My Path To Bitcoin Maximalism
One of the biggest criticisms I hear when it comes to my Bitcoin maximalist beliefs is that I’m being closed minded. Detractors tend to say that being dismissive of all other protocols shows stubbornness and an unwillingness to learn. Quite to the contrary, I’ve found that as I’ve built my knowledge base over the years I’ve been able to compile a simple list of criteria that no coin other than Bitcoin has held a candle to. Today I’m going to break down that list.
First I’d like to address what drew me to Bitcoin in the first place. I’ve distilled it down to a few key points:
- The separation of money and state
- Censorship resistance
- Sound money
As I made my way down the Bitcoin rabbit hole it became pretty evident to me that these were the items (in my opinion) that mattered the most. Once upon a time during the gold standard, these principles were a societal norm. Unfortunately a combination of human complacency and gold lacking certain necessary features resulted in a decline and eventual abolition of the gold standard. What follows is a brief history lesson that helped me recognize the value of those three points above, as well as the subsequent list of criteria I believe are necessary to achieve them.
A Little History
Physical gold was indeed sound money, not controlled by any one state, and offered censorship resistance. Two things that weren’t inherent with gold were transportability and widely accessible/affordable secure self-storage.
This lead to third party storage solutions: banks. Depositors would receive a certificate they could redeem for their gold at a later date. For convenience sake, it became the norm for individuals to transact with gold certificates rather than withdrawing/re-depositing the physical gold itself. The resulting convenience also gave way to a host of problems.
Gold in the hands of a third party could not be easily audited. This gave the bank the ability to issue loans (via certificates) for more gold than they currently had access to: fractional reserve banking. Only a fraction of the issued gold certificates would be represented by real gold reserves in a vault. If depositors got spooked into a bank run and enough people redeemed their certificates simultaneously you could be left holding a worthless piece of paper, even if you had been the one to originally deposit the gold.
A mixture of complacency and laziness seem to have resulted in an over-reliance on third parties to hold one’s wealth, which in turn inevitably lead down another dark road: easy confiscation. In 1933 President Roosevelt made it illegal for US citizens to hold gold bars or certificates and in under a month confiscated nearly all privately held gold. Dissenters faced $10,000 fines and 5–10 years in prison. Upon relinquishing their gold, citizens were paid out a rate $20 USD/oz for their holdings.
At this point citizens had been robbed of their right to directly or indirectly hold any gold… but at least they still had sound money BACKED by gold, right? Not so fast. With the inability to hold gold, transact with it freely, or easily audit the third party custodian (now the Federal Reserve), regular people now had no say in the underlying rules and pricing mechanisms governing their money. They were no longer holding the money themselves after all — they were holding an asset pegged to sound money (gold). The peg itself was 100% in control of a centralized entity. Care to guess what happened next?
The Gold Reserve act of 1934 saw all gold confiscated the previous year surrendered to the US Treasury. The kicker? Gold was re-priced at $35 USD/oz. This means that overnight the dollar was devalued against gold by nearly half.
Many countries over the coming decades relied on the US to house their gold in its vaults in exchange for US dollars — now the world reserve currency. The spiral of fractional reserve lending continued on, this time on an international stage. It became obvious that the US was lending out more dollars than gold backing it and soon countries like Switzerland and France caught wind of this. They began to demand their gold back — basically a bank run between nations. In 1971, decades of complacency and compromise dealt its final blow to the gold standard.
On August 15 1971 President Richard Nixon announced the “temporary” suspension of US dollar convertibility to gold. All dollars in existence were now backed by little more than the paper they were printed on. That convertibility suspension exists to this day, and the consequences of this action can be summed up in a single graphic.
