Who Runs Bitcoin? - Bitcoin is not “unregulated.” It is regulated by algorithm instead of being regulated by government bureaucracies. Uncorrupted.
—Andreas Antonopoulos, author, Bitcoin evangelist, and security expert
There are a lot of misconceptions about Bitcoin. Especially early on, media outlets had a tough time reporting on Bitcoin accurately because of its unconventional origins and existence. As I discussed in the previous chapter, there were several attempts to create a currency for the Internet in the past. These iterations had the fatal flaw of being issued by a central power.
When Bitcoin first gained media attention and for years afterward, news outlets erroneously referred to a “Bitcoin CEO.” For instance, when Autumn Radtke, CEO of the Bitcoin exchange First Meta, committed suicide, the New York Daily News reported that Bitcoin’s CEO had committed suicide. Such a notion is impossible because Bitcoin has no CEO.
The straightforward answer to the question in the title of this chapter is that no one “runs” Bitcoin. Bitcoin is not dependent on any one organization for its existence and no one is “in charge” of it. When Satoshi Nakamoto launched Bitcoin in 2008, he essentially gave birth to an independent entity that has lived and grown and evolved not unlike any other organism. Like a good parent, Nakamoto stuck around and guided Bitcoin, but when he disappeared, Bitcoin remained. Nakamoto’s final post on the Bitcoin Talk forums (as of this writing) transferred lead developer status to Gavin Andresen.
That title doesn’t mean that Andresen was in charge of everything. No one can control who joins Bitcoin or how many bitcoins someone has or who can send what to whom or anything like that. There is only one thing that can directly affect Bitcoin and that is its code. Andresen—and later his successor, Wladimir van der Laan—was given control over that code but his changes don’t have to be adopted by the community at large, and if they aren’t then they will be forgotten.
There are several groups of people who have influence in the Bitcoin industry because of their various roles. The people who use the currency (the average Bitcoin user), the people who keep the network running (the miners), the people who provide services on top of Bitcoin (corporations and websites that offer Bitcoin services), the people who maintain Bitcoin’s code (the developers), as well as the people who pay the developers to maintain the code, all have influence over Bitcoin’s direction.
The most popular answer from Bitcoin evangelists for the question “Who runs Bitcoin?” would be “the community,” and the community does hold significant sway. This term is generally used to refer to the people who use Bitcoin, either through spending or investing. If they move to another chain or coin, the rest of the industry would have to follow them. The community is obviously not unified in its views, however, so any real direction or change is unlikely to come from this sphere with the exception of preventing an unpopular change.
The miners, meanwhile, are the group of people who make things work. If the miners don’t confirm transactions on the blockchain, everything comes to a screeching halt. This group is a little more unified than the community because all its members share a similar interest: they want Bitcoin mining to be as profitable as possible. Like the general community, though, miners are spread across the world, with much of the network’s hashing power originating in China. It is tough to get a read on how they feel about particular issues or changes. Nevertheless, they represent a huge potential power structure in Bitcoin. They don’t hold the keys but they are the only ones who can turn them.
As is the case in any industry, companies have influence simply because of how successful they are. Companies such as Coinbase, Bitstamp, Circle, and Blockchain.info all have massive user bases and where they go, the industry tends to go. But saying they “run” Bitcoin or are in charge of it would be like saying Apple or Samsung are in charge of the cell phone industry. They set trends but they don’t enforce standards.
We are left, then, with the two most influential and powerful groups in the Bitcoin ecosystem: the developers and the groups that pay the developers. Gavin Andresen and Wladimir van der Laan are the two most prominent core developers of Bitcoin. It could be said that they are the most influential individuals in the Bitcoin world, though Bitcoin would continue even without them.
As is the case in all open-source projects, Bitcoin’s code is ultimately controlled by one person. Van der Laan has held that position since Andresen handed him the keys to the GitHub page in early 2014. (GitHub is a forum for collaborative open-source projects.) This doesn’t mean he has complete control, however, as anyone can split and copy the code—an act called forking—at any time; and if he or she could get Bitcoin miners and users to switch to that new version, it would become the accepted one.
Although van der Laan does have control over what changes are pushed to the Bitcoin core code (i.e., the code that Bitcoin functions on, and that every other Bitcoin wallet is in some way based on and compatible with), he is dependent on the community to support those changes.
