Bitcoin

New research paper misses the point as it looks at early Bitcoin ‘centralization’

A recently published academic paper on Bitcoin’s early days is once again generating discussion and debate on decentralization. How centralized was the Bitcoin network in its formative years, from January 2009 to the time its “price” hit US$1 in 2011. Bitcoin creator Dr. Craig S. Wright has refuted several of the paper’s claims, particularly the one hinting that any of the early participants could have “51% attacked” the network and double-spent coins.

Dr. Wright also disputes the paper’s claims that Bitcoin “was developed to serve as an anonymous digital currency.”

The paper’s authors are a group of nine academics from various institutions and fields from around the world. They include Alyssa Blackburn, Christoph Huber, Yossi Eliaz, Muhammad S. Shamim, David Weisz, Goutham Seshadri, Kevin Kim, Shengqi Hang, and Erez Lieberman Aiden.

The paper does not aim to be a critique of Bitcoin itself. Rather, it attempts to be a study of how an “anonymous economic community” could solve a “social dilemma” and work together towards a common goal, if cooperation leads to a shared desired outcome amongst its members. Of interest is the socio-economic analysis, rather than any implications for Bitcoin past or present. The paper notes that it only looks at Bitcoin’s beginnings, and is not concerned with its current situation.

However, as Dr. Wright points out, the actors in this group were not anonymous. “I knew everybody who was associated with anything on Bitcoin. And many people in Australia knew who I was,” he says.

For this reason alone, the paper’s authors should have chosen a different topic to examine their question—and it’s likely that studying Bitcoin’s early miners will not deliver an appropriate conclusion. The question of whether truly anonymous actors can (or will likely) cooperate towards a shared goal remains unanswered, despite the researchers’ conclusions.

The paper’s findings

The researchers performed several analyses on early Bitcoin addresses and connections between them, as well as “ground truth data” contained in public postings on Bitcoin discussion forums. Comparing them to Bitcoin’s market value at the time (stopping when the price reached US$1) they identify 64 separate participants in the early network, and estimate the economic stake of each.

It concludes that none of the participants “51% attacked” the network in its first two years because they chose not to—presumably because of shared economic interests that none of them were capable of communicating explicitly to each other.

Bitcoin misunderstandings, once again

Our purpose here in mentioning the paper is to draw attention (once again) to several misunderstandings about Bitcoin that have damaged its development and progress over its 13-year history. These misunderstandings, whether unintentional or deliberate, have led to today’s situation where there are at least three now-separate blockchains all claiming the name “Bitcoin.”

For the record, of those three, only BSV still uses the original Bitcoin protocol rules as described by Satoshi Nakamoto in his 2008 white paper. The word “Bitcoin,” therefore, can refer only to BSV—a notion that is currently the subject of several ongoing legal cases and may determine Bitcoin’s ultimate fate.

The word “decentralization” is one of Bitcoin’s most contentious topics. What exactly does it mean? How important is it to Bitcoin’s existence? And exactly what aspects of Bitcoin could be described as “decentralized” or “centralized”?

One criticism BTC proponents level at BSV is that its processing nodes (miners) are too “centralized.” Only by sharing the mining load among thousands or millions of large and small nodes can guarantee Bitcoin’s “decentralization” and keep it free from government control.

Dr. Wright counters that BTC itself has just three nodes with control over 51% of its hashing power—this is based on the fact that individual miners mine as members of pools, which are themselves centralized points of control. While this refutes BTC’s claims to decentralization, it’s not considered a “51% attack.” Dr. Wright says:

“The 51% attacker is not an attack. The entire lie about that is 51% means a single person manages the system. A single company manages the system. There is no attack.”

“It never had anything to do with decentralization. One person set the rules. Me. One person dictated how it would run. Me. One person created released it. Me. There is no consensus or community agreement in bitcoin. There never was and is not meant to be. There is a set of rules that I defined.”

Then there’s development/maintenance of the protocol and its rules: It’s estimated that only three people have commit access to BTC’s (BTC Core) code repository on GitHub. With this sort of structure, BTC policy decisions are even more centralized than the central bank/fiat financial system many BTC fans aim to replace.

It’s difficult to critique the paper’s conclusions about Bitcoin, if their premises and inputs are flawed from the start.

Importantly, researchers and writers have claimed to hold new, never-before-known knowledge of Bitcoin’s early days and early network participants. However the best way to gain this knowledge would be to simply ask Satoshi Nakamoto himself. Since most people involved with “Bitcoin” (or BTC) research either deny the fact that Dr. Wright acted as Satoshi Nakamoto, or are unaware of this reality altogether, they ignore this source of information. The researchers could have saved themselves a lot of time and energy here.

“Those other people didn’t have the majority of the blockchain for the first year, I did,” he says. The academics’ analysis is “terrible and has no basis in reality. It is just made up.”

The paper does acknowledge Satoshi’s network dominance, saying:

“Between Bitcoin’s launch and December 1st, 2009, eleven months later, Satoshi Nakamoto frequently controlled the majority of the computational resources and could perform unilateral 51% attacks. This is fully in line with what is already known.”

However, it says, others could have “attacked” the network in a similar manner after that first year. Dr. Wright, by noting that early participants did actually know each other, nullifies this finding. Moreover, the entire notion that anyone would want to “51% attack” the network is—and always has been—overblown. Cheating the system means there is no system.

In general, perhaps it’s time for Bitcoiners to stop worrying about “decentralization” (which is never what they think it means) or fearing 51% attacks (which aren’t really attacks). Bitcoin’s strength lies in its abilities—abilities to process, timestamp and verify data, its efficiency at doing so, and ability to do this in a way that retains high speeds and low costs to users. In these ways BSV is far superior to the current banking system, and even the internet itself.

Bitcoin (BSV) has been doing this consistently since 2009. This is what matters.

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