In summary, I believe the decline of the gold standard can be attributed to:
- The complacency of individuals putting trust in third parties
- Difficulty auditing third parties
- Easy confiscation
- Gradual centralization of power
- The ease with which the “rules” could be changed, and the lack of recourse citizens had to prevent this
Now Let’s Get To That List
I know, you were expecting a quick list about maximalism, but context is everything. I applaud you for reading this far. Let’s go ahead a break down my criteria to achieve a new sound money standard, how I believe they will help prevent the mistakes of the past, and why no coin other than Bitcoin has been able to endure this test (at least in my eyes).
1. Is it sound money?
For obvious reasons this is high priority. What is the supply? How is it issued over time? Was it distributed fairly from the get-go? With Bitcoin you get definitive answers out of all these questions, and the answers all tend to imply yes — this protocol was built to mirror the properties of a sound money like gold. Without diving too deep into the technicals, you can sum it up relatively quickly here:
- There will only ever be 21 million coins.
- Coins are issued on a gradually diminishing inflation schedule that halves production roughly every 4 years.
- Newly created coins (along with transaction fees paid by network users) are rewarded roughly every 10 minutes to individuals called miners who vet and organize transactions that adhere to the consensus rules of the network.
Sadly though, with my experience working at an OTC brokerage I know that many “crypto investors” have zero knowledge of these basic properties when it comes to Bitcoin, let alone altcoins. I suppose that’s why coins like Ethereum have technically illiterate individuals buying it out of speculation despite the fact that there has never been a clear monetary policy, and the decision making procedure around issuance tends to more closely mirror that of a central bank (Vitalik & The Etherum Foundation) than a decentralized network coming to consensus on hard rules.
It would also explain why a coin like Ripple… *ahem* XRP… that was printed out of nothing and sold to a clueless public STILL retains a ravenous mob of people convinced it will hit $589 per coin. This despite there being 100 BILLION units with 60% still in the possession of Ripple labs to be dumped on the market at regular intervals.
Supply and issuance are more or less the bedrocks of my reasoning in this list, while the rest of my points tend to center around how I can be sure these metrics will not and cannot be changed.
2. Are the transactions borderless and censorship resistant?
A pretty simple requirement here. If I have sound money, then I also want to be able to bring it with me anywhere and send it to anyone. The main coins that will most clearly fail here are fiat stablecoins created by corporations in jurisdictions with heavy regulatory oversight. JP Morgan Coin, Facebook’s Libra, and others like it will certainly be subject to full KYC/AML, and forced into the creaky framework set up decades ago by the legacy banking system. Luckily they’re pegged to fiat dollars anyway so they’re already out of the running after failing the sound money test.
We’re not out of the woods yet though. As much as people tout “blockchain” as being a magical censorship resistant immutable record, that’s only as true as the consensus mechanism governing the chain. How is it decided who actually owns what?
We’ve definitely seen examples of reversed transactions on supposedly decentralized blockchains. EOS has already regularly reversed previously confirmed and supposedly immutable transactions, sometimes without initially giving any reason at all. BAT (Basic Attention Token) is able to reclaim (in other words steal) your coins if you forget to use them within 90 days.
Even if you believe Ethereum to be sufficiently decentralized to acheive immutability at this point (which is debatable), that does not mean your ERC20 token (a coin built on top of the Ethereum blockchain) is immutable. Each token built atop another blockchain has its own set of consensus rules — which can include the ability to reverse transactions!
3. Is it sufficiently decentralized and secure?
This is where things get tricky for the uninitiated. A coin can claim to be immutable and anti-censorship all it wants, but in the end if there is not enough global computing power backing that claim up… their word is not worth whitepaper it’s written on. To me there’s no better example of this than Ethereum Classic.
A few years back there was a project called the DAO built on Ethereum. It boasted it would be a revolution in corporate structure, with no CEOs, crowd sourced decision making, and the ability to splinter into different corporations if some individuals disagreed with the trajectory. People got excited. Perhaps a little TOO excited, especially when it comes to untested code. In less than a month, 11,000 investors piled $150,000,000 into the project. Lo and behold, the code had loopholes and an attacker was able to siphon off around $50 million. The ensuing shitstorm resulted in two camps:
- Those who wanted to reverse the hack and return the money to the original owners. This is what we know as Ethereum now.
