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INTERNET POLICY REVIEW
Journal on internet regulation Volume 5 | Issue 3
Internet Policy Review | http://policyreview.info 1 September 2016 | Volume 5 | Issue 3
The invisible politics of Bitcoin: governance crisis
of a decentralised infrastructure
Primavera De Filippi
Berkman Klein Center for Internet & Society, Harvard University, United States
Benjamin Loveluck
Télécom ParisTech (Université Paris-Saclay) and CERSA (CNRS-Paris 2), France,
benjamin.loveluck@telecom-paristech.fr
Published on 30 Sep 2016 | DOI: 10.14763/2016.3.427
Abstract: Bitcoin is a decentralised currency and payment system that seeks to eliminate the
need for trusted authorities. It relies on a peer-to-peer network and cryptographic protocols to
perform the functions of traditional financial intermediaries, such as verifying transactions and
preserving the integrity of the system. This article examines the political economy of Bitcoin, in
light of a recent dispute that divided the Bitcoin community with regard to a seemingly simple
technical issue: whether or not to increase the block size of the Bitcoin blockchain. By looking at
the socio-technical constructs of Bitcoin, the article distinguishes between two distinct
coordination mechanisms: governance by the infrastructure (achieved via the Bitcoin protocol)
and governance of the infrastructure (managed by the community of developers and other
stakeholders). It then analyses the invisible politics inherent in these two mechanisms, which
together display a highly technocratic power structure. On the one hand, as an attempt to be
self-governing and self-sustaining, the Bitcoin network exhibits a strong market-driven
approach to social trust and coordination, which has been embedded directly into the technical
protocol. On the other hand, despite being an open source project, the development and
maintenance of the Bitcoin code ultimately relies on a small core of highly skilled developers
who play a key role in the design of the platform.
Keywords: Bitcoin, Blockchain, Peer-to-peer (P2P)
Article information
Received: 05 May 2016 Reviewed: 17 Jun 2016 Published: 30 Sep 2016
Licence: Creative Commons Attribution 3.0 Germany
Competing interests: The author has declared that no competing interests exist that have influenced
the text.
URL:
http://policyreview.info/articles/analysis/invisible-politics-bitcoin-governance-crisis-decentralised-infr
astructure
Citation: De Filippi, P. & Loveluck, B. (2016). The invisible politics of Bitcoin: governance crisis of a
decentralised infrastructure.
Internet Policy Review
,
5
(3). DOI: 10.14763/2016.3.427
This paper is part of 'Doing internet governance: practices, controversies, infrastructures, and
The invisible politics of Bitcoin: governance crisis of a decentralised infrastructure
Internet Policy Review | http://policyreview.info 2 September 2016 | Volume 5 | Issue 3
institutions', a Special issue of the Internet Policy Review.
INTRODUCTION
Since its inception in 2008, the grand ambition of the Bitcoin project has been to support direct
monetary transactions among a network of peers, by creating a decentralised payment system
that does not rely on any intermediaries. Its goal is to eliminate the need for trusted third
parties, particularly central banks and governmental institutions, which are prone to corruption.
Recently, the community of developers, investors and users of Bitcoin has experienced what can
be regarded as an important governance crisis a situation whereby diverging interests have
run the risk of putting the whole project in jeopardy. This governance crisis is revealing of the
limitations of excessive reliance on technological tools to solve issues of social coordination and
economic exchange. Taking the Bitcoin project as a case study, we argue that online peer-to-peer
communities involve inherently political dimensions, which cannot be dealt with purely on the
basis of protocols and algorithms.
The first part of this paper exposes the specificities of Bitcoin, presents its underlying political
economy, and traces the short history of the project from its inception to the crisis. The second
part analyses the governance structure of Bitcoin, which can be understood as a two-layered
construct: an infrastructure seeking to govern user behaviour via a decentralised, peer-to-peer
network on the one hand, and an open source community of developers designing and
architecting this infrastructure on the other. We explore the challenges faced at both levels, the
solutions adopted to ensure the sustainability of the system, and the unacknowledged power
structures they involve. In a third part, we expose the invisible politics of Bitcoin, with regard to
both the implicit assumptions embedded in the technology and the highly centralised and
largely undemocratic development process it relies on. We conclude that the overall system
displays a highly technocratic power structure, insofar as it is built on automated technical rules
designed by a minority of experts with only limited accountability for their decisions. Finally,
drawing on the wider framework of internet governance research and practice, we argue that
some form of social institution may be needed to ensure accountability and to preserve the
legitimacy of the system as a whole rather than relying on technology alone.
I. BITCOIN IN THEORY AND PRACTICE
A. THE BITCOIN PROJECT: POLITICAL ECONOMY OF A TRUSTLESS PEER-
TO-PEER NETWORK
Historically, money has taken many different forms. Far from being an exclusively economic
tool, money is closely associated with social and political systems as a whole which Nigel Dodd
refers to as the social life of money (Dodd 2014). Indeed, money has often been presented as an
instrument which can be leveraged to shape society in certain ways and as Dodd has shown, this
includes powerful utopian dimensions: for sociologist Georg Simmel for instance, an ideal social
order hinged upon the definition of a perfect money (Simmel, 2004). In the wake of economic
crises in particular, it is not uncommon to witness the emergence of alternative money or
exchange frameworks aimed at establishing different social relations between individuals
more egalitarian, or less prone to accumulation and speculation (North, 2007). On the other
hand however, ideals of self-regulating markets have often sought to detach money from
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existing social relations, resulting in a progressive disembedding of commercial interactions
from their social and cultural context (Polanyi, 2001 [1944]).
Since it first appeared in 2009, the decentralised cryptocurrency Bitcoin has raised high hopes
for its potential to reshuffle not only the institutions of banking and finance, but also more
generally power relations within society. The potential consequences of this innovation,
however, are profoundly ambivalent. On the one hand, Bitcoin can be presented as a neoliberal
project insofar as it radicalises Friedrich Hayeks and Milton Friedmans ambition to end the
monopoly of nation-states (via their central banks) on the production and distribution of money
(Hayek, 1990), or as a libertarian dream which aims at reducing the control of governments on
the economy (De Filippi, 2014). On the other hand, it has also been framed as a solution for
greater social justice, by undermining oligopolistic and anti-democratic arrangements between
big capital and governments, which are seen to favour economic crises and inequalities. Both of
these claims hinge on the fact that as a socio-technical assemblage, Bitcoin seems to provide a
solution for governing without governments, which appeals to liberal sentiments both from
the left and from the right. Its implicit political project can therefore be understood as effectively
getting rid of politics by relying on technology.
More generally, distributed networks have long been associated with a redistribution of power
relations, due to the elimination of single points of control. This was one of the main
interpretations of the shift in telecommunications routing methods from circuit switching to
packet switching in the 1960s and the later deployment of the internet protocol suite (TCP/IP)
from the 1970s onwards (Abbate, 1999), as well as the adoption of the end-to-end principle
which proved to be a compelling but also partly misleading metaphor (Gillespie, 2006). The idea
was that information could flow through multiple and unfiltered channels, thus circumventing
any attempts at controlling or censoring it, and providing a basis for more egalitarian social
relations as well as stronger privacy. In practice however, it became clear that network design is
much more complex and that additional software, protocols and hardware, at various layers of
the network, could (and did) provide alternate forms of re-centralisation and control and that,
moreover, the internet was not structurally immune to other modes of intervention such as law
and regulation (Benkler, 2016).
However, there have been numerous attempts at re-decentralising the network, most of which
have adopted peer-to-peer architectures as opposed to client-server alternatives, with the
underlying assumption that such technical solutions provide both individual freedom and a
promise of equality (Agre, 2003) 1. Other technologies have also been adopted in order to add
features relating to user privacy for instance, which involve alternative routing methods
(Dingledine, Mathewson, & Syverson, 2004) and cryptography (which predates computing, see
e.g. Kahn 1996). In particular, such ideas were strongly advocated starting from the late 1980s
by an informal collective of hackers, mathematicians, computer scientists and activists known as
cypherpunks, who saw strong cryptography as a means of achieving greater privacy and security
of interpersonal communications, especially in the face of perceived excesses and abuses on the
part of governmental authorities. 2 Indeed, all of these solutions pursue implicit or explicit goals,
in terms of their social or political consequences, which can be summed up as enabling self-
organised direct interactions between individuals, without relying on a third party for
coordination, and also preventing any form of surveillance or coercion.
