Why has Bitcoin failed?

Why has Bitcoin failed? It has failed because the community has failed. What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people. Worse still, the network is on the brink of technical collapse.

Excerpted from Mike Hearn, a leading developer of Bitcoin software who is leaving the experiment. The article goes into highly technical details but is worth reading in full.

Here is the gist:

“Despite knowing that Bitcoin could fail all along, the now inescapable conclusion that it has failed still saddens me greatly. The fundamentals are broken and whatever happens to the price in the short term, the long term trend should probably be downwards. I will no longer be taking part in Bitcoin development and have sold all my coins.

Why has Bitcoin failed? It has failed because the community has failed. What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people. 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.
Think about it.

If you had never heard about Bitcoin before, would you care about a payments network that:

* Couldn’t move your existing money

* Had wildly unpredictable fees that were high and rising fast

* Allowed buyers to take back payments they’d made after walking out of shops, by simply pressing a button (if you aren’t aware of this “feature” that’s because Bitcoin was only just changed to allow it)

* Is suffering large backlogs and flaky payments
… which is controlled by China

… and in which the companies and people building it were in open civil war?

I’m going to hazard a guess that the answer is no.”

This excerpt explains the role of Chinese Bitcoin miners in the crisis:

“Once upon a time, Bitcoin had the killer advantage of low and even zero fees, but it’s now common to be asked to pay more to miners than a credit card would charge.

Why has the capacity limit not been raised? Because the block chain is controlled by Chinese miners, just two of whom control more than 50% of the hash power. At a recent conference over 95% of hashing power was controlled by a handful of guys sitting on a single stage. The miners are not allowing the block chain to grow.

Why are they not allowing it to grow? Several reasons. One is that the developers of the “Bitcoin Core” software that they run have refused to implement the necessary changes. Another is that the miners refuse to switch to any competing product, as they perceive doing so as “disloyalty” —and they’re terrified of doing anything that might make the news as a “split” and cause investor panic. They have chosen instead to ignore the problem and hope it goes away.

And the final reason is that the Chinese internet is so broken by their government’s firewall that moving data across the border barely works at all, with speeds routinely worse than what mobile phones provide. Imagine an entire country connected to the rest of the world by cheap hotel wifi, and you’ve got the picture. Right now, the Chinese miners are able to?—?just about?—?maintain their connection to the global internet and claim the 25 BTC reward ($11,000) that each block they create gives them. But if the Bitcoin network got more popular, they fear taking part would get too difficult and they’d lose their income stream. This gives them a perverse financial incentive to actually try and stop Bitcoin becoming popular.

Many Bitcoin users and observers have been assuming up until very recently that somehow these problems would all sort themselves out, and of course the block chain size limit would be raised. After all, why would the Bitcoin community … the community that has championed the block chain as the future of finance … deliberately kill itself by strangling the chain in its crib? But that’s exactly what is happening.”

3 Comments Why has Bitcoin failed?

  1. AvatarJaromil

    I second the definition given by Max here: “whining ragequitter”. Him and his co-workers should learn to participate into a democratic process especially when starting a political debate of these proportions. With Mike whoever is behind him has chosen the wrong leadership.
    I disagree with the definition of “traitor”, but definitely he comes out as a manipulative ragequitter.

  2. AvatarKeith Parkins

    Mike Hearn has highlighted technical problems, serious technical problems. Who is paying him is irrelevant.

    But these are only part of the problem, the tip of the iceberg, there are many underlying problems that he does not address.

    Spivs and speculators, that bitcoin fails to meet even the most basic of criteria for a currency.

    – store of value
    – medium of exchange

    It is skewed in favour of the rich and early adopters. Early adopters were able to accrue millions, now need power hungry massive computing power.

    There is also the mindset of the developers. All have a vested interest financed by vulture capitalists, work for parasitical add ons hoping to make a fast buck.

    This is not the mindset of Open Software, Open Protocols, where you freely contribute your time to the collaborative commons, in order that all can benefit and in turn draw from the collaborative commons.

    The mindset of the bitcoin developers is the opposite to that in The GNU Manifesto.

    Software illustrates the dichotomy of the free flow of information. In one corner of the ring Bill Gates, who argues:

    most of you steal your software. Hardware must be paid for, but software is something to share. Who cares if the people who worked on it get paid?

    In the opposing corner of the ring Richard Stallman, who argues:

    If anything deserves a reward, it is social contribution. Creativity can be a social contribution, but only in so far as society is free to use the results. If programmers deserve to be rewarded for creating innovative programs, by the same token they deserve to be punished if they restrict the use of these programs. … Extracting money from users of a program by restricting their use of it is destructive because the restrictions reduce the amount and the ways that the program can be used. This reduces the amount of wealth that humanity derives from the program. When there is a deliberate choice to restrict, the harmful consequences are deliberate destruction.

    Bill Gates was arguing for commercial software, Richard Stallman Open Source software.

    What Richard Stallman saw, was if knowledge freely flows, we all benefit. We contributive freely to the collaborative commons, and in turn draw from the collaborative commons.

    Opens Source software, for example Apache, runs the internet, powerful supercomputers run on Open Source software Linux.

    Bitcoin was developed as Open Source, Open Protocol. It has failed as a currency, but it has also failed because the Bitcoin developers have failed to comprehend the basic premise that Richard Stallman outlined in The GNU Manifesto. They are funded by vulture capitalists, parasitic start ups, all who are looking for means to profit from Bitcoin.

    Bitcoin was an interesting proof of concept, nothing more. Coherent noise.

    The only use of bitcoin is as a quick and dirty means to transfer out of a currency, across a border.

    Can I buy a loaf of bread at the local baker? No.

    Is bitcoin dead?

    Bitcoin: the-emperor’s new clothes

    The future lies with faircoin, not bitcoin.

    The future lies with projects like Mycelia for tracking music, that make use of the blockchain.

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