- Those who believed that reversing transactions would compromise the very reason for using a blockchain in the first place. This group preferred to leave the funds be. A “fork” of the protocol was created and is now known as Ethereum Classic, though technically speaking it is the original chain.
Ethereum Classic has always prided itself for its values and immutability. If your transaction is on the blockchain, you should be sure that it will still be there tomorrow and every day thereafter. There’s one little hitch though — Ethereum Classic didn’t have the hash power to back that up.
In brief, hash power is the amount of computing power on the network ensuring that transactions are relayed and recorded indefinitely. When this power is distributed amongst a large number of peers, everything tends to work swimmingly. However, when more than 51% this hash power centralizes in the hands of a single entity, they gain the ability to potentially reverse previously confirmed transactions and replace them with new ones. The more hashing power, the easier it is to pull off the attack.
This came to fruition for Ethereum Classic on January 7th 2019 when an individual or group of people was able to successfully double-spend around $1.1 million worth of ETC as they 51% attacked the chain. The long and short of it — they were able to deposit ETC on exchanges, trade for other coins, withdraw, then reverse their ETC deposit from ever happening.
Ethereum Classic isn’t the only large chain to experience attacks like this. Verge, Vertcoin, Bitcoin Gold and Feathercoin have all been 51% attacked, just to name a few.
4. Is it leaderless, or is there a clear corporation/figurehead behind it?
Let’s be crystal clear here. This is NOT something I’m looking for. Having leadership in any form, perceived or actual, is a detriment to a global cryptocurrency. Leaders are fallible, coercible, and corruptible. Bestowing faith and power upon a leader defers the responsibility of thinking and decision making to someone else. Even a supposedly moral person in a position of power can act against the free market in the interest of the “greater good” when in reality they’re simply favoring short term gain. Leaders can also say stupid things/make stupid mistakes that impact the market. Furthermore, all of these scenarios assume your leadership doesn’t have straight up malicious intentions.
If none of the other points have picked off your chosen coin thus far, this one is fairly likely to apply. Think of all the easily identifiable figureheads in crypto. Charlie Lee with Litecoin, Vitalik Buterin with Ethereum, Brad Garlinghouse & David Schwartz with Ripple…*ahem*… XRP. Regardless of the character of these individuals, each one is given a sort of deity position in their respective communities. When they say jump, a chorus of altcoiners respond with “how high?”
Hey, at least they’re not this guy…
5. How easy is it to make non-backwards compatible changes to the protocol?
One of the foundational principles of cryptocurrency (or Bitcoin, at least) is consensus. A group of individuals coming together and agreeing upon a set of rules that govern the protocol. Don’t follow the rules? Your transactions are rejected and you are ignored. This beckons back to something I mentioned in point number one. How can I be sure that the principles of sound money in a cryptocurrency’s protocol will be upheld?
Many Bitcoin critics like to point to the fact that it is slow to change, and other chains are much more nimble when implementing upgrades. Hell, one of the slogans of Ethereum is “move fast and break things.” Non-backwards compatible upgrades (hard forks) have become commonplace on coins like Ethereum, Bitcoin Cash, Dash and others.
My issue with this is simply that it sets a dangerous precedent. When the bedrock of your currency — its underlying rule set — is trivial to change, then all of the promises you’ve come to put your trust in are malleable. While many think the 21 million coin limit is an untouchable metric, I would venture to say that at one point the idea of leaving the gold standard seemed to be an equally preposterous idea. In my opinion, the sooner the bitcoin protocol ossifies the better. I have no interest in jeopardizing Bitcoin’s nearly spotless decade-long track record because of a knee-jerk reaction to buying coffee becoming impractical for short periods of time.