It should also be noted that core developers, at least those who work full-time, don’t work for free. They have to be paid and the question of who pays them is not always easy to answer. In theory, they should be paid by Bitcoin users, but direct donations to core development have been underwhelming and the developers have instead been funded by other means.
Andresen and other core developers were previously paid by the Bitcoin Foundation, a trade group dedicated to the continuation of Bitcoin’s adoption, acceptance, and development. In the heady days of 2013 and early 2014, the Bitcoin Foundation found itself flush with cash. Previously small donations had by then appreciated greatly thanks to the increase in Bitcoin’s value.
By that point, however, the Bitcoin Foundation was already reeling from scandal. The Mt. Gox fiasco was in full swing by late 2013 and former Bitcoin Foundation CEO Mark Karpelès still sat on the Foundation’s board of directors. Reports at the time seemed to indicate that Karpelès had a nonchalant attitude as his company burned to the ground and he had to be encouraged to step down from the Foundation.
Shortly after the embattled and nearly universally hated CEO stepped down, Charlie Shrem, another Bitcoin Foundation board member and the CEO of BitInstant, was arrested. He was accused of using his company to help the users of the underground marketplace Silk Road launder money using Bitcoin. Shrem eventually pled to a lesser charge and was sentenced to two years in prison.
By mid-2014, it was difficult to find anyone who truly supported the Foundation. The scandals had done irreparable damage to its image and there was a growing concern about a perceived centralization of Bitcoin core development. This development was primarily funded by the Foundation and some in the community were concerned it would provide an avenue for someone to influence development in a less-than-benevolent way.
One attempt to respond to the situation came from Olivier Janssens, a venture capitalist, early Bitcoin adopter, and, one could argue, a crypto-philanthropist. Concerned about the Bitcoin Foundation’s potential control over Bitcoin core development, he offered a $40,000 prize—plus another $60,000 in other prizes—for anyone who could offer an alternative way to fund core development. The incentive resulted in the creation of Lighthouse, which was developed by former Bitcoin developer Mike Hearn. It allows people to donate to projects on the Bitcoin platform, the idea being that developers could make posts describing an issue they need to fix or feature they need to add and Bitcoin users or companies could fund those projects.
Lighthouse never replaced the Bitcoin Foundation as a reliable way to fund core development. It has instead been used to crowdfund mostly crypto-related projects. Its creation has nevertheless kicked off a debate about how much control the Bitcoin Foundation should have over core development.
Gavin Andresen has contended that the Bitcoin Foundation has no control over Bitcoin’s core development. According to Andresen, it did not attempt to influence his decisions on what code was included in the core code of Bitcoin. Despite these assurances, much of the community wasn’t convinced. It wasn’t so much that they didn’t believe Andresen’s statements; it was more of an issue about the potential for misuse rather than actual misuse that had already occurred. A trade institution, the Bitcoin Foundation depended on funding from corporate partners. These partners were likely to have ideas on how they would like to see Bitcoin’s code evolve.
Andresen himself seemed incorruptible and the Bitcoin Foundation’s Board of Directors seemed to understand the importance of core code independence, but what about future lead developers? Would they be as incorruptible as Andresen? What about future Bitcoin Foundation board members? Would they always be so benevolent and concerned about Bitcoin’s health, above all else, forever?
As user donations dried up due to the scandals and debate over their influence on development, the Bitcoin Foundation became increasingly dependent on corporate donations. Its reserve also started to run low as the price of Bitcoin was rapidly falling due to the Mt. Gox scandal and the subsequent panic. Ironically, Bitcoin’s current high-water mark—$1,124.76, set on November 29, 2013—had been reached just before the Mt. Gox exchange collapsed. Although people were ecstatic about the four-figure bitcoin price, it was tempered by the fear of what was about to come. The Bitcoin industry had never experienced anything quite like Mt. Gox. What happens when the biggest centralized point of a decentralized system falls apart?
With so much uncertainty in the community, the Bitcoin Foundation could not allow itself to be perceived as abandoning Bitcoin, so it could not sell its reserves. If word got out that the Foundation had cashed out its bitcoin holdings, it could have caused a massive panic in the industry.
In addition, with so much confusion in the mainstream media about who was in charge of Bitcoin, if an organization named the Bitcoin Foundation were perceived as abandoning the currency, one could anticipate the negative headlines that would follow.
