Since its inception in , the grand ambition of the Bitcoin project has been to support direct monetary transactions among a network of peers, by creating a decentralised payment system that does not rely on any intermediaries. Its goal is to eliminate the need for trusted third parties, particularly central banks and governmental institutions, which are prone to corruption. Recently, the community of developers, investors and users of Bitcoin has experienced what can be regarded as an important governance crisis — a situation whereby diverging interests have run the risk of putting the whole project in jeopardy.
This governance crisis is revealing of the limitations of excessive reliance on technological tools to solve issues of social coordination and economic exchange. Taking the Bitcoin project as a case study, we argue that online peer-to-peer communities involve inherently political dimensions, which cannot be dealt with purely on the basis of protocols and algorithms.
The first part of this paper exposes the specificities of Bitcoin, presents its underlying political economy, and traces the short history of the project from its inception to the crisis. The second part analyses the governance structure of Bitcoin, which can be understood as a two-layered construct: an infrastructure seeking to govern user behaviour via a decentralised, peer-to-peer network on the one hand, and an open source community of developers designing and architecting this infrastructure on the other.
We explore the challenges faced at both levels, the solutions adopted to ensure the sustainability of the system, and the unacknowledged power structures they involve. In a third part, we expose the invisible politics of Bitcoin, with regard to both the implicit assumptions embedded in the technology and the highly centralised and largely undemocratic development process it relies on.
We conclude that the overall system displays a highly technocratic power structure, insofar as it is built on automated technical rules designed by a minority of experts with only limited accountability for their decisions. Historically, money has taken many different forms.
Far from being an exclusively economic tool, money is closely associated with social and political systems as a whole — which Nigel Dodd refers to as the social life of money Dodd In the wake of economic crises in particular, it is not uncommon to witness the emergence of alternative money or exchange frameworks aimed at establishing different social relations between individuals — more egalitarian, or less prone to accumulation and speculation North, Since it first appeared in , the decentralised cryptocurrency Bitcoin has raised high hopes for its potential to reshuffle not only the institutions of banking and finance, but also more generally power relations within society.
The potential consequences of this innovation, however, are profoundly ambivalent. On the other hand, it has also been framed as a solution for greater social justice, by undermining oligopolistic and anti-democratic arrangements between big capital and governments, which are seen to favour economic crises and inequalities.
Its implicit political project can therefore be understood as effectively getting rid of politics by relying on technology. More generally, distributed networks have long been associated with a redistribution of power relations, due to the elimination of single points of control.
The idea was that information could flow through multiple and unfiltered channels, thus circumventing any attempts at controlling or censoring it, and providing a basis for more egalitarian social relations as well as stronger privacy. In practice however, it became clear that network design is much more complex and that additional software, protocols and hardware, at various layers of the network, could and did provide alternate forms of re-centralisation and control and that, moreover, the internet was not structurally immune to other modes of intervention such as law and regulation Benkler, Kahn In particular, such ideas were strongly advocated starting from the late s by an informal collective of hackers, mathematicians, computer scientists and activists known as cypherpunks , who saw strong cryptography as a means of achieving greater privacy and security of interpersonal communications, especially in the face of perceived excesses and abuses on the part of governmental authorities.
Yet cryptography is not only useful to protect the privacy of communications; it can also serve as a means to promote further decentralisation and disintermediation when combined with a peer-to-peer architecture. In , a pseudonymous entity named Satoshi Nakamoto released a white paper on the Cryptography Mailing list metzdowd.
One year later, a first implementation of the ideas defined in the white paper was released and the Bitcoin network was born. It introduces its own native currency or unit of account with a fixed supply — and whose issuance is regulated, only and exclusively, by technological means.
The Bitcoin network can therefore be used to replace at least some of the key functions played by central banks and other financial institutions in modern societies: the issuance of money on the one hand, and, on the other hand, the fiduciary functions of banks and other centralised clearing houses. Supported by many self-proclaimed libertarians, Bitcoin is often presented as an alternative monetary system, capable of bypassing most of the state-backed financial institutions — with all of their shortcomings and vested interests which have become so obvious in the light of the financial crisis of A certain number of bitcoins are generated, on average, every ten minutes and assigned as a reward to those who lend their computational resources to the Bitcoin network in order to both operate and secure the network.
