumstances led to the aim of that design being proven merely a year after bitcoin launched.
The empowerment felt even ad initio led to little deference even to the inventor.
They kicked out Satoshi Nakamoto you can say, but that’s too simple. Anarchists were the last ones standing and kept it alive you can say too, but that’s also simple.
What is complicated is the real simplicity. The set of protocol rules and the set of incentives that in effect create an organism with no head.
But if we are to analyze, one has to ask why does that seem to apply to only bitcoin? Why isn’t this “organism” easily replicable? Why does this coin seemingly always dominate?
The answer is presumably because to innovate on the base design set in stone is a considerable challenge which risks a change of the design, and thus its appeal.
Its appeal being a unit of account, a store of value, and a means of exchange, governed by the rules of code, and non governable by any man or group of men.
That money aspect is of course existential. The blockchain and the rest may have plenty of applications, but it is money and money alone and money in a bitcoin set of constrains that makes this phenomenon, keeps this phenomenon, and maintains bitcoin’s dominance.
As this money is digital, there’s plenty that can be done with it, but maintaining it first and foremost as uncontrollable protocol money is and will probably remain crucial.
Any trade-off to that base quality is seen with deep suspicion by the F U boys who’d rather burn the whole thing to the ground than see it efeminated.
Their consensus bar is set to almost impossible because in some ways that’s the whole point. Bitcoin shouldn’t change. It needs no change. For any change risks destruction.
The Holy Grail
Opinions can be aplenty but facts are facts. The fact being an incredible challenge which remains unsolved: scalability.
If changing any part of the design ruins the entire design, then who is to say what part should be changed without all accepting it should be changed?
You can fool some of the people some of the time, but presumably only “truth” can “fool” all of the people all of the time.
This presumably is the basis for bitcoin being what it is. But if we are to tremble in front of this mighty machine and refrain from touching any of it without meeting the extremely high bar in fear it might all collapse, what are we to do now?
Well, we need to think long and hard about optional features that are related but outside of the bitcoin blockchain and we need to test them in a way that affects bitcoin not.
If we take smart contracts for example, they’re an unnecessary addon to the money part but a desirable feature if it does not affect the money part at the base protocol.
One aspect of smart contracts which is desirable, on which all can agree, is decentralized exchanges. They are not vital, however, or at least not as vital as protocol money, but they would be very, very nice to have.
There are plenty of other things that would be nice to have and ultimately even gimmicks can be useful because through play we learn, but they’re not vital.
So if we can have them without affecting the base layer then we should have them. If we can’t, then they can go to some other base layer, as they have done.
To connect them to the bitcoin base layer so happens to be an incredible challenge, but as the desirability of it increases so do the resources, the will to so connect them.
In effect, bitcoin is now some sort of physical reality that exists outside of all men and has to be worked with, rather than be turned into water from a stone if you like.
From that perspective of a protocol where no one can say anything unless all say something, this currency becomes more something out there, something objective, a physical rule of law.
It becomes something you have to work with, rather than shape, just as one has to account for gravity, rather than go to some committee to ask for the rules of gravity to change.
Thus taking the focus to coming up with sharding or sidechains or whatever within the physical constrains and without requiring any change to the protocol itself.
The idea presumably so being that if you can’t, then think harder because you have not come up with something good enough.
Innovation or Regression
As much as some might dislike Gregory Maxwell, he was always right about one thing: there are tradeoffs.
Arguably he was right about plenty of other things too, but let’s take Proof of Stake, which does have considerable benefits but does have one significant flaw looked from the “uncontrollable” perspective.
The flaw of Proof of Stake, where it concerns empowerment or non-controllability, is that you can’t put together a GPU or asics and “print” crypto without anyone’s permission.
That’s because in PoS all eth comes from eth, not something external as in bitcoin where it comes from fiat investment into hardware, hydro power and renewable electricity, good business management, and a ruthless carosel that often bankrupts miners.
In PoS instead you have to buy the crypto from someone who might not sell it to you. You can’t create it from “nothing” with nothing being all those many things above.
In bitcoin, aliens can get some if they wanted to. In proof of stake, they’d have to speak to humans first.
So there are tradeoffs, with sharding having plenty too. The main one being that it isn’t easy to have these different networks of miners or stakers while allowing you to validate they haven’t breached the rule at the same time as you run just part of the network.