Perhaps the Foundation should have hedged its bets a little bit and put more of its holdings into fiat, but this couldn’t have been an easy decision to make. Most observers would have said that the price of Bitcoin was bound to decline, as it had after previous jumps, but there was also a sense that this might be the time Bitcoin would “break through” and gain mass acceptance. That hope was naïve—as the Foundation likely knew—but doing anything that would cast doubt on that possibility would have been a bad PR move both for the Foundation and for Bitcoin itself.
By the start of fall 2014, the Foundation was running on fumes. Donations had mostly dried up. The Foundation’s public donation address only received around 0.3BTC in October 2014, although this figure does not reflect corporate donations and member dues.
The price of Bitcoin was way down from its late winter 2014 high and it was rare to find people who were enthusiastic about the Foundation.
This is when the Bitcoin Foundation started to reform. It determined that core development was the most important task it had. At the time, the hope was that the community would get behind a narrowing of its focus and maintaining Bitcoin’s core code seemed like a cause anyone could get behind.
Yet much of the community didn’t get behind it and donations did not increase significantly, at least not enough to solve the Foundation’s financial woes. Meanwhile, concerns about the Bitcoin Foundation’s potential control over core development were increasing.
The community got a chance to express its discontent when the Foundation held an election to fill the seats vacated by Karpelès and Shrem. Among the candidates was Olivier Janssens, the same Olivier Janssens who put up $100,000 of his own money for the development of an alternative to the Foundation’s funding. Only paying members of the Bitcoin Foundation could vote but their opinion seemed to reflect what was being expressed on the public forums, such as Reddit and BitcoinTalk. After a highly contested election, Olivier Janssens and Jim Harper—another candidate who was against the Foundation’s practice of funding core development—were elected to the two open spots. In addition to transitioning away from core development, the two candidates promised to bring transparency to the Foundation’s finances.
The election was a clear sign that the Foundation members were no longer comfortable with the Foundation board holding the purse strings to development. Not much happened publicly for a few weeks after the election. Then, Janssens dropped a bombshell. Posting on Reddit and in the Bitcoin Foundation forums, Janssens asserted that the Foundation was completely broke. He also revealed to me in an interview that paychecks for Andresen and other core developers had already stopped arriving.
The Foundation went into damage control mode, writing in a now-deleted post that it was planning on releasing the same information that Janssens had just revealed in a week or two, after it created a plan for addressing the problem. The Foundation also insisted the situation wasn’t as bad as Janssens claimed. These statements might or might not have been true but it is easy enough to say you were just about to come clean when you have already been exposed.
There were two immediate issues to address after Janssens’s post. The first and most urgent was how to keep core development funded. Janssens offered to fund development himself until another solution could be devised. The second issue was how the Bitcoin Foundation could move forward from this point and whether it should continue to exist at all.
The second issue still hasn’t been resolved completely. The Bitcoin Foundation still exists and now has a greater focus on adoption rather than development, but it is unclear how funding has been going and it is unknown at this time whether it is financially solvent. The Foundation’s new executive director, Bruce Fenton, who is now working in a voluntary capacity, has promised reform.
The bigger issue has been solved for the time being but some people still have concerns. The core developers never publicly responded to Janssens’s offer to fund core development, partially because another solution presented itself fairly quickly. The MIT Digital Currency Initiative announced that it would begin funding core development, and it has been partially doing so since then, with the rest coming from the community and various companies.
Most seem to agree that the current situation is an improvement over the previous one. Having Bitcoin’s core code maintained and updated by an academic institution has obvious advantages over having it maintained and updated by a corporate trade group. It seems less likely that an academic institution would be influenced by outside sources into pressuring developers to code based on what the big corporations in Bitcoin would prefer.
There are many who still have concerns, however. Development funding is still centralized. It may be centralized in a better place than it was before but it still is centralized. The concern about future MIT project directors and their influence over future developers is still valid. The people involved in Bitcoin now will undoubtedly be considered the early adopters of the currency and human nature tends to lionize those who came before us.