Yet cryptography is not only useful to protect the privacy of communications; it can also serve as
a means to promote further decentralisation and disintermediation when combined with a peer-
to-peer architecture. In 2008, a pseudonymous entity named Satoshi Nakamoto released a
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white paper on the Cryptography Mailing list (metzdowd.com) describing the idea of a
decentralised payment system relying on a distributed ledger with cryptographic primitives
(Nakamoto, 2008a). One year later, a first implementation of the ideas defined in the white
paper was released and the Bitcoin network was born. It introduces its own native currency (or
unit of account) with a fixed supply and whose issuance is regulated, only and exclusively, by
technological means. The Bitcoin network can therefore be used to replace at least some of the
key functions played by central banks and other financial institutions in modern societies: the
issuance of money on the one hand, and, on the other hand, the fiduciary functions of banks and
other centralised clearing houses.
Supported by many self-proclaimed libertarians, Bitcoin is often presented as an alternative
monetary system, capable of bypassing most of the state-backed financial institutions with all
of their shortcomings and vested interests which have become so obvious in the light of the
financial crisis of 2008. Indeed, as opposed to traditional centralised economies, Bitcoins
monetary supply is not controlled by any central authority, but is rather defined (in advance) by
the Bitcoin protocol which precisely stipulates the total amount of bitcoins that will ever come
into being (21 million) and the rate at which they will be issued over time. A certain number of
bitcoins are generated, on average, every ten minutes and assigned as a reward to those who
lend their computational resources to the Bitcoin network in order to both operate and secure
the network. In this sense, Bitcoin can be said to mimic the characteristics of gold. Just as gold
cannot be created out of thin air, but rather needs to be extracted from the earth (through
mining), Bitcoin also requires a particular kind of computational effort also known as mining
in order for the network protocol to generate new bitcoins (and just as gold progressively
becomes harder to find as the stock gets depleted over, also the amount of bitcoins generated
through mining decreases over time).
The establishment and maintenance of a currency has traditionally been regarded as a key
prerogative of the State, as well as a central institution of democratic societies. Controlling the
money supply, by different means, is one of the main instruments that can be leveraged in order
to shape the economy, both domestically and in the context of international trade. Yet,
regardless of whether one believes that the State has the right (or duty) to intervene in order to
regulate the market economy, monetary policies have sometimes been instrumentalised by
certain governments using inflation as a means to finance government spending (e.g. in the case
of the Argentine great depression of 1998-2002). Perhaps most critical is the fact that, with the
introduction of fractional-reserve banking, commercial banks acquired the ability to
(temporarily) increase the money supply by giving out loans which are not backed up by actual
funds (Ferguson, 2008). 3 The fractional-reserve banking system (and the tendency of
commercial banks to create money at unsustainable rates) is believed to be one of the main
factors leading to the global financial crisis of 2008 which has brought the issue of private
money issuance back into the public debate (Quinn, 2009).
Although there have been many attempts at establishing alternative currencies, and
cryptocurrencies have also been debated for a long time, the creation of the Bitcoin network was
in large part motivated in response to the social and cultural contingencies that emerged during
the global financial crisis of 2008. As explicitly stated by Satoshi Nakamoto in various blog posts
and forums, Bitcoin aimed at eradicating corruption from the realm of currency issuance and
exchange. Given that governments and central banks could no longer be trusted to secure the
value of fiat currency and other financial instruments, Bitcoin was designed to operate as a
trustless technology, which only relies on maths and cryptography. 4 The paradox being that this
trustless technology is precisely what is needed for building a new form of distributed trust
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(Mallard, Méadel, & Musiani, 2014).
Trust management is a classic issue in peer-to-peer computing, and can be understood as the
confidence that a peer has to ensure that it will be treated fairly and securely, when
interacting with another peer, for example, during transactions or downloading files,
especially by preventing malicious operations and collusion schemes (Zhu, Jajodia, &
Kankanhalli, 2006). To address this issue, Bitcoin has brought two fundamental innovations,
which, together, provide for the self-governability and self-sustainability of the network. The
first innovation is the blockchain, which relies on public-private key encryption and hashing
algorithms to create a decentralised, append-only and tamper-proof database. The second
innovation is Proof-of-Work, a decentralised consensus protocol using cryptography and
economic incentives to encourage people to operate and simultaneously secure the network.
Accordingly, the Bitcoin protocol represents an elegant, but purely technical solution to the
issue of social trust which is normally resolved by relying on trusted authorities and
centralised intermediaries. With the blockchain, to the extent that trust is delegated to the
technology, individuals who do not know (and therefore do not necessarily trust) each other, can
now transact with one another on a peer-to-peer basis, without the need for any intermediary.
Hence Bitcoin uses cryptography not as a way to preserve the secrecy of transactions, but rather
in order to create a trustless infrastructure for financial transactions. In this context,
cryptography is merely used as a discrete notational system (DuPont, 2014) designed to
promote the autonomy of the system, which can operate independently of any centralised third
party 5. It relies on simple cryptographic primitives or building blocks (SHA256 hash functions
and public-key cryptography) to resolve, in a decentralised manner, the double-spending
problem 6 found in many virtual currencies. The scheme used by Bitcoin (Proof-of-Work) relies
on a peer-to-peer network of validators (or miners) who commit their computational resources
(hashing power) to the network in order to record all valid transactions into a decentralised
public ledger (a.k.a. the blockchain) in a chronological order. All valid transactions are recorded
into a block, which incorporates a reference (or hash) to the previous block so that any
attempt at tampering with the order or the content of any past transaction will always and
necessarily result in an apparent discontinuity in the chain of blocks.
By combining a variety of existing technologies with basic cryptographic primitives, Bitcoin has
created a system that is provably secure, practically incorruptible and probabilistically
unattackable 7 all this, without resorting to any centralised authority in charge of policing the
network. Bitcoin relies on a fully open and decentralised network, designed in such a way that
anyone is free to use the network and contribute to it, without the need for any kind of previous
identification. Yet, contrary to popular belief, Bitcoin is neither anonymous nor privacy-friendly.
Quite the contrary, anyone with a copy of the blockchain can see the history of all Bitcoin
transactions. Decentralised verification requires, indeed, that every transaction be made
available for validation to all nodes in the network and that every transaction ever done on the
Bitcoin network can be traced back to its origin. 8
In sum, Bitcoin embodies in its very protocols a profoundly market-driven approach to social
coordination, premised on strong assumptions of rational choice (Olson, 1965) and game-
theoretical principles of non-cooperation (von Neumann & Morgenstern, 1953 [1944]). The
(self-)regulation of the overall system is primarily achieved through a system relying on perfect
information (the blockchain), combined with a consensus protocol and incentives mechanism
(Proof-of-work), to govern the mutually adjusting interests of all involved actors. Other
dimensions of social trust and coordination (such as loyalty, coercion, etc.) are seemingly
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expunged from a system which expressly conforms to Hayeks ideals of catallactic organisation
(Hayek, 1976, p. 107ff).
B. FROM INCEPTION TO CRISIS
1. A short history of Bitcoin
The history of Bitcoin albeit very short consists of a very intense series of events, which have
led to the decentralised cryptocurrency becoming one of the most widely used forms of digital
cash. The story began in October 2008, with the release of the Bitcoin white paper (Nakamoto,
2008a). In January 2009, the Bitcoin software was published and the first block of the Bitcoin
blockchain was created (the so-called Genesis block) with a release of 50 bitcoins. Shortly after,
the first Bitcoin transaction took place between Satoshi Nakamoto and Hal Finney a well-
known cryptographer and prominent figure of the cypherpunk movement in the 1990s. It is not
until a few months later that Bitcoin finally acquired an equivalent value in fiat currency 9 and
slowly made its way into the commercial realm, as it started being accepted by a small number
of merchants. 10
In the early days, Satoshi Nakamoto was actively contributing to the source code and
collaborating with many of the early adopters. Yet, he was always very careful to never disclose
any personal details, so as to maintain his identity secret. To date, in spite of the various theories
that have been put forward, 11 the real identity of Satoshi Nakamoto remains unknown. In a way,
the pseudonymity of Satoshi Nakamoto perfectly mirrors that of his brainchild, Bitcoin a
technology designed to substitute technology for trust, thus rendering the identification of
transacting parties unnecessary.
Over the next few months, Bitcoin adoption continued to grow, slowly but steadily. Yet, the real
spike in popularity of Bitcoin was not due to increased adoption by commercial actors, but
rather to the establishment in January 2011 of Silk Road an online marketplace (mostly used
for the trading of illicit drugs) relying on Tor and Bitcoin to preserve the anonymity of buyers
and sellers. Silk Road paved the way for Bitcoin to enter the mainstream, but also led many
governmental agencies to raise several concerns that Bitcoin could be used to create black
markets, evade taxation, facilitate money laundering and even support the financing of terrorist
activities.