It is possible, perhaps, but potentially with tradeoffs. The biggest one in eth being that for some time there will be an eth1 and eth2 as the ecosystem transitions over many years.
That’s way too radical for bitcoin where they don’t want to change the base layer unless all agree. The question there being more: should the base layer make tradeoffs for these things or should these things make tradeoffs for the base layer?
They’ve gone with the latter to maintain decentralization and trust in the core layer, but they are and have been working on creating networks that sort of revolve around the core layer.
That’s sidechains which can potentially be created in a decentralized way by locking bitcoin on the current blockchain through multisig or the like, with the other blockchain then reading the bitcoin blockchain.
The difficulty is of course making the bitcoin blockchain read the other chain so that it can now unlock the bitcoins. That is pretty much rocket science.
In ethereum they kind of cheat. They just burn the eth and then print it on the new chain. To bring that new eth back would require the old chain to unburn or create new eth outside of the current protocol rules. Something difficult to see considering it’s a Proof of Work chain.
The above difficulty of ensuring rule obeyance in the printing or unprinting of crypto between chains applies regardless of whether PoW or PoS as that is just identity.
So the solution they’ve come up with in bitcoin is a federated chain where you have a committee that keeps the bitcoin for you and sends it back to you.
Arguably there could be decentralized ways within bitcoin’s constrains, but the question is what if there aren’t?
In that case, if there aren’t for bitcoin then why would there be for other chains unless they’ve diluted decentralization for whatever feature, like smart contracts?
The choice in that instance would be having more codable money or more decentralized money, with the market so far seemingly thinking the latter is better.
Not least perhaps because many of these smart contracts are not decentralized at all. In which case you can have a less decentralized sidechain that connects to the core chain, with the core chain having the primary function of enforcing the minting. Thus bitcoin can still access this utility, while maintaining the core premise.
Vital or Nice?
The difference between nice to have and must have explains to a great extent the whole blocksize debate.
A debate that got way out of hand and fairly quickly in part because the tradeoffs are a bit sharp.
At the end, the debate got silly. The choice ended up as 2MB as a hardfork or a soft fork. Meaning, it was not a choice anyone cared about at that point.
The market certainly didn’t. They loved the discussion more. Once the discussion ended, they crashed the price.
Why? Well, in addition to plenty of other reasons that include the stratospheric rise, because it ended without a solution.
As it stands the bitcoin approach to the core base capacity is to wait until all think it should be increased with a dev committee so discussing and agreeing to change the weight and launch a client.
That’s not satisfactory from a decentralization point of view. There should be some sort of algorithmicness or some sort of automation to it so that the code just runs without human interference.
Their view however is that out-of-core networks or layers should be pressured and forced to come up with something so that it can all be compressed as much as possible and then do the “easy” part of presumably algorithmically adding data until some set time or block.
The question is whether that forcing approach has worked now that we have two years of data, with the other question being whether utility creates incentives or incentives create utility, as in: if the network is more appealing due to more users, wouldn’t it lead to more people tackling the challenges in a virtual loop of sorts?
From the other end, the approach to attract more people first hasn’t quite shown results, although BCH is still a very young network of just two years.
For both, as pruning will probably at some point be necessary, tackling that could be a more wholistic vital solution than sidechains or much else.
Pruning would be a breakthrough, but that’s such an incredible challenge that even prototyping it is no easy task.
Without that pruning solution, without that sidechains or sharding solution, without an objective proven improvement, one can gamble of course outside of bitcoin but where bitcoin itself is concerned they’re presumably asking what if no one comes up with such solutions?
If you take that approach of come up with the solutions first and then we’ll see, it is somewhat easy to understand why they fought so much to keep that 1MB protocol rule.
And now seeing the inability of other projects to quite meet the challenge so far, this concreting of the machine might make considerable sense because even with significant tradeoffs, the inability to meet the challenge so far does kind of say all that needs to be said.
That conclusion thus makes the answer to the title question conditional. If bitcoiners can come up with some way to sidechain in a decentralized manner, in addition perhaps to the far easier algo management of the blocksize weight, then a return to 95% dominance is perhaps even likely.
If they can’t, then other networks are by definition necessary since there are many tradeoffs and the market likes choice because some of these tradeoffs might serve certain segments better.
The latter is where we are. It is probable it is where we will continue to be, but it could change in the future depending on how innovation develops.
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