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One of Bitcoin’s oldest developers quit the project this
week, citing irreconcilable differences with the software team in charge
of the project. In and of itself, that’s not unusual. But most
developers don’t quit projects with a public declaration of failure and a
lengthy discussion of why, exactly, they believe a project is doomed.
Mike Hearn, however, has done just that.
In a recent blog post,
Hearn lays out the current situation with Bitcoin and why he believes
the experiment can’t recover. According to Hearn, what began as an
idealistic attempt to create, in the words of Sakashi Nakamoto, “A
Peer-to-Peer Electronic Cash System” has now become “a system completely
controlled by just a handful of people.”
Hearn continues:
“Worse still, the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have broken down, and as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.”
What went wrong?
Hearn’s essay touches on a number of topics that he feels
have collectively wrecked the Bitcoin concept. First, mining power is
vastly concentrated — a group of 10 panelists at one conference this
fall represented 95% of Bitcoin’s collective hashing power, with just
two Chinese individuals accounting for more than 50% of it.
BTC transactions per second vs. average block size
Fees for using the network have risen, transactions can take
anywhere from minutes to hours to confirm, and the network is largely
controlled by China. This last point matters because Chinese network
infrastructure is apparently a major bottleneck for the entire BTC —
Hearn compares it to trying to access the Internet on cheap hotel Wi-Fi.
This gives the Chinese market a perverse incentive not to
allow BTC to become too popular, because doing so would increase the
network load and further damage performance. The BTC network is
supposedly only capable of clearing roughly three transactions per
second, at most. Even modest spikes in demand can drive this
considerably lower. As the business ProHashing wrote in late December:
“The issue is that it’s now officially impossible to depend upon the bitcoin network anymore to know when or if your payment will be transacted because the congestion is so bad that even minor spikes in volume create dramatic changes in network conditions. To whom is it acceptable that one could wait either 60 minutes or 14 hours, chosen at random?”
But the other thing that appears to have gone wrong with
Bitcoin, if Hearn is correct, is the people themselves. He paints a
picture of developers who were utterly against some of the necessary
changes needed to correct the way Bitcoin functions. In his narrative,
these developers are against changing the block size and allowing for up to 8MB blocks, instead of the current 1MB limit.
Hearn lays out his arguments in detail, and I recommend
reading his article if you’re curious about them. Obviously he’s just
one side of the story, but he’s been a prominent voice and evangelist
for Bitcoin over the years.
It’s been sixteen months since I collaborated with Dr. Justin Gash to analyze Bitcoin.
At the time, based on the knowledge that was available then, it
appeared that the value of BTC would continue to appreciate as the
currency became more difficult to mine. It hasn’t played out that way in
reality — but our model didn’t attempt to control for the concentration
of mining power in the hands of 1-2 groups, the additional regulations
that BTC was subjected to, or disagreements like this. All of these
events have had an impact on how BTC was perceived by miners and
potential users, as has the implosion of numerous firms offering custom ASIC solutions for Bitcoin mining.
At this point, Bitcoin appears more likely to go down in
history as an interesting experiment than a fundamental game-changer,
and Hearn certainly seems to agree. After five years working full-time
on BTC, he’s sold his coins and is moving on.
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