In April 2011, to the surprise of many, Satoshi Nakamoto announced on a public mailing list that
he would no longer work on Bitcoin. Ive moved on to other things he said, before disappearing
without further justification. Yet, before doing so, he transferred control over the source code
repository of the Bitcoin client to Gavin Andresen, one of the main contributors to the Bitcoin
code. Andresen, however, did not want to become the sole leader of such a project, and thus
granted control over the code to four other developers Pieter Wuille, Wladimir van der Laan,
Gregory Maxwell, and Jeff Garzik. Those entrusted with these administration rights for the
development of the Bitcoin project became known as the core developers.
As the popularity of Bitcoin continued to grow, so did the commercial opportunities and
regulatory concerns. However, with the exit of Satoshi Nakamoto, Bitcoin was left without any
leading figure or institution that could speak on its behalf. This is what justified the creation, in
September 2012, of the Bitcoin Foundation an American lobbying group focused on
standardising, protecting and promoting Bitcoin. With a board comprising some of the biggest
names in the Bitcoin space (including Gavin Andresen himself), the Bitcoin Foundation was
intended to do for Bitcoin what the Linux Foundation had done for open source software:
paying developers to work full-time on the project, establishing best practices and, most
importantly, bringing legitimacy and building trust in the Bitcoin ecosystem. And yet, concerns
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were raised regarding the legitimacy of this self-selected group of individuals many of whom
had dubious connections or were allegedly related to specific Bitcoin scams 12 to act as the
referent and public face of Bitcoin. Beyond the irony of having a decentralised virtual currency
like Bitcoin being represented by a centralised profit-driven organisation, it soon became clear
that the Bitcoin Foundation was actually unable to take on that role. Plagued by a series of
financial and management issues, with some of its ex-board members under criminal
investigation and most of its funds depleted, the Bitcoin Foundation has today lost much of its
credibility.
But even the fall of the Bitcoin Foundation did not seem to significantly affect Bitcoin
probably because the Foundation was merely a facade that never had the ability to effectively
control the virtual currency. Bitcoin adoption has continued to grow over the past few years, to
eventually reach a market capitalisation of almost US 7 billion dollars. Bitcoin still has no public
face and no actual institution that can represent it. Yet, people continue to use it, to maintain its
protocol, and to rely on its technical infrastructure for an increasing number of commercial (and
non-commercial) operations. And although a few Bitcoin-specific regulations have been enacted
thus far (see e.g. the NY State BitLicense), regulators around the world have, for the most part,
refrained from regulating Bitcoin in a way that would significantly impinge upon it (De Filippi,
2014).
Bitcoin thus continues to operate, and continues to be regarded (by many) as an open source
software platform that relies on a decentralised peer-to-peer network governed by distributed
consensus. Yet, if one looks at the underlying reasons why Bitcoin has been created in the first
place, and the ways it has eventually been adopted by different categories of people, it becomes
clear that the original conception of Bitcoin as a decentralised platform for financial disruption
has progressively been compromised by the social and cultural context in which the technology
operates.
Following the first wave of adoption by the cypherpunk community, computer geeks and crypto-
libertarians, a second (larger) wave of adoption followed the advent of Silk Road in 2011. But
what actually brought Bitcoin to the mainstream were the new opportunities for speculation that
emerged around the cryptocurrency, as investors from all over the world started to accumulate
bitcoins (either by purchasing them or by mining) with the sole purpose of generating profits
through speculation. This trend is a clear reflection of the established social, economic and
political order of a society driven by the capitalistic values of accumulation and profit
maximisation. Accordingly, even a decentralised technology specifically designed to promote
disintermediation and financial disruption can be unable to protect itself from the inherent
tendencies of modern capitalist society to concentrate wealth and centralise power into the
hands of a few (Kostakis & Bauwens, 2014).
The illusion of Bitcoin as a decentralised global network had already been challenged in the past,
with the advent of large mining pools, mostly from China, which nowadays control over 75% of
the network. But this is only one part of the problem. It took a simple yet highly controversial
protocol issue to realise that, in spite of the open source nature of the Bitcoin platform, the
governance of the platform itself is also highly centralised.
2. The block size dispute
To many outside observers, the contentious issue may seem surprisingly specific. As described
earlier, the blockchain underpinning the Bitcoin network is composed of a series of blocks
listing the totality of transactions which have been executed so far. For a number of reasons
(mainly related to preserving the security and stability of the system, as well as to ensure easy
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adoption), the size of these blocks was initially set at 1 megabyte. In practice, however, this
technical specification also sets a restriction on the number of transactions which the blockchain
can handle in a particular time frame. Hence, as the adoption of Bitcoin grew, along with the
number of transactions to be processed, this arbitrary limitation (which was originally perceived
as being innocuous) became the source of heated discussions on several internet forums,
blogs, and conferences leading to an important dispute within the Bitcoin community (Rizzo,
2016). Some argued that the one megabyte cap was effectively preventing Bitcoin from scaling
and was thus a crucial impediment to its growth. Others claimed that many workarounds could
be found (e.g. off-chain solutions that would take off the load from the main Bitcoin blockchain)
to resolve this problem without increasing the block size. They insisted that maintaining the cap
was necessary both for security reasons and for ideological reasons, and was a precondition to
keeping the system more inclusive and decentralised.
On 15 August 2015, failing to reach any form of consensus over the issue of block sizes, a spinoff
project was proposed. Frustrated by the reluctance expressed by the other Bitcoin developers to
officially raise the block size limit (Hearn, 2015), two core developers, Gavin Andresen and Mike
Hearn, released a new version of the Bitcoin client software (Bitcoin XT) with the latent capacity
of accepting and producing an increased block size of eight megabytes. This client constitutes a
particular kind of fork of the original software or reference client (called Bitcoin Core). Bitcoin
XT was released as a soft fork, 13 with the possibility to turn into a hard fork, if and when a
particular set of conditions were met. Initially, the software would remain identical to the
Bitcoin Core software, with the exception that all the blocks mined with the Bitcoin XT software
would be signed by XT. This signature serves as a proxy for a poll: starting from 11 January
2016, in the event that at least 75% of all most recent 1,000 blocks have been signed by XT, the
software would start accepting and producing blocks with a maximum block size of eight
megabytes with the cap increasing linearly so as to double every two years. This would mark
the beginning of an actual hard fork, leading to the emergence of two blockchain networks
featuring two different and incompatible protocols.
The launch of Bitcoin XT proved highly controversial. It generated a considerable amount of
debate among the core developers, and eventually led to a full-blown conflict which has been
described as a civil war within the Bitcoin community (Hearn, 2016). Among the Bitcoin core
developers, Gregory Maxwell in particular was a strong proponent of maintaining the 1
megabyte cap. According to him, increasing the block size cap would constitute a risky change to
the fundamental rules of the system, and would inherently bring Bitcoin towards more
centralisation because it would mean that less powerful machines (such as home computers)
could no longer continue to handle the blockchain, thus making the system more prone to being
overrun by a small number of big computers and mining pools. Similarly, Nick Szabo a
prominent cryptographer involved since the early days in the cypherpunk community declared
that increasing the block size so rapidly would constitute a huge security risk that could
jeopardise the whole network. Finally, another argument raised against the Bitcoin XT proposal
was that increasing the block size would possibly lead to variable, and delayed confirmation
times (as larger blocks may fail to be confirmed every ten minutes).
Within the broader Bitcoin community, the conflict gave rise to copious amounts of flame-wars
in various online forums that represent the main sources of information for the Bitcoin
community (Reddit, Bitcoin Info, Bitcoin.org, etc.). Many accused the proponents of Bitcoin XT
of using populist arguments and alarmist strategies to bring people on their side. Others claimed
that, by promoting a hard fork, Bitcoin XT developers were doing exactly what the Bitcoin
protocol was meant to prevent: they were creating a situation whereby people from each side of
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the network would be able to spend the same bitcoins twice. In some cases, the conflict
eventually resulted in outright censorship and banning of Bitcoin XT supporters from the most
popular Bitcoin websites. 14 Most critically, the conflict also led to a variety of personal attacks
towards Bitcoin XT proponents, and several online operators who expressed support for Bitcoin
XT experienced Distributed Denial of Service (DDoS) attacks.
In the face of these events, and given the low rate of adoption of Bitcoin XT by the Bitcoin
community at large, 15 Mike Hearn, one of the core developers and key instigators of Bitcoin XT,
decided to resign from the development of Bitcoin which he believed was on the brink of
technical collapse. Hearn condemned the emotionally charged reactions to the block size debate,
and pointed at major disagreements among the appointed Bitcoin core developers in the
interpretation of Nakamotos legacy.
