What's Left of the Bitcoin Dream?

Isaac Morehouse

1 year ago by isaacmorehouse

Bitcoin is not private.

Bitcoin is not outside the clutching claws of the state.

I lament both of these realities. I wish it was totally private, and totally immune to state control, seizure, regulation, or manipulation. But it’s not.

It’s possible it can become more private and harder for states to control with some new innovations, but today they do not exist.

When I first heard about bitcoin around late 2011, the dream was for a money that gave individuals maximum freedom from the state, AND had maximum flexibility and programmability in use, AND opened up the global exchange of goods, services, and information, AND allowed an entirely new category of applications built on micropayments, all while having a supply that couldn’t be inflated away. The combination of digital information (bits) with money (coins) in a secure way changed everything and blew the lid off what was possible.

But not all of these attributes have borne out.

If we were to list the things included in the bitcoin dream, it might look like this:

  • Uninflatable
  • Private
  • Outside government control
  • Uncensorable
  • Instant
  • Global use
  • Decentralized data
  • Immutable data
  • Usable as money
  • Micro and nano transactions

How many of these attributes are part of the bitcoin reality?

Well, if we’re talking about BTC, the modified version of the original bitcoin protocol, it’s a pretty thin list.

What’s left of the dream on BTC?

It’s only partially uninflatable. Because of high fees and slow confirmation times, nobody really uses BTC. They buy it and hold it. Increasingly, they don’t actually buy BTC at all, but buy IOUs issued by trusted third parties (the things bitcoin set out to work around). More and more users are interacting with “bitcoin” via Robinhood, Venmo, Paypal, and CashApp, all of which let you buy, sell, send, and recieve (so far) unaudited IOUs. Tether and other stable coins get minted in unknown numbers, and offer the backbone for much of the BTC economy. In short, by making the protocol slow and expensive, transactions have been forced onto trusted third party issued IOUs which can (and if history is a guide) will be inflated without people knowing it.

It’s not private. All transactions are visible and traceable.

It’s not outside government control. Miners, developers, and even individual users and holders can and have been cajolled, regulated, and controlled. In fact, it’s almost impossible to obtain BTC without going through fully government controlled and surveilled onramps. This is exacerbated because BTC severely limited the block size so that earning BTC for small tasks, or obtaining it in casual online use is all but impossible. Exchanges are the only option for most.

It’s only somewhat uncensorable. Governments or other third parties can blacklist addresses with some success, and exchanges and wallets can cut off users, prevent sending and recieving, or even seize their coins. There are ways to make this far more difficult and less likely, but a sufficiently motivated entity can somewhat succesfully censor transactions.

It’s not instant. Not even close. It can take several minutes or even several days to recieve it. This uncertainty alone destroys the vast majority of business models and uses bitcoin was designed for.

It’s not global. Global use is technically possible - though government regulations make it very hard in some places - but economically not possible. The fees on BTC are in the several dollar range most of the time, and totally unreliable and unpredictable all of the time. This makes BTC useless for massive chunks of the world population.

The data is decentralized, but neutered. BTC transaction history is stored in a decentralized manner. But that’s all it can store. There is no ability to store any other kind of data on the BTC blockchain, because all of those original abilities were stripped out of the code by the third wave of developers in the mid 2010s. So you can’t really take advantage of decentralized data storage.

The data is immutable. This attribute seems intact on all versions of bitcoin.

It’s not usable as money. BTC is usable as a speculative assett if you’re in no hurry to convert it into goods or services. The long times, fees, and unpredictability of both make it all but useless for commerce.

Mico and nano transactions are not possible. You can’t really even send a dollar, since fees are normally several dollars. Forget about a penny or a thousandth of a penny. This kills all the things that bitcoin can uniquely do that other forms of money can’t.

Is there hope?

Yeah, I think so.

Though BTC retains only a few weakened attributes from the original dream list, there’s still hope in the protocol that was initially created and used in the first several years of bitcoin’s history.

The BCH fork increased the block size somewhat, and re-enabled some of the original code, and the BSV fork removed the block size limit entirely and restored all the original code. For this reason, BSV currently retains the best hope for what bitcoin can be.

Let’s take a look at our attributes in relation to BSV.

It’s pretty much uninflatable. Theoretically, you could have the same unaudited third-party IUOs on BSV, but economically, there’s little case for them. When you can send and recieve instantly for hundreths of a penny, you don’t have to “solve” these problems with centralized IOUs and you get to take full advanatage of one of bitcoin’s greatest attributes.

It’s potentially slightly more private. All transactions are visible and traceable, just like on BTC. I wish this were not that case, but it is. However, the difficulty of tracing back transactions to their source is increased when you have many thousands of times more transactions per block and per second happening, and the ability to split one transaction into many is possible on a level BTC can only dream of.

It’s not outside government control. The same problems facing BTC exist on this front for all forms of crypto yet created. You could argue that much broader, faster global adoption and use in myriad more applications could make it slightly technically or politically harder to control, but not impossible.

It’s only somewhat uncensorable. Not much different on this front, although because it’s easy to earn in small amounts, there are more ways to use it that are harder to censor than the large regulated hubs through which nearly all BTC transactions are conducted.

It’s instant. Just as originally designed. Instant transactions, which were always part of the magic of bitcoin, are alive and well on BSV.

It’s global. You can send and recieve it as easy as a text or email instantly with almost no fees. You don’t need to make more than a few pennies a day to be a part of the BSV economy.

The data is decentralized. BSV takes full advantage of this attribute by allowing any kind of data anyone is willing to pay for to go onchain. The economic considerations of individual actors, not the beliefs of a group of developers, get to determine how the blockchain is used. Because of this, everything from books, websites, podcasts, Tweets, images, and even video are onchain, meaning no central server can deplatform the owner and creator. This can be encrypted for privacy, or made public. (This very post is stored on the BSV blockchain.)

The data is immutable. This attribute seems intact on all versions of bitcoin.

It’s usable as money. Not only is it usable, it has all those original attributes that make it a better money than other options, especially in the digital realm - cheaper, instant settlement, programmable, etc.

Mico and nano transactions are possible. This is where the whole world opens up. The small but burgeoning app ecosystem on BSV is insanely interesting and creative, as builders, tinkerers, and entrpreneurs explore all the possibilities that fraction of a penny payments allow. Instant revenue splits between multiple parties for purchases of just cents or dollars. Games with monitized actions like a simple click costing hundreths of a pemny, interoperable assets from app to app, earning money from likes and comments, and so much more.

Where does that leave us?

So far, I have not seen any version of bitcoin or any other crypto project that is truly private, outside government control, and fully uncensorable. That dream has not been realized. I hope someday it will, but until then, operating under the illusion that it has is dangerous and naive.

However, the massive breakthrough of bitcoin still brought with it instant, nearly free, fixed-supply, global, programmable money that can reshape the entire digital economy and provide the building blocks for the interent cypherpunks only dreamed about. A data infrastructure where individuals control and monetize their actions and information, rather than entrusting it all to centralized third parties who can sell it, or cut off their access.

Entirely new economies are emerging around decentralized data and microtransactions.

This is no small feat. The implications are huge.

An individual ownership economy, with both the benefits of digital and the properties of scarce phsycial goods can coalesce into a brand new category.

Though I lament the lack of true privacy and total freedom from state actors, I am beyond thrilled about the possibilities a fully activated bitcoin protocol brings.