Bitcoin Cash, or, Why we can’t have nice things

Bitcoin Cash, or, Why we can’t have nice things

We have been promised the future, and it is grand. Our techno-prophets say — we have seen the Internet of Money, and it is glorious. From the founding of Bitcoin onwards, we no longer need governments, who only borrow endlessly and print money; we no longer need banks, who are run by the powerful that take economic rents; we no longer need centers, for we are the Decentralized; we no longer need governance, for we have the awesome power of mathematics and the Crypto-economy; we no longer need law, for the law of consensus is fairer than biased human judgment.

Or at the very least, Bitcoin will be the digital gold. It will be the digital payments rails for the new century. It will be the settlement layer in which all money happens. Each of us, empowered with a Bitcoin wallet, each of us a bank, an investor, a Federal Reserve Governor. Goodbye Visa, Mastercard, Goldman Sachs and central banks. What Bitcoin gives us is faster, more transparent, and more free.

So one has to raise an eyebrow on seeing the secondary effects of the August 1st Bitcoin upgrade and associated fork. On the one hand, in an impressive feat of collective action, most miners and exchanges are implementing an upgrade to the Bitcoin blockchain called SegWit 2x. You can read more about its technical background here. The short answer is that it is supposed to make the Bitcoin blockchain faster by increasing block size and changing how data is stored. That means more scale as Bitcoin approaches the mainstream with its $40 billion of market cap. That means the Internet of Money is working.

But on the other hand.

A group of dissenters from this upgrade are making their own copy of Bitcoin, through a splitting process of a “hard fork”, called Bitcoin Cash. It has a different solution for scale, which can be hotly debated. Holders of Bitcoin will get this other coin almost like a dividend. This happened with another Cryptocurrency, Ethereum, where the altcoin version is now worth only 6{b55092ad7b81eb92f88b6b638548833c1a19eaad7c20d5c60cae32e453b03222} of the original. So why is this a problem?

What the fork did is expose deep tensions in the ecosystem. While Bitcoin is meant to be faster and more transparent than financial incumbents, it has become slower in money movement and more opaque in governance. Certain exchanges like Coinbase opted out of supporting the Bitcoin Cash fork, which means that anyone holding Bitcoin at Coinbase (i.e., its 30 million wallets) doesn’t get the altcoin dividend at all. Other exchanges do support the fork and are passing on the dividend, even if its worthless. As a result, Coinbase experienced massive outflows and its processing time went from the promised land of instantaneous, to over 12 hours publicly, and over 30 hours anecdotally. That’s worse than faxing a wet signature.

And for many Cryptocurrency users, this will have been the first time they moved their digital currency through a set of arcane steps to secure it. Good luck — sharks are in the water. The blockchain itself cannot be easily hacked. But third party services like wallets, as well as local computers, can be infected, remotely controlled, key-logged, manipulated, and exploited. This immutable money lives in software, and software is still victim to malicious humans.

Nobody responsible or Everyone responsible?

Perhaps it is the right thing for the ecosystem not to support spurious alt coins created for dubious reasons, and Coinbase is making the right political choice. But whose political choice is this? The exchanges? The miners? The holders? And perhaps it is normal for the early-adopter phase of this technology to be so technical that regular people have trouble understanding and using the product without losing thousands of USD. But Bitcoin supporters should not be celebrating the fact that the product is hard to use and secure.

Perhaps also there is value in custody, in an ecosystem where the buck stops somewhere, whether in law or in global governance. There is a difference between “this is nobody’s responsibility” and “this is everyone’s responsibility”. A global governance model, where self-regulating organizations are created to iron out protocols, create standards of service, and ensure outcomes with built-in consumer protection are the Yellow Brick Road to Bitcoin’s Emerald City. And the world needs this Emerald City.

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