But the conflict did not end there. Bitcoin XT was only the first of a series of improvements
which were subsequently proposed to the Bitcoin protocol. As Bitcoin XT failed to gain mass
adoption, it was eventually abandoned on January 23rd. New suggestions were made to resolve
the block size problem (see e.g., Bitcoin Unlimited, Bitcoin Classic, BitPay Core). The most
popular today is probably Bitcoin Classic, which proposes to increase the block size cap to 2
megabytes (instead of 8) by following the same scheme as Bitcoin XT (i.e. after 75% of bitcoin
miners will have endorsed the new format). One interesting aspect of Bitcoin Classic is that it
also plans to set up a specific governance structure that is intended to promote more democratic
decision-making with regard to code changes, by means of a voting process that will account for
the opinions of the broader community of miners, users, and developers. Bitcoin Classic has
received support from relevant players in the Bitcoin community, including Gavin Andresen
himself, and currently accounts for 25% of the Bitcoin networks nodes.
It is, at this moment in time, quite difficult to predict where Bitcoin is heading. Some may think
that the Bitcoin experiment has failed and that it is not going anywhere; 16 others may think that
Bitcoin will continue to grow in underserved and inaccessible markets as a gross settlement
network for payment obligations and safe haven assets; 17 while many others believe that Bitcoin
is still heading to the moon and that it will continue to surprise us as time goes on. 18 One thing
is sure though: regardless of the robustness and technical viability of the Bitcoin protocol, this
governance crisis and failure in conflict resolution has highlighted the fragility of the current
decision-making mechanisms within the Bitcoin project. It has also emphasised the tension
between the (theoretically) decentralised nature of the Bitcoin network and the highly
centralised governance model that has emerged around it, which ultimately relied on the
goodwill and aligned interests of only a handful of people.
II. BITCOIN GOVERNANCE AND ITS CHALLENGES
Governance structures are set up in order to adequately pursue collective goals, maintain social
order, channel interests and keep power relations under check, while ensuring the legitimacy of
actions taken collectively. They are therefore closely related to the issue of trust, which is a key
aspect of social coordination and which online socio-technical systems address by combining
informal interpersonal relations, formal rules and technical solutions in different ways (Kelty,
2005). In the case of online peer-production communities, two essential features are decisive in
shaping their governance structure, namely the fact that they are volunteer-driven and that they
seek to self-organise (Benkler, 2006). Thus, compared to more traditional forms of
organisations such as firms and corporations, they often need to implement alternative means of
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coordination and incentivisation (Demil & Lecocq, 2006).
Nicolas Auray has shown that, although the nature of online peer-production communities can
be very different (ranging from Slashdot to Wikipedia and Debian), they all face three key
challenges which they need to address in order to thrive (Auray, 2012):
definition and protection of community borders;
●
establishment of incentives for participation and acknowledgment of the status of
●
contributors;
and, finally, pacification of conflicts.
●
Understanding how each of these challenges is addressed in the case of the Bitcoin project is
particularly difficult, since Bitcoin is composed of two separate, but highly interdependent
layers, which involve very different coordination mechanisms. On the one hand, there is the
infrastructural layer: a decentralised payment system based on a global trustless peer-to-peer
network which operates according to a specific set of protocols. On the other hand, there is the
layer of the architects: a small group of developers and software engineers who have been
entrusted with key roles for the development of this technology.
The Bitcoin project can thus be said to comprise at least two different types of communities
each with their own boundaries and protection mechanisms, rewards or incentive systems, and
mechanisms for conflict resolution. One is the community of nodes within the network, which
includes both passive users merely using the network to transfer money around, and active
users (or miners) contributing their own computational resources to the networks in order to
support its operations. The other is the community of developers, who are contributing code to
the Bitcoin project with a view to maintain or improve its functionalities. What the crisis
described above has revealed is the difficulty of establishing a governance structure which would
properly interface both of these dimensions. As a consequence, a small number of individuals
became responsible for the long-term sustainability of a large collective open source project, and
the project rapidly fell prone to interpersonal conflict once consensus could no longer be
reached among them.
This section will describe the specificities of the two-layered structure of the Bitcoin project and
the mechanisms put in place to address these key challenges, in order to better understand any
shortcomings they may display.
A. THE BITCOIN NETWORK: GOVERNANCE BY INFRASTRUCTURE
As described earlier, the Bitcoin network purports to be both self-governing and self-sustaining.
19 As a trustless infrastructure, it seeks to function independently of any social institutions. The
rules governing the platform are not enforced by any single entity, instead they are embedded
directly into the network protocol that every user must abide to. 20
Given the open and decentralised nature of the Bitcoin network, its community borders are
extremely flexible and dynamic, in that everyone is free to participate and contribute to the
network either as a passive user or as an active miner. The decentralised character of the
network however, creates significant challenges when it comes to the protection thereof, mainly
due to the lack of a centralised authority in charge of policing it. Bitcoin thus implemented a
technical solution to protect the network against malicious attacks (e.g. so-called sybil attacks)
through the Proof-of-Work mechanism, designed to make it economically expensive to cheat the
network. Yet, while the protocol has proved successful thus far, it remains subject to a lot of
criticism. Beyond the problems related to the high computational costs of Proof-of-Work, 21 the
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Bitcoin network can also be co-opted by capital. If one or more colluding actors were to control
at least 51% of the networks hashing power, they would be able to arbitrarily censor
transactions by validating certain blocks at the expense of others (the so-called 51% attack).
With regard to status recognition, the Bitcoin protocol eliminates the problem at the root by
creating a trustless infrastructure where the identity of the participant nodes is entirely
irrelevant. In Bitcoin, there is no centralised authority in charge of assigning a network
identifier (or account) to each individual node. The notions of identity and status are thus
eradicated from the system and the only thing that matters ultimately is the amount of
computational resources that every node is providing to the network.
Conversely, the reward system represents one of the constitutive elements of the Bitcoin
network. The challenge has been resolved in a purely technical manner by the Bitcoin protocol,
through the notion of mining. In addition to providing a protection mechanism, the Proof-of-
Work algorithm introduces a series of economic incentives to reward those who are contributing
to maintaining and securing the network with their computational resources (or hashing
power). The mining algorithm is such that the first one to find the solution to a hard
mathematical problem (whose difficulty increases over time) 22 will be able to register a new
block into the blockchain and will earn a specific amount of bitcoins as a reward (the reward was
initially set at 50 bitcoins and is designed to be halved every four years). From a game-
theoretical perspective, this creates an interesting incentive for all network participants to
provide more and more resources to the network, so as to increase their chances of being
rewarded bitcoins. 23 Bitcoins incentive mechanism is thus a complicated, albeit mathematically
elegant way of bringing a decentralised network of self-interested actors to collaborate and
contribute to the operations of the Bitcoin network by relying exclusively on mathematical
algorithms and cryptography. Over time, however, the growing difficulty of mining due to the
increasing amount of computational resources engaged in the network, combined with the
decreasing amount of rewards awarded by the network, has eventually led to a progressive
concentration of hashing power into a few *mining pools, *which are today controlling a large
majority of the Bitcoin network thereby making it more vulnerable to a 51% attack. 24 Hence,
in spite of its original design as a fully decentralised network ruled by distributed consensus, in
practice, the Bitcoin network has evolved into a highly centralised network ruled by an
increasingly oligopolistic market structure.
Finally, with regard to the issue of conflict resolution, it is first important to determine what
constitutes a conflict at the level of the Bitcoin infrastructure. If the purpose of the Bitcoin
protocol is for a decentralised network of peers to reach consensus as to what is the right set of
transactions (or block) that should be recorded into the Bitcoin blockchain, then a conflict arises
whenever two alternative blocks (which are both valid from a purely mathematical standpoint)
are registered by different network participants in the same blockchain thus creating two
competing versions (or forks) of the same blockchain. Given that there is no way of deciding
objectively which blockchain should be favoured over the other, the Bitcoin protocol
implements a specific fork-choice strategy stipulating that, if there is a conflict somewhere on
the network, the longest chain shall win. 25 Again, as with the former two mechanisms, the
longest-chain rule is a simple and straightforward mechanism to resolve the emergence of
conflicts within the Bitcoin network by relying solely and exclusively on technological
means.
It is clear from this description, that the objective of Satoshi Nakamoto and the early Bitcoin
developers was to create a decentralised payment system that is both self-sufficient and self-
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contained. Perhaps naively, they thought it was possible to create a new technological
infrastructure that would be able to govern itself through its own protocols and rules and
that would not require any third-party intervention in order to sustain itself. And yet, in spite of
the mathematical elegance of the overall system, once introduced in a particular socio-economic
context, technological systems often evolve in unforeseen ways and may fall prey to unexpected
power relations.