In this sense, Bitcoin can be said to mimic the characteristics of gold. Just as gold cannot be created out of thin air, but rather needs to be extracted from the earth through mining , Bitcoin also requires a particular kind of computational effort — also known as mining — in order for the network protocol to generate new bitcoins and just as gold progressively becomes harder to find as the stock gets depleted over, also the amount of bitcoins generated through mining decreases over time.
The establishment and maintenance of a currency has traditionally been regarded as a key prerogative of the State, as well as a central institution of democratic societies. Controlling the money supply, by different means, is one of the main instruments that can be leveraged in order to shape the economy, both domestically and in the context of international trade. Yet, regardless of whether one believes that the State has the right or duty to intervene in order to regulate the market economy, monetary policies have sometimes been instrumentalised by certain governments using inflation as a means to finance government spending e.
Perhaps most critical is the fact that, with the introduction of fractional-reserve banking, commercial banks acquired the ability to temporarily increase the money supply by giving out loans which are not backed up by actual funds Ferguson, Although there have been many attempts at establishing alternative currencies, and cryptocurrencies have also been debated for a long time, the creation of the Bitcoin network was in large part motivated in response to the social and cultural contingencies that emerged during the global financial crisis of As explicitly stated by Satoshi Nakamoto in various blog posts and forums, Bitcoin aimed at eradicating corruption from the realm of currency issuance and exchange.
Given that governments and central banks could no longer be trusted to secure the value of fiat currency and other financial instruments, Bitcoin was designed to operate as a trustless technology, which only relies on maths and cryptography. To address this issue, Bitcoin has brought two fundamental innovations, which, together, provide for the self-governability and self-sustainability of the network.
The first innovation is the blockchain , which relies on public-private key encryption and hashing algorithms to create a decentralised, append-only and tamper-proof database. The second innovation is Proof-of-Work , a decentralised consensus protocol using cryptography and economic incentives to encourage people to operate and simultaneously secure the network. Accordingly, the Bitcoin protocol represents an elegant, but purely technical solution to the issue of social trust — which is normally resolved by relying on trusted authorities and centralised intermediaries.
With the blockchain, to the extent that trust is delegated to the technology, individuals who do not know and therefore do not necessarily trust each other, can now transact with one another on a peer-to-peer basis, without the need for any intermediary.
Hence Bitcoin uses cryptography not as a way to preserve the secrecy of transactions, but rather in order to create a trustless infrastructure for financial transactions. In this context, cryptography is merely used as a discrete notational system DuPont, designed to promote the autonomy of the system, which can operate independently of any centralised third party 5. It relies on simple cryptographic primitives or building blocks SHA hash functions and public-key cryptography to resolve, in a decentralised manner, the double-spending problem 6 found in many virtual currencies.
The scheme used by Bitcoin Proof-of-Work relies on a peer-to-peer network of validators or miners who commit their computational resources hashing power to the network in order to record all valid transactions into a decentralised public ledger a. All valid transactions are recorded into a block, which incorporates a reference or hash to the previous block — so that any attempt at tampering with the order or the content of any past transaction will always and necessarily result in an apparent discontinuity in the chain of blocks.
By combining a variety of existing technologies with basic cryptographic primitives, Bitcoin has created a system that is provably secure, practically incorruptible and probabilistically unattackable 7 — all this, without resorting to any centralised authority in charge of policing the network. Bitcoin relies on a fully open and decentralised network, designed in such a way that anyone is free to use the network and contribute to it, without the need for any kind of previous identification.
Yet, contrary to popular belief, Bitcoin is neither anonymous nor privacy-friendly. Quite the contrary, anyone with a copy of the blockchain can see the history of all Bitcoin transactions. Decentralised verification requires, indeed, that every transaction be made available for validation to all nodes in the network and that every transaction ever done on the Bitcoin network can be traced back to its origin.