The mechanisms that control Bitcoin are not yet set in stone. There isn’t even a consensus among core developers about what should be done and who should be in charge. At the time of this writing, there is a significant debate taking place in the community over how Bitcoin will scale in the future. This debate has threatened to cause a split among the core developers and could cause Bitcoin as a whole to fork. On one side are the miners, who will have to process bigger blocks and store a larger blockchain in order to mine. On the other are the payment processors who argue that they need larger blocks to handle the growing demand for Bitcoin transactions. The outcome of the debate will show where power really lies within the politics of Bitcoin.
The reason why the debate is taking place is that there is a limit to the number of transactions that the network can handle at a time. Each block is currently 750KB to 1MB in size and can only hold a certain number of transactions. This was never meant to be a hard limit but Satoshi Nakamoto built it that way so that malicious actors would have a tougher time trying to spam the network with a bunch of meaningless transactions. It wasn’t a problem at first because Bitcoin wasn’t popular enough to necessitate larger or faster blocks. 1MB at roughly 10-minute intervals was more than enough for the volume the network had to deal with at the time.
Today, Bitcoin is much more popular and the block size limit is becoming a problem. While most blocks still aren’t filled, some have been, and during transaction spikes some users have complained about abnormally long transaction times. If Bitcoin is going to scale to the level of Visa or MasterCard, it is going to need to handle far more transactions than it can now. If transactions start stalling, users may panic and attempt to spend those same coins again before they are sent, not only adding to the backlog but potentially causing mining conflicts and slowing things down even more.
The debate continues. Most likely, we will see some sort of compromise. But the point is, who decides what happens in Bitcoin isn’t completely settled and the current situation is confusing even to insiders. And when you are talking about billions of dollars, the answer to “Who controls Bitcoin?” is an important one. It is easy for Bitcoin enthusiasts to say, “The community decides,” but the community doesn’t really decide what changes are made. How much input have they had in the block size debate?
Bitcoin users could theoretically jump onto a new fork and anyone is technically capable of making their own, but that is unlikely to happen anytime soon. Bitcoin’s core code is coded by a group of developers who are beholden to the community, but the community doesn’t order them around. No one holds votes on which features are added next or what bug fixes are most critical. Yes, the community votes by its participation on the network but that is where its control ends. How the current chain is modified and who decides on these changes is still up in the air.
The lead developer ultimately makes the final decision, but how much control should they have and how much should they listen to their community? Andresen argues that he should be like any other lead developer on any other open-source project and take charge. Van der Laan disagrees. What we settle on, however, could have implications lasting far longer than the involvement of either of those two in Bitcoin.
Even if you haven’t jumped into Bitcoin yet and do so after you read this book, you will still be considered an early adopter by the people of the future. If Bitcoin really is the currency of tomorrow, then it has a massive amount to grow. Those who adopted it in 2015 or 2016, a mere eight years after Satoshi’s white paper was published, will seem like daring risk-takers who jumped at the opportunity to harness an emerging technology.
Americans have long idealized their Founding Fathers and still look to them for guidance on issues those eighteenth-century men could not possibly have understood. Likewise, people in the Bitcoin community idealize Satoshi Nakamoto and it is not uncommon to see an argument end with a quote from him or for a new Bitcoin alternative to claim to be a purer version of Nakamoto’s creation.
In the future, it won’t just be Nakamoto. The thoughts of the core developers and other influential members of today’s Bitcoin community will be quoted as gospel. This is unfortunate—because they are fallible people like everyone else—but seems unavoidable. The best we as a community can do is give the Bitcoiners of the future a good example to follow but nearly everyone disagrees on what that might entail.
If we set the precedent that centralized funding of core development is okay, Bitcoin users of the future will point to that and continue to say it isn’t a problem. In 20 or 30 years, someone may try to influence the Bitcoin core development team by threatening to pull funding. What recourse will we have then? Development funding has always been centralized, people will say. It won’t be much of a stretch to turn funding into influence. Rules can be turned on their head slowly over time without anyone noticing but only if someone works toward that. The people who do that kind of work usually have ulterior motives.
It stands to reason that the precedent we set now will be used in the future. It also stands to reason that in the future there will people trying to turn that system to their advantage. The current arrangement might be the optimal one but there hasn’t been a vigorous public debate about it. The election of Janssens and Harper proved that the community—even those who paid to be Bitcoin Foundation members (and who were the only ones who could vote)—did not want them to hold the purse strings to core development.
How does the community feel about the MIT Digital Currency Initiative funding development? I don’t know; I don’t think anyone asked them.