In the short history of Bitcoin, indeed, there have been significant tensions related to border
protection, rewards systems and conflict resolution. Some of these issues are inherent in the
technological infrastructure and design of the Bitcoin protocol. Perhaps one of the most
revealing of the possible ways of subverting the system is the notion of selfish mining whereby
miners can increase their potential returns by refusing to cooperate with the rest of the network.
26 While this does not constitute a technical threat to the Bitcoin protocol per se, it can
nonetheless be regarded as an economic attack, which contributes to potentially reducing the
security of the Bitcoin network by changing the inherent incentive structure. 27 Other issues
emerged as a result of more exogenous factors, such as the Mt. Gox scandal 28 of 2014 which
led to the loss of 774,000 bitcoins (worth more than US 450 million dollars at the time) as well
as many other scams and thefts that occurred on the Bitcoin network over the years. 29 Most of
these were not due to an actual flaw in the Bitcoin protocol, but were mostly the result of ill-
intentioned individuals and bad security measures in centralised platforms built on top of the
Bitcoin network (Trautman, 2014).
Accordingly, it might be worth considering whether independently of the technical soundness
of the Bitcoin protocol the Bitcoin network can actually do away with any form of external
regulation and/or sanctioning bodies, or whether, in order to ensure the proper integration (and
assimilation) of such a technological artefact within the social, economic and cultural contexts of
modern societies, the Bitcoin network might require some form of surveillance and arbitration
mechanisms (either internal or external to the system) in order to preserve legitimate market
dynamics, as well as to guarantee a proper level of consumer protection and financial stability in
the system.
B. THE BITCOIN ARCHITECTS: GOVERNANCE OF INFRASTRUCTURE
Just like many other internet protocols, Bitcoin was initially released as an open source
software, encouraging people to review the code and spontaneously contribute to it. Despite
their formal emphasis on openness, different open source software projects and communities
feature very different social and organisational structures. The analysis of communication
patterns among various open source projects has shown tendencies ranging from highly
distributed exchanges between core developers and active users, to high degrees of
centralisation around a single developer (Crowston & Howison, 2005). Moreover, different open
source communities enjoy a more or less formalised governance structure, which often evolves
as the project matures. Broadly speaking, open source communities have been categorised into
two main types or configurations: democratic-organic versus autocratic-mechanistic (de Laat,
2007). The former display a highly structured and meritocratic governance system (such as the
Debian community, most notably), whereas the latter feature less sophisticated and more
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implicit governance systems, such as the Linux community, where most of the decision-making
power has remained in the hands of Linus Torvald often referred to as the benevolent
dictator. Bitcoin definitely falls into the second category.
Indeed, since its inception, Satoshi Nakamoto was the main person in charge of managing the
project, as well as the only person with the right to commit code into the official Bitcoin
repository. It was only at a later stage, when Satoshi began to disengage from the Bitcoin
project, that this power was eventually transferred to a small group of core developers. Hence,
just like many other open source projects, there is a discrepancy between those who can provide
input to the project (the community at large) and those who have the ultimate call as to where
the project is going. Indeed, while anyone is entitled to submit changes to the software (such as
bug fixes, incremental improvements, etc.), only a small number of individuals (the core
developers) have the power to decide which changes shall be incorporated into the main branch
of the software. This is justified partly by the high level of technical expertise needed to properly
assess the proposed changes, but also more implicitly by the fact that the core developers
have been entrusted with the responsibility of looking after the project, on the grounds of their
involvement (and, to some extent, shared ideology) with the original concept of Satoshi
Nakamoto.
With this in mind, we can now provide a second perspective on the three key challenges facing
Bitcoin, and analyse how they are being dealt with from the side of its architects: the Bitcoin
developers.
The definition and protection of community boundaries, and of the work produced collectively,
is a key issue in open source collectives. It classically finds a solution through the setting up of
an alternative intellectual property regime and licensing scheme copyleft, which ensures that
the work will be preserved as a common pool resource but also enforces a number of
organisational features and rules intended to preserve some control over the project (O'Mahony,
2003; Schweik & English, 2007). In the case of Bitcoin, community borders are at least in
theory quite clearly defined. Just like many other open source software projects, there exists a
dividing line between the community of users and developers at large, who can provide input
and suggest modifications to the code (by making a pull-request, for instance), and the core
developers who are in charge of preserving the quality and the functionality of the code, and
who are the only ones with the power to accept (or refuse) the proposed modifications (e.g. by
merging pull-requests into the main branch of the code). However, the distinction between
these two communities is not as clear-cut as it may seem, since the community at large also has
an important (albeit indirect) influence on the decisions concerning the code.
Specifically, consensus formation among the Bitcoin core developers has been formalised
through a process known as Bitcoin Improvement Proposals (BIPs) 30, which builds heavily on
the process in place for managing the Python programming language (PEPs or Python
Enhancement Proposals). Historically, both of these processes share similarities with (and
sometimes explicitly refer to) what can be considered the canonical approach to consensus
formation for designing and documenting network protocols: RFC or Request For Comments,
used to create and develop the internet protocol suite (Flichy, 2007, p. 35ff). The BIP process
requires that all source code and documentation be released and made available to anyone, so
that a multiplicity of individuals can contribute to discuss and improve them. Yet, the final call
as to whether a change will be implemented ultimately relies on the core developers assessing
the degree of public support which a proposal has built, and finding a consensus among
themselves:
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We are fairly liberal with approving BIPs, and try not to be too involved in decision
making on behalf of the community. The exception is in very rare cases of dispute
resolution when a decision is contentious and cannot be agreed upon. In those cases,
the conservative option will always be preferred. Having a BIP here does not make it
a formally accepted standard until its status becomes Active. For a BIP to become
Active requires the mutual consent of the community. Those proposing changes
should consider that ultimately consent may rest with the consensus of the Bitcoin
users. 31
This description provides a concise overview of the structures of legitimacy and accountability
which govern the relationship between the Bitcoin architects (or core developers) and the
Bitcoin users. While the community is open for anyone to participate, decision-making is
delegated to a small number of people who try to keep intervention to a minimum. Yet,
ultimately, the sovereignty of the overall project rests with the people i.e. the Bitcoin users and
miners. If the core developers were to make a modification to the code that the community
disagrees with (the miners, in particular), the community might simply refuse to run the new
code. This can be regarded as a form of vetoing power 32 or market-based governance 33
which guarantees that legitimacy of the code ultimately rests with the users.
Regarding acknowledgment of status, this requires balancing rewards for the most active and
competent contributors, while promoting and maintaining the collective character of the overall
endeavour. Indeed, open source developers are acutely aware of the symbolic retributions which
they can acquire by taking part in a given project, and are also monitoring other contributors to
assess their position within communities which display a strongly meritocratic orientation
(Stewart, 2005). Some communities rank individuals by resorting to systems of marks which
provide a quantitative metric for reputation; others rely on much less formalised forms of
evaluation. In the case of Bitcoin, some measure of reputation can be derived from the platform
used to manage the versioning of the software Github which includes metrics for users"
activities (such as number of contributions, number of followers, etc.). However, the reputation
of the core developers is on a completely different scale, and is mostly derived from their actual
merit or technical expertise, as well as a series of less easily defined individual qualities which
can be understood as a form of charisma.
Finally, conflict management is probably the most difficult issue to deal with in consensus-
oriented communities, since it requires a way to avoid both paralysing deadlocks and divisive
fights. Taking Wikipedia as an example, the community relies on specific mechanisms of mutual
surveillance as the most basic way of managing conflicts; however, additional regulatory
procedures of mediation and sanctions have been established and can be resorted to if needed
(Auray, 2012, p. 225). The Debian community is also well known for its sophisticated rules and
procedures (Lazaro, 2008). Though not immune to deadlocks and fighting, these communities
have managed to scale while maintaining some degree of inclusivity, by shifting contentious
issues from substantive to procedural grounds thus limiting the opportunities for personal
disputes and ad hominem attacks.
Obviously, the Bitcoin community lacks any such form of conflict management procedures. As
described above, failure to reach consensus among the core developers concerning the block size
dispute led to an actual forking of the Bitcoin project. Forking is a process whereby two (or
more) software alternatives are provided to the user base, who will therefore need to make a
choice: the adoption rate will ultimately determine which branch of the project will win the
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competition, or whether they will both evolve as two separate branches of the same software.
Forking is standard practice in free/libre and open source software development, and although
it can be seen as a last resort solution which can sometimes put the survival of a project at risk
(Robles & González-Barahona, 2012), it can also be considered a key feature of its governance
mechanisms. For Nyman and Lindman: The right to fork code is built into the very definition of
what it means to be an open source program it is a reminder that developers have the
essential freedom to take the code wherever they want, and this freedom also functions as a
looming threat of division that binds the developer community together (Nyman & Lindman,
2013).
