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