The self- regulation of the overall system is primarily achieved through a system relying on perfect information the blockchain , combined with a consensus protocol and incentives mechanism Proof-of-work , to govern the mutually adjusting interests of all involved actors. Other dimensions of social trust and coordination such as loyalty, coercion, etc. The history of Bitcoin — albeit very short — consists of a very intense series of events, which have led to the decentralised cryptocurrency becoming one of the most widely used forms of digital cash.
The story began in October , with the release of the Bitcoin white paper Nakamoto, a. In January , the Bitcoin software was published and the first block of the Bitcoin blockchain was created the so-called Genesis block with a release of 50 bitcoins.
Shortly after, the first Bitcoin transaction took place between Satoshi Nakamoto and Hal Finney — a well-known cryptographer and prominent figure of the cypherpunk movement in the s. It is not until a few months later that Bitcoin finally acquired an equivalent value in fiat currency 9 and slowly made its way into the commercial realm, as it started being accepted by a small number of merchants.
In the early days, Satoshi Nakamoto was actively contributing to the source code and collaborating with many of the early adopters. Yet, he was always very careful to never disclose any personal details, so as to maintain his identity secret. To date, in spite of the various theories that have been put forward, 11 the real identity of Satoshi Nakamoto remains unknown.
In a way, the pseudonymity of Satoshi Nakamoto perfectly mirrors that of his brainchild, Bitcoin — a technology designed to substitute technology for trust, thus rendering the identification of transacting parties unnecessary. Over the next few months, Bitcoin adoption continued to grow, slowly but steadily.
Yet, the real spike in popularity of Bitcoin was not due to increased adoption by commercial actors, but rather to the establishment in January of Silk Road — an online marketplace mostly used for the trading of illicit drugs relying on Tor and Bitcoin to preserve the anonymity of buyers and sellers. Silk Road paved the way for Bitcoin to enter the mainstream, but also led many governmental agencies to raise several concerns that Bitcoin could be used to create black markets, evade taxation, facilitate money laundering and even support the financing of terrorist activities.
In April , to the surprise of many, Satoshi Nakamoto announced on a public mailing list that he would no longer work on Bitcoin. Yet, before doing so, he transferred control over the source code repository of the Bitcoin client to Gavin Andresen, one of the main contributors to the Bitcoin code. Andresen, however, did not want to become the sole leader of such a project, and thus granted control over the code to four other developers — Pieter Wuille, Wladimir van der Laan, Gregory Maxwell, and Jeff Garzik.
Those entrusted with these administration rights for the development of the Bitcoin project became known as the core developers. As the popularity of Bitcoin continued to grow, so did the commercial opportunities and regulatory concerns. However, with the exit of Satoshi Nakamoto, Bitcoin was left without any leading figure or institution that could speak on its behalf.
This is what justified the creation, in September , of the Bitcoin Foundation — an American lobbying group focused on standardising, protecting and promoting Bitcoin. With a board comprising some of the biggest names in the Bitcoin space including Gavin Andresen himself , the Bitcoin Foundation was intended to do for Bitcoin what the Linux Foundation had done for open source software: paying developers to work full-time on the project, establishing best practices and, most importantly, bringing legitimacy and building trust in the Bitcoin ecosystem.
And yet, concerns were raised regarding the legitimacy of this self-selected group of individuals — many of whom had dubious connections or were allegedly related to specific Bitcoin scams 12 — to act as the referent and public face of Bitcoin. Beyond the irony of having a decentralised virtual currency like Bitcoin being represented by a centralised profit-driven organisation, it soon became clear that the Bitcoin Foundation was actually unable to take on that role. Plagued by a series of financial and management issues, with some of its ex-board members under criminal investigation and most of its funds depleted, the Bitcoin Foundation has today lost much of its credibility.
But even the fall of the Bitcoin Foundation did not seem to significantly affect Bitcoin — probably because the Foundation was merely a facade that never had the ability to effectively control the virtual currency. Bitcoin adoption has continued to grow over the past few years, to eventually reach a market capitalisation of almost US 7 billion dollars.
Bitcoin still has no public face and no actual institution that can represent it. Yet, people continue to use it, to maintain its protocol, and to rely on its technical infrastructure for an increasing number of commercial and non-commercial operations. And although a few Bitcoin-specific regulations have been enacted thus far see e.