In sum, it can be stressed that, at all three levels (defining borders, acknowledging status, and
managing conflicts), the governance of the Bitcoin project relies almost exclusively on its
leaders, lending credit to the view that peer production can often lead to the formation of
oligarchic organisational forms (Shaw & Hill, 2014). More specifically, in classic weberian terms
and as can often be observed in online communities Bitcoin governance consists in a form of
domination based on charismatic authority (O'Neil, 2014), largely founded on presumed
technical expertise. The recent crisis experienced by the Bitcoin community revealed the limits
of consensus formation between individuals driven by sometimes diverging political and
commercial interests, and underlined the discrepancies between the overall goals of the project
(a self-regulating decentralised virtual currency and payment system) and the excessively
centralised and technocratic elites who are in charge of the project.
III. THE INVISIBLE POLITICS OF BITCOIN
Vires in Numeris (latin for: Strength in Numbers) was the motto printed on the first physical
Bitcoin wallets 34 perhaps as an ironic reference to the In God we Trust motto printed on US
dollar bills. In the early days, the political objectives of Bitcoin were clearly and explicitly stated
through the desire of changing existing power dynamics between individuals and the state. 35
Yet, while some people use Bitcoin as a vehicle for expressing their political views (e.g. the
community of so-called cypherpunks and crypto-libertarians), others believe that there is no
real political ideology expressed within the technology itself. 17 Indeed, if asked, many will say
that one of the core benefits of Bitcoin is that it operates beyond the scope of governments,
politics, and central banks. 36 But it does not take much of a stretch to realise that this desire to
remain a-political constitutes a political dimension in and of itself (Kostakis & Giotitsas, 2014).
Decentralisation inherently affects political structures by removing a control point. Regarding
Bitcoin, decentralisation is achieved through a peer-to-peer payment system that operates
independently of any (trusted) third party. As a result, not only does Bitcoin question one of the
main prerogatives of the state that of money issuance and regulation, it also sheds doubts on
the need (and, therefore, the legitimacy) of existing financial institutions. On the one hand, as a
decentralised platform for financial transactions, Bitcoin sets a limit on the power of central
banks and other financial institutions to define the terms and conditions, and control the
execution of financial transactions. On the other hand, by enabling greater disintermediation,
the Bitcoin blockchain provides new ways for people to coordinate themselves without relying
on a centralised third party or trusted authority, thus potentially promoting individual freedoms
and emancipation. 37 More generally, the blockchain is now raising high hopes as a solution
which, beyond a payments system, could support many forms of direct interactions between free
and equal individuals with the implicit assumption that this would contribute to furthering
democratic goals by promoting a more horizontal and self-organising social structure
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(Clippinger & Bollier, 2014).
As Bitcoin evolves and in the eventuality that it gets more broadly adopted it will need to
face a growing number of technical challenges (e.g. related to blockchain scalability), but it will
also encounter a variety of social and political challenges as the technology will continue to
impinge upon existing social and governmental institutions, ushering in an increasingly
divergent mix of political positions.
The mistake of the Bitcoin community was to believe that, once technical governance had been
worked out, the need to rely on government institutions and centralised organisations in order
to manage and regulate social interactions would eventually disappear (Atzori, 2015; Scott,
2014). Politics would progressively give way to new forms of technologically-driven protocols for
social coordination (Abramowicz, 2015) regarded as a more efficient way for individuals to
cooperate towards the achievement of a collective goal while preserving their individual
autonomy.
Yet, one cannot get rid of politics through technology alone, because the governance of a
technology is itself inherently tied to a wide range of power dynamics. As Yochai Benkler
elegantly puts it, there are no spaces of perfect freedom from all constraints, only different sets
of constraints that one necessarily must choose from (Benkler, 2006). Bitcoin as a trustless
technology might perhaps escape the existing political framework of governmental and market
institutions; yet, it remains subject to the (invisible) politics of a handful of individuals the
programmers who are in charge of developing the technology and, to a large extent, deciding
upon its functionalities.
Implicit in the governance structure of Bitcoin is the idea that the Bitcoin core developers
(together with a small number of technical experts) are by virtue of their technical expertise
the most likely to come up with the right decision as to the specific set of technical features that
should be implemented in the platform. Such a technocratic approach to governance is
problematic in that it goes counter to the original conception of the Bitcoin project. There exists,
therefore, an obvious discrepancy between the libertarian vision of Bitcoin as a decentralised
infrastructure that cannot be regulated by any third party institution, and the actual governance
structure that dictates the technological development of Bitcoin which, in spite of its open
source nature, is highly centralised and undemocratic. While the (a)political dimension of the
former has been praised or at least acknowledged by many, the latter has remained, for a long
time, invisible to the public: the technical decisions to be taken by the Bitcoin developers were
not presented as political decisions, and were therefore never debated as such.
The block size debate is a good illustration of this tendency. Although the debate was framed as
a value-neutral technical discussion, most of the arguments in favour or against increasing the
size of a block were, in fact, part of a hidden political debate. Indeed, except for the few
arguments concerning the need to preserve the security of the system, most of the arguments
that animated the discussion were, ultimately, concerned with the socio-political implications of
such a technical choice (e.g. supporting a larger amount of financial transactions versus
preserving the decentralised nature of the network). Yet, insofar as the problem was presented
as if it involved only rational and technical choices, the political dimensions which these choices
might involve were not publicly acknowledged.
Moreover, if one agrees that all artefacts have politics (Winner, 1980) and that technology
frames social practice (Kallinikos, 2011), it follows that the design and features of the Bitcoin
platform must be carefully thought through by taking into account not only its impact on the
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technology as such (i.e. security and scalability concerns), but also its social and political
implications on society at large.
Politics exist because, in many cases, consensus is hard to achieve, especially when issues
pertaining to *social justice *need to be addressed. Social organisations are thus faced with the
difficult challenge of accommodating incompatible and often irreconcilable interests and values.
The solutions found by modern day liberal democracies involve strong elements of publicity and
debate. The underlying assumption is that the only way to ensure the legitimacy of collective
decisions is by making conflicts apparent and by discussing and challenging ideas within the
public sphere (Habermas, 1989). Public deliberations and argumentation are also necessary to
achieve a greater degree of rationality in collective decisions, as well as to ensure full
transparency and accountability of the ways in which these decisions are both made and put
into practice. But the antagonistic dimensions of social life constantly undermine the
opportunities for consensus formation. A truly democratic approach needs, therefore, to
acknowledge and, ideally, to balance or compromise these spaces of irreconcilable dissent
which are the most revealing of embedded power relations (Mouffe & Laclau, 2001; Mouffe,
1993).
This is perhaps even more crucial for technologies such as the internet or Bitcoin, which seek to
implement a global and shared infrastructure for new forms of coordination and exchange.
Bitcoin as an information infrastructure must be understood here as a means of introducing
and shaping a certain type of social relations (Star, 1999; Bowker et al., 2010). Yet, just like
many other infrastructures, Bitcoin is mostly an invisible technology that operates in the
background (Star & Strauss, 1999). It is, therefore, all the more important to make the design
choices lying behind its technical features more visible, in order to shed light on the politics
which are implicit in the technological design.
It should be clear, by now, that the political intentions of a technology cannot be resolved, only
and exclusively, by technological means. While technology can be used to steer and mediate
many kinds of social interactions, it should not (and cannot) be the sole and main driver of
social change. As Bitcoin has shown, it is unrealistic to believe that human organisations can be
governed by relying exclusively on algorithmic rules. In order to ensure the long-term
sustainability of these organisations, it is necessary to incorporate, on top of the technical
framework, a specific governance structure that enables people to discuss and coordinate
themselves in an authentically democratic way, but also and perhaps more importantly to
engage and come up with decisions as to how the technology should evolve. In that regard, one
should always be wary that the decision-making process involve not only those who are building
the technology (i.e. developers and software engineers) but also all those who will ultimately be
affected by these decisions (i.e. the users of that technology).
Different dimensions of the internet have already been analysed from such a perspective within
the broader framework of internet governance (DeNardis, 2012; Musiani et al., 2016), providing
important insights about the performative dimensions of the underlying software and protocols,
and the ways they have been put to use. These could prove useful in better understanding and
formulating a novel governance structure for the Bitcoin project one that is mediated (rather
than dictated) by technological rules.
