Bitcoin Flap Of The Month

In a sad but not really unexpected development, key Bitcoiner Mike Hearn resigned—noisily—from the Bitcoin Foundation. His blog post is a bitter indictment of the Bitcoin “community”, and the project itself.

The fundamentals are broken”, he asserts.

His post is a long, well informed, exposition of many things that are really messed up with Bitcoin qua Bitcoin (though not necessarily with the base technology or other implementations). He has basically two points:

  1. “the community has failed. …[it has become] a system completely controlled by just a handful of people”
  2. “the network is on the brink of technical collapse.”

The technical collapse he refers to is due to the much discussed scaling problems which I view as inherent in the peer-to-peer technology. Resolution of this problem requires commitment to significant changes to the software and protocols, and, based on three decades of experience with distributed systems, there are at least several plausible approaches that would work. But any solution requires a decision by and action from the community, which has turned out to be very difficult.

Much of Hearn’s post discusses the many eccentric and sub-optimal behaviors of the Bitcoin so-called “community” over the last year. To date, efforts to address the scaling issues have not succeeded because the community has not, and perhaps cannot, make or execute such a change.

I would say that the problem is baked into the fundamental design of this “Distributed Autonomous Organization”, and “organization” that operates by consensus among unaccountable and nearly anonymous participants. Furthermore, the technology is opaque and “trustless”—features that militates against rational problem solving. Add in financial incentives and a gold rush mentality, and it is hardly surprising decision making is a problem.

In the case of Bitcoin, decisions about the proposed engineering changes have been approached through a byzantine process, along the lines of:

  1. imagine a solution
  2. implement it
  3. Post the new version as a replacement for the currently operational system
  4. Each node on the network decides, independently, whether to accept the new implementation or not. During this “voting” period, there are two or more versions of the system running at the same time (a bad situation for a financial system)
  5. If and when a large majority accept the new version, it becomes the de facto standard. If too few accept it, then it will be thrown away.

Experienced software and systems engineers cringe at such a methodology. It is unpredictable and irrational. It also isn’t necessarily economically sustainable, given the “work first, vote second” process, and the fact that the engineering is no funded by the major financial beneficiaries of the system. Myself, I prefer to know that the customers, or at least the funders, actually want my software before I sink megahours into making it work. That is not always possible, but the Bitcoin “consensus” process is about as risky as any I’ve seen.

In addition to this crude and ineffective decision making structure, Hearn complains that the community has become dysfunctional in several ways, including the emergence of a handful of giant players (who dominate any “consensus” vote), an opaque nest of financial interests, and suppression of information. The latter complaint is particularly stinging, for a technology that has, from the beginning, pretended to be “transparent”.

Hearn goes on to complain about the atrociously low level of “argument”, including censorship, death threats, and general childishness. Here, I can only say, “what’s new?” Bitcoin was born a “reddit” project, and has never really grown up from that trashy beginning.

The NYT headline describes this as “A Bitcoin Believer’s Crisis of Faith, which is right on the mark. The underlying technical proposals are fairly standard stuff, each with advantages and disadvantages. But this has not been a technical argument, it has turned into a religious schism.

In his article, Hearn hiself cites scripture (Sensei Nakamoto) to justify his own position, and condemns a significant opponent because “he did not believe in Satoshi’s original vision”, and should have been have been “fired”, driven out of the project if such a thing were possible.

At the same time, Hearn has been criticized, censored and attacked by others for his own ‘heresy’. His technical proposals have been seen by some to change Bitcoin in ways that depart from the correct meaning of Bitcoin. This has led to suppression of any mention of Hearn’s proposal, as well as personal abuse and threats.

It’s an ugly, ugly mess. No grownups are involved that I can see. At this point, I don’t think I would use the term “community” any more to describe this disorderly mob.


Hearn’s blast attracted a lot of attention, including “mainstream” (reality based) media. (e.g., Popper in the NYT.). Many “outsiders” took Hearn’s blast sign off as a sign that Bitcoin is finished, which I think is a fair inference. Given that the Bitcoin Foundation has been shattered and broke since last spring, Hearn’s departure can only be punctuation on this process. Whether Bitcoin can function without the Bitcoin Foundation or a replacement is an open question.

Bitcoin apologists were very unhappy at the negative press, and tended to circle the wagons while repeating the same arguments. Rallying the faithful to the holy cause is usually the sign of the last gasps of a technology, so this rhetoric only reinforces Hearn’s general point about the fundamental messed-up-ness of the “community”.

My own view is that most of what Hearn says is nothing we didn’t know already though there are some details that are worse than I realized. Some of the things he is unhappy about have been there from the beginning, even if he couldn’t see them.

His comments about the dysfunction of the community offer interesting insights in to the kinds of problems that DAOs may expect to encounter. So many advocates of DAOs hold naïve or disingenuous theories of how people will behave in anonymous, opaque, unaccountable collaborations. My own view is that the Bitcoin disaster is a prototype for what will really happen.** This must call into question the whole notion that a “trustless” system (if such could ever be built) is feasible or desirable.

Is Bitcion dead? Almost certainly. Are the underlying technologies dead? Far from it. But we will need to find one or more social systems that can successfully use it.


**I note that other open source and cryptocurrency communities have suffered similar humiliating collapses.  Dogecoin comes to mind.


Cryptocurrency Thursday

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