Finality of decision-making
From our white paper:
Lack of final decision-makers. Because no one owns or controls Bitcoin, all proposals for
meaningful changes to the protocol are potentially contentious, resulting in ongoing civil wars, consensus failures, and ultimately hard forks of the blockchain. These events generate
confusion and retard progress.
An important observation is that the number of processors required to settle a US dollar bank-to-bank payment varies, depending upon the geographical locations of the parties to the transaction. Also, due to their being rooted in an accounting system called double-entry bookkeeping (used widely by banks since the end of the 15th century) (35), banks historically settled transactions on the basis of a “business day.” This may be visualized as analogous to a “block” (in the blockchain sense) spanning at least 24 hours (longer where weekends or holidays are involved), in which the final balances of each account after all of the transactions have been settled represent the set of unspent transaction outputs (UXTOs) for the next block. Prior to January 2001, CHIPS settled at the end of the day, but now provides intraday payment finality through a real-time system.
Ownership and Control
Diversity of ownership and control for settlement mechanisms generally parallels the degree of
decentralization. A single clearing cluster is typically owned by one corporate operator, such as PayPal. A multiplicity of clearing nodes typically has many individual operators. Therefore a decentralized system requires the consensus of the network; whereas in a centralized clearing system the issue of achieving consensus is moot. This follows logically because “consensus” is really a mechanism for resolving blockchain forks (i.e. figuring out which is really the longest chain), and in a single-node clearing system, no forks will ever occur.
permanent nobilities where the members of the genesis block allocation always have the ultimate sayWe should note that in the case of PoW blockchains, the formation of mining pools effectively generates more relative centralization than the raw number of client nodes suggests. Although it has never occurred so far with Bitcoin, it is possible that a mining cartel could be formed which could exert effective central control over a public blockchain, even a very large one, by controlling 51% of the hashing power on the network for a sustained period.
In a Proof-of-Stake (PoS) blockchain, it is frequently the case that a small number of owners (founders, developers, early adopters) control a majority of the coins in the system, and consequently have the ability to control consensus; and thus dictate what happens – or doesn’t happen – on “their” blockchain. Ethereum’s Vitalik Buterin called pure PoS systems “permanent nobilities where the members of the genesis block allocation always have the ultimate say.” (53) In such a system, ownership and control are potentially quite centralized, despite being implemented as a “decentralized” public blockchain.
The ability of a development team to control updates to client code can also create a quantity of effective centralization. For example there have been a number of updates to Bitcoin Core (such as the introduction of SegWit) (54) that have not been unanimously agreed upon. But this form of control was never more clearly demonstrated than by the hard fork of Ethereum (ETH) that spawned Ethereum Classic (55) (ETC). A project which was a major early adopter of Ethereum’s smart contracts technology, called the DAO, failed catastrophically (56), and the Ethereum Foundation elected to roll it all back in order to restore the investors’ losses. This was done despite strong warnings (57) that such intervention effectively nullified the concept that “the code is the law,” potentially opening up a Pandora’s box of additional cases in which a similar decision could be taken by those in effective control of the technology. “Ethereum Classic” or ETC represents the continuation of the original ETH blockchain, in which the DAO episode was not rolled back, for philosophical reasons.
What we see illustrated here is that a consensus failure (that is, a failure to achieve consensus, rather than a consensus that a failure has occurred!), leads to a hard fork in the blockchain. A consensus failure could arise as the result of a code change (as occurred with BCH and will occur again if B2X is ever launched), due to a data change (such as the DAO rollback), or from a 51% hashing attack. The latter cause has shown itself to be an unlikely possibility on a widely used blockchain, but the others have actually precipitated forks.
Having many communal owners or stakeholders in a network is seen as democratizing, and therefore as a social good. Given the extraordinary abuses seen with national fiat currencies, and the central banks that issue and operate those currencies, this is quite understandable. There is definitely something to be said for a network that is naturally resistant to dictatorial control. Unfortunately the flip side of this characteristic is the impossibility of final decision-making, precisely because there exists no ultimately responsible party. Bitcoin is presently in the midst of a full-blown civil war about scalability solutions,
which is becoming increasingly bitter, acrimonious (58), and indeed childish, while usability is plummeting and innovation is stalling out – or more accurately, moving into other technologies such as Ethereum, Hyperledger (59), and private permissioned blockchains. (60)
Many decentralized owners is also seen as fostering censorship resistance, because it becomes much harder to shut down widely scattered nodes, and because no one party can be served with subpoenas, cease-and-desist orders, or the like. However this supposition may be naive. In fact since Bitcoin (and practically every altcoin) utilizes a distinct protocol for all network communications, it wouldn’t be particularly difficult to program intelligent edge routers (say, at a national border) to drop all packets conforming to that protocol, by means of what is known as “deep packet inspection.” It should also be noted that the censorship resistance derived from having no single point for legal process can also be
achieved by means of software design, coupled with sufficient jurisdictional arbitrage embedded within the operational business model. (More on this topic later.)