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CONCLUSION: BITCOIN WITHIN THE WIDER FRAME OF
INTERNET GOVERNANCE
The internet, understood as a complex and heterogeneous socio-technical construct, combines
many different types of arrangements involving social norms, legal rules and procedures,
market practices and technological solutions which, taken together, constitute its overall
governance and power structures (Brousseau, Marzouki, & Méadel, 2012). Most of the research
on internet governance has focused on the interplay between infrastructures on the one hand,
and superstructures or institutions on the other particularly those which have emerged on top
of the network during the course of its history (such as ICANN or IETF), sometimes generating
conflictual relationships with existing national and international legal frameworks, private
corporations, or even civil society at large (Mueller, 2002; Mueller, 2010; Mathiason, 2009;
DeNardis, 2009; Bygrave & Bing, 2009). 38
Internet governance has been fraught with many frictions, controversies and disputes over the
years an international fight to control the basic rules and protocols of the internet described
by some as a global war (DeNardis, 2014). Even the much praised governance model of the
internet protocol suite based on the IETFs (deceptively simple) rule of rough consensus and
running code effectively involved, at certain points, fair amounts of power struggles and even
autocratic design (Russell, 2014). The idea that consensus over technical issues can be reached
more easily because it only involves objective criteria and factual observations (i.e. something
either works or doesnt) neglects the reality that stories about standards are necessarily about
power and control they always either reify or change existing conditions and are always
conscious attempts to shape the future in specific ways (Russell, 2012).
Set within the wider frame and history of internet governance, the Bitcoin case is particularly
instructive insofar as it draws on a certain number of new, but also already existing practices, to
promote some of the ideals which have been associated with the internet since its inception:
furthering individual autonomy and supporting collective self-organisation (Loveluck, 2015). As
we have seen, Bitcoin can be understood as a dual-layered construct, composed of a global
network infrastructure on the one hand, and a small community of developers on the other.
Although the trustlessness of the network seeks to obliviate the need for a central control point,
in practice, as soon as a technology is deployed, new issues emerge from unanticipated uses of
technology which ultimately require the setting up of social institutions in order to protect or
regulate the technology. These institutions can be more or less attuned with the overall aims of
the technology, and can steer it in different directions. For instance, while the IETF managed to
implement a relatively decentralised and bottom-up process for establishing standards, the
Domain Name System (DNS) has shown that even a distributed network might, at some point,
need to rely on a centralised control point to administer scarce resources (such as domain
names). This has led to the emergence of centralised and somewhat contested institutions,
such as, most notably, the ICANN a US-based non-profit corporation that is in charge of
coordinating all unique identifiers across the world wide web.
The lessons from the past taking account of both the success stories and failures of internet
governance can serve as useful indications as to what should be attempted or, on the contrary,
avoided in terms of Bitcoin governance. In particular, it should be acknowledged that socio-
technical systems cannot by virtue of their embeddedness into a social and cultural context
ensure their own self-governance and self-sustainability through technology alone. Any
technology will eventually fall prey to the social, cultural and political pressures of the context in
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which it operates, which will very probably make it grow and evolve in unanticipated directions
(Akrich, 1989; MacKenzie & Wajcman, 1999).
The Bitcoin project has evolved significantly over the years, for reasons which are both
endogenous and exogenous to the system. From a small network run by a few crypto-
libertarians and computer geeks eager to experiment with a new liberation technology
(Diamond, 2010), the Bitcoin network quickly scaled into a global network which is struggling to
meet the new demands and expectations of its growing user base and stakeholders.
The block size debate created an actual schism within the Bitcoin community and, by doing so,
ultimately stressed the need for a more democratic governance system. Drawing on the many
different arrangements which have been experienced at different levels of internet governance,
each with their own distinctive forms of deliberation and decision-making procedures
(Badouard et al., 2012), the Bitcoin development process could perhaps be improved by
introducing an alternative governance structure that would better account for the many other
dimensions (other than technical) that the technology might have, especially with regard to its
social, economic and political implications on society at large.
The Bitcoin Foundation was a first attempt in this direction, though it never managed to
establish itself as a standardisation body precisely due to a lack of legitimacy and accountability
in its own governance process. A centralised governance body (similar to ICANN) in charge of
ensuring the legitimacy and accountability for the future developments of the Bitcoin project
would obviously fail to obtain any kind of legitimacy from within the Bitcoin community since
eliminating the need for fiduciary institutions or other centralised authorities was the very
purpose of the Bitcoin network. The technologically-driven approach currently endorsed by the
Bitcoin project, aiming to create a governance structure that is solely and exclusively dictated by
technological means (governance by infrastructure) has also been shown to be bound to failure,
since a purely technological system cannot fully account for the whole spectrum (and
complexity) of social interactions. In this regard, one of the main limitations of the Bitcoin
protocol is that it is based on algorithmically quantifiable and verifiable actions (i.e. how much
computing resources people are investing in the network) and it is therefore unable to reward
those who contribute to the network in different manners, other than through hashing power.
A more interesting approach would involve using the underlying technology the blockchain
not as a regulatory technology that will technologically enforce a particular set of predefined
protocols and rules (as Bitcoin does), but rather as a platform on which people might encode
their own sets of rules and procedures that will define a particular system of governance one
that can benefit from the distinctive characteristics of the blockchain (in terms of transparency,
traceability, accountability, and incorruptibility) but would also leave room for the
establishment of an institutional framework that could operate on top of that (decentralised)
network. This would make sure that technology remains a tool of empowerment for people, who
would use it to enable and support new models of governance, rather than the opposite.
Given the experimental nature and current lack of maturity of the technology, it is difficult to
predict, at this specific point in time, what would be the best strategy to ensure that the Bitcoin
project evolves in accordance with the interests of all relevant stakeholders. Yet, regardless of
the approach taken, it is our belief that a proper governance structure for Bitcoin can only be
achieved by publicly acknowledging its political dimensions, and replacing the current
technocratic power structure of the Bitcoin project with an institutional framework capable of
understanding (and accommodating) the politics inherent in each of its technical features.
The invisible politics of Bitcoin: governance crisis of a decentralised infrastructure
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FOOTNOTES
1. See also Oram 2001. The case of file-sharing and its effects on copyright law have been
particularly salient (David, 2010).
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2. See Hughes, 1993; Levy, 2001.
3. In a fractional-reserve banking system, commercial banks are entitled to generate credits, by
making loans or investment, while holding reserves which only account for a fraction of their
deposit liabilities thereby effectively creating money out of thin air. A report from the Bank of
England estimates that, as of December 2003, only 3% of the money in circulation in the global
economy was represented by physical cash (issued by the central bank), whereas the remaining
97% is made up of loans and co-existent deposits created by private or commercial banks
(McLeay, Radia, & Thomas, 2014).
4. [Bitcoin is] completely decentralized, with no central server or trusted parties, because
everything is based on crypto proof instead of trust. The root problem with conventional
currency is all the trust thats required to make it work. The central bank must be trusted not to
debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must
be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit
bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not
to let identity thieves drain our accounts With e-currency based on cryptographic proof,
without the need to trust a third party middleman, money can be secure and transactions
effortless. (Nakamoto, 2009).
5. On 7 November 2008, Satoshi Nakamoto explained on the Cryptography mailing list that [we
will not find a solution to political problems in cryptography,] but we can win a major battle
in the arms race and gain a new territory of freedom for several years. Governments are good
at cutting off the heads of a centrally controlled network like Napster, but pure P2P networks
like Gnutella and Tor seem to be holding their own (Nakamoto 2008b).
6. The double-spending problem is a problem commonly found in many digital cash systems,
whereby people can spend the same digital token twice by simply duplicating it. It is usually
solved through the introduction of a centralised (trusted) third party, which is in charge of
verifying that every transaction is valid, before authorising it.
7. Unless one or more colluding parties control over 51% of the network. See below for a more
detailed explanation of the Bitcoin security model.
8. Of course, a variety of tools can be used to reduce the degree of transparency inherent in the
blockchain. Just like public-key encryption has enabled more secure communications on top of
the internet network, specific cryptographic techniques (such as homomorphic encryption and
zero-knowledge proofs) can be used to conceal the content of blockchain-based transactions,
without reducing the verifiability thereof. The most popular of these technologies is Zerocash, a
privacy-preserving blockchain which relies on zero-knowledge proofs to enable people to
transact on a public blockchain without disclosing neither the origin, the destination, nor the
amount of the transaction.
9. In October 2009, Bitcoin was first estimated with an exchange rate of 1 USD for 1,309 BTC by
the New Liberty Standard, calculated according the costs of electricity that had to be incurred in
order to generate bitcoins at the time.
10. The first commercial Bitcoin transaction known to date is the purchase by a Florida-based
programmer, Laslo Hanyecz, of a pizza purchased (by a volunteer) from Papa Johns for a face
value of 10,000 BTC.