So what about adding features and scaling for transactional demand? I’m confident in the ability of base layer optimization in combination with layer 2 solutions in order to achieve this. Lightning network launched on main net in March of 2018 and the amount of growth in that time has been staggering. Additions to the protocol like neutrino, submarine swaps, and atomic multi-path payments will make the user’s experience much more seamless over time. Taproot, RGB protocol and Liquid are all examples that expand Bitcoin’s ability to do things like smart contracts and pegged digital assets built atop its own blockchain.
In short, I see things developing atop Bitcoin without bloating the base layer or creating the need for frequent hard forks. I think this is the best approach to scaling, and I will outline my reasons why in the final criteria I’ve set out…
6. Can users self-validate and follow the consensus rules with minimal cost?
One of the most important aspects of Bitcoin is the ability of any individual to independently validate and follow the consensus rules of their choosing. I cannot stress how important this is. To reference the beginning of this piece, complacency and a lack of personal responsibility lead to centralized entities gaining control of the “consensus mechanisms” around gold. The rules were changed on everyone and they saw their savings confiscated/devalued in one fell swoop.
As it stands right now, it is relatively trivial for someone with a computer and an internet connection to download an entire copy of the blockchain and vet the entirety of Bitcoin’s transaction history themselves. It is also trivial for someone to continue running the Bitcoin software and know beyond a shadow of a doubt that no one else can force different consensus rules upon them. This is due in-part to the block size limit and the continual work of developers to optimize the base layer, keeping it accessible to every-day users. In contrast, the Ethereum blockchain has ballooned out of control, surpassing 1TB in May of 2018. Storing it isn’t the primary issue though, it’s latency. Trying to sync a node with so much data being relayed is a veritable nightmare, which in turn has centralized validators.
I don’t necessarily think that everyone always needs to run a node, but I am firm in my belief that it should ALWAYS be an option. When you do not run a Bitcoin node, you are trusting someone else to tell you what Bitcoin is. That’s fine and dandy when there are no contentious issues on the table, but when shit hits the fan, you run the risk of being forced into a rule change you don’t want.
The development around optimizing Bitcoin’s base layer to make it more accessible to the masses is what I believe to be this protocol’s greatest strength. To date the best example of this has been the defeat of Segwit2X.
Quick recap: In 2017 a large number or industry-leading companies (BitPay, Coinbase, Blockchain.info, Shapeshift & more) plus a majority of Bitcoin miners — decided they would create a non-backwards compatible fork of Bitcoin to scale the network. The new coin would be called Bitcoin, and the old chain would be abandoned.
In a spectacular show of defiance, Bitcoiners rejected this “upgrade” to the network. With nothing more than their own privately run nodes and some top-notch game theory, individual users defeated every major company in the space and forced them into a position where they backed down less than 24 hours before the proposed fork.
For me this was the single most bullish moment in Bitcoin’s history. Across any other industry, a result like this is nearly unprecedented. THIS is Bitcoin’s strength: the ability of individual users to stand up against all odds and flip the bird to the establishment when they come in trying to “fix Bitcoin”.
Conclusion
My path to Bitcoin Maximalism was not born out of closed-mindedness, but rather a careful consideration of what properties attracted me to Bitcoin, and what conditions I believe are necessary to preserve those properties. I want a protocol that:
- Embodies the principles of sound money
- Is borderless and censorship resistant
- Exhibits sufficient decentralization
- Has no discernable figurehead/leader
- Is incredibly difficult to change in a non-backwards compatible way
- Preserves the ability of any individual to validate and follow the consensus rules
I’ve found distilling my interests and values down to these points has given me focus. A failure on any single one of these points is a non-starter, and this has become my litmus test for blockchain bullshit. Outside of Bitcoin, I’ve yet to see another coin clear these hurdles — and until I see evidence to the contrary, I’m inclined to believe that Bitcoin is the only protocol that will.