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11. Over the years, several people have been outed as being Satoshi Nakamoto these include:
Michael Clear (Irish graduate student at Trinity College); Neal King, Vladimir Oksman and
Charles Bry (who filed a patent application for updating and distributed encryption keys, just a
few days before the registration of the bitcoin.org domain name); Shinichi Mochizuki (Japanese
mathematician); Jed McCaleb (founder of the first Bitcoin exchange Mt. Gox); Nick Szabo
(author of the bit gold paper and strong proponent of the notion of smart contract); Hal
Finney (a well-known cryptographer who was the recipient of the first Bitcoin transaction); and
Dorian Nakamoto (an unfortunate case of homonymy). Most recently, Craig Steven Wright (an
Australian computer scientist and businessman) claimed to be Satoshi Nakamoto, without
however being able to provide proper evidence to support his claim (2016). To date, all of these
claims have been dismissed and the real identity of Satoshi Nakamoto remains a mystery.
12. The Bitcoin Foundation has been heavily criticised due to the various scandals that its board
members had been associated with. These include: Charlie Shrem, who had been involved in
aiding and abetting the operations of the online marketplace Silk Road; Peter Vessenes and
Mark Karpeles, who were highly involved with the scandals of the now defunct Bitcoin exchange
Mt. Gox; and Brock Pierce, whose election in spite of his questionable history in the virtual
currency space has created huge controversy within the Bitcoin Foundation, eventually leading
to the resignation of nine members.
13. In general, forks can be categorised into soft and hard forks: the former retains some
compatibility or interoperability with the original software, whereas the latter involves a clear
break or discontinuity with the preceding system.
14. For instance, one of the largest US Bitcoin wallet and exchange company, Coinbase, was
removed from Bitcoin.org upon making the announcement that they would be experimenting
with Bitcoin XT.
15. As of 11 January 2016, only about 10% of the blocks in the Bitcoin network had been signed
by XT nodes (Palmer, 2016).
16. Mike Hearn, interview with the authors, April 2016.
17. a. b. Patrick Murck, interview with the authors, April 2016.
18. Peter Todd and Pindar Wong, interview with the authors, April 2016.
19. See supra, part I.A.
20. This reveals a significant bias of the Bitcoin community towards technological determinism
a vision whereby technological artefacts can influence both culture and society, without the
need for any social intervention or assimilation (Bimber, 1994).
21. As the name indicates, the Proof-of-Work algorithm used by Bitcoin requires a certain
amount of work to be done before one can record a new set of transactions (a block) into
Bitcoins distributed transaction database (the blockchain). In Bitcoin, the work consists in
finding a particular nounce to be embedded into the current block, so that processing the block
with a particular hash function (SHA-256) will result in a string with a certain number of
leading zeros. The first one to find this nounce will be able to register the block and will
therefore be rewarded with a specific number of bitcoins (Nakamoto 2008a). The amount of
work to be done depends on the number of leading zeros necessary to register a block this
number may increase or decrease depending on the amount of computational resources (or
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hashing power) currently available in the network, so as to ensure that a new block is registered,
on average, every 10 minutes. While this model was useful, in the earlier stages of the network,
as an incentive for people to contribute computational resources to maintain the network, the
Proof-of-Work algorithm creates a competitive game which encourages people to invest more
and more hashing power into the network (so as to be rewarded more bitcoins), ultimately
resulting in a growing consumption of energy.
22. The difficulty of said mathematical problem is dynamically set by the network: its difficulty
increases with the amount of computational resources engaged in the network, so as to ensure
that one new block is registered in the blockchain, on average, every 10 minutes.
23. In the early days, given the limited number of participants in the network, mining could be
easily achieved by anyone with a personal computer or laptop. Subsequently, as Bitcoins
adoption grew and the virtual currency acquired a greater market value, the economic incentives
of mining grew to the point that people started to build specific hardware equipments (ASICs)
created for the sole purpose of mining, making it difficult for people to mine without such
specialised equipment. Note that such an evolution had actually been anticipated by Satoshi
Nakamoto himself, who wrote already in 2008 that, even if at first, most users would run
network nodes, [...] as the network grows beyond a certain point, [mining] would be left more
and more to specialists with server farms of specialized hardware.
24. Bitcoin mining pools are a mechanism allowing for Bitcoin miners to pool their resources
together and share their hashing power while splitting the reward equally according to the
amount of shares they contributed to solving a block. Mining pools constitute a threat to the
decentralised nature of Bitcoin. Already in 2014, one mining pool (GHash) was found to control
more than half of Bitcoins hashing power, and was thus able to decide by itself which
transactions shall be regarded as valid or invalid the so-called 51% attack. Today, most of the
hashing power is distributed among a few mining pools, which together hold over 75% of the
network, and could potentially collude in order to take over the network.
25. Note that the longest chain is to be calculated by taking into account the number of
transactions, rather than the number of blocks. The reason for such an arbitrary choice is that
the longest chain is likely to be the one that required the greater amount of computational
resources, and is therefore probabilistically the less likely to have been falsified or tampered
with (e.g. by someone willing to censor or alter the content of former transactions).
26. Selfish mining is the process whereby one miner (or mining pool) does not broadcast the
validated block as soon as the solution to the mathematical problem for this blockchain has been
found, but rather continues to mine the next block in order to benefit from the first-mover
advantage in terms of finding the solution for that block. By releasing validated blocks with a
delay, ill-intentioned miners can therefore attempt to secure the block rewards for all
subsequent blocks in the chain, since unless the network manages to catch up with them
their fork of the blockchain will always be the longest one (and thus the one that required the
most Proof-of-Work) and will thus be the one that will ultimately be adopted by the network
(Eyal & Sirer, 2014).
27. Selfish miners encourage honest, but profit-maximising nodes to join the coalition of non-
cooperating nodes, thus eventually making the network more vulnerable to a 51% attack.
28. Mt. Gox was one of the largest Bitcoin exchanges, handling over 70% of all bitcoin
transactions as of April 2013. Regulatory issues brought Mt. Gox to be banned from the US
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banking system, thus making it harder for US customers to withdraw funds into their bank
accounts. On 7 February 2014, Mt. Gox halted all bitcoin withdrawals, claiming that they had
encountered issues due to the transaction malleability bug in the Bitcoin software (which
enabled people to pretend a transaction did not occur, when it actually occurred, so as to bring
the client to create an additional transaction). On 24 February, the Mt. Gox website went offline
and an (allegedly leaked) internal document got released showing that Mt. Gox had lost 774,408
bitcoins in an (allegedly unnoticed) theft that had been going on for years. On 28 February, Mt.
Gox filed for bankruptcy reporting a loss of US 473 million dollars in bitcoin.
29. These include, amongst others, the Bitcoin Saving and Trust bitcoin-based Ponzi scheme;
the hacking of exchanges such as Bitcoinica, BitFloor, Flexcoin, Poloniex, Bitcurex, etc; or even
online Bitcoin wallet services such as Inputs.io and BIPS.
30. BIP stands for Bitcoin Improvement Proposal. A BIP is a design document providing
information to the Bitcoin community, or describing a new feature for Bitcoin or its processes
or environment. The BIP should provide a concise technical specification of the feature and a
rationale for the feature. We intend BIPs to be the primary mechanisms for proposing new
features, for collecting community input on an issue, and for documenting the design decisions
that have gone into Bitcoin. The BIP author is responsible for building consensus within the
community and documenting dissenting opinions.
(https://github.com/bitcoin/bips/blob/master/bip-0001.mediawiki)
31. https://github.com/bitcoin/bips/blob/master/README.mediawiki
32. Bitcoin governance is mainly dominated by veto power, in the sense that many parties can
choose to stop a change; we haven't seen much use of power to push through changes. The main
shortcoming is users have, in practice, less veto power than they should due to coercion. (Peter
Todd, interview with the authors, April 2016).
33. If multiple competing implementations of the Bitcoin protocol exist, mining pool operators
and wallet providers must decide which code to run. Their decision is disciplined and
constrained by market forces. For mining pool operators, poor policy decisions can lead miners
to withdraw hashing power from the pool. Wallet providers may find users shift their keys to
another provider and exchange services may find liquidity moves to other providers. This
structure favors stability, resilience and a conservative development process. It also makes the
development and standards setting process resilient to political forces. (Patrick Murck,
interview with the authors, April 2016).
34. The first kinds of physical Bitcoin wallets consisted of a pre-loaded Bitcoin account whose
private address was stored in the shape of physical coins that people could hold.
35. As detailed above in Part I.A.
36. Mike Hearn, Pindar Wong, and Patrick Murck, interview with the authors, April 2016.
37. Peter Todd, interview with the authors, April 2016.
38. For instance, what happens when the freedom of expression made possible by the network
impinges on country-specific laws? And who should decide (and on what grounds) whether the
new .amazon generic Top Level Domain (gTLD) should be attributed to the US American
company which has trademarked the name, or to the Brazilian government which lays claim to a
geographical area?