Bitcoin thus continues to operate, and continues to be regarded by many as an open source software platform that relies on a decentralised peer-to-peer network governed by distributed consensus. Yet, if one looks at the underlying reasons why Bitcoin has been created in the first place, and the ways it has eventually been adopted by different categories of people, it becomes clear that the original conception of Bitcoin as a decentralised platform for financial disruption has progressively been compromised by the social and cultural context in which the technology operates.
Following the first wave of adoption by the cypherpunk community, computer geeks and crypto-libertarians, a second larger wave of adoption followed the advent of Silk Road in But what actually brought Bitcoin to the mainstream were the new opportunities for speculation that emerged around the cryptocurrency, as investors from all over the world started to accumulate bitcoins either by purchasing them or by mining with the sole purpose of generating profits through speculation.
This trend is a clear reflection of the established social, economic and political order of a society driven by the capitalistic values of accumulation and profit maximisation. But this is only one part of the problem. It took a simple — yet highly controversial — protocol issue to realise that, in spite of the open source nature of the Bitcoin platform, the governance of the platform itself is also highly centralised. To many outside observers, the contentious issue may seem surprisingly specific.
As described earlier, the blockchain underpinning the Bitcoin network is composed of a series of blocks listing the totality of transactions which have been executed so far. For a number of reasons mainly related to preserving the security and stability of the system, as well as to ensure easy adoption , the size of these blocks was initially set at 1 megabyte. In practice, however, this technical specification also sets a restriction on the number of transactions which the blockchain can handle in a particular time frame.
Hence, as the adoption of Bitcoin grew, along with the number of transactions to be processed, this arbitrary limitation which was originally perceived as being innocuous became the source of heated discussions — on several internet forums, blogs, and conferences — leading to an important dispute within the Bitcoin community Rizzo, Some argued that the one megabyte cap was effectively preventing Bitcoin from scaling and was thus a crucial impediment to its growth.
Others claimed that many workarounds could be found e. They insisted that maintaining the cap was necessary both for security reasons and for ideological reasons, and was a precondition to keeping the system more inclusive and decentralised. On 15 August , failing to reach any form of consensus over the issue of block sizes, a spinoff project was proposed. Frustrated by the reluctance expressed by the other Bitcoin developers to officially raise the block size limit Hearn, , two core developers, Gavin Andresen and Mike Hearn, released a new version of the Bitcoin client software Bitcoin XT with the latent capacity of accepting and producing an increased block size of eight megabytes.
This client constitutes a particular kind of fork of the original software or reference client called Bitcoin Core. Bitcoin XT was released as a soft fork, 13 with the possibility to turn into a hard fork, if and when a particular set of conditions were met. This would mark the beginning of an actual hard fork , leading to the emergence of two blockchain networks featuring two different and incompatible protocols.
The launch of Bitcoin XT proved highly controversial. It generated a considerable amount of debate among the core developers, and eventually led to a full-blown conflict which has been described as a civil war within the Bitcoin community Hearn, Among the Bitcoin core developers, Gregory Maxwell in particular was a strong proponent of maintaining the 1 megabyte cap.
According to him, increasing the block size cap would constitute a risky change to the fundamental rules of the system, and would inherently bring Bitcoin towards more centralisation — because it would mean that less powerful machines such as home computers could no longer continue to handle the blockchain, thus making the system more prone to being overrun by a small number of big computers and mining pools.
Similarly, Nick Szabo — a prominent cryptographer involved since the early days in the cypherpunk community — declared that increasing the block size so rapidly would constitute a huge security risk that could jeopardise the whole network. Finally, another argument raised against the Bitcoin XT proposal was that increasing the block size would possibly lead to variable, and delayed confirmation times as larger blocks may fail to be confirmed every ten minutes.
Within the broader Bitcoin community, the conflict gave rise to copious amounts of flame-wars in various online forums that represent the main sources of information for the Bitcoin community Reddit, Bitcoin Info, Bitcoin. Many accused the proponents of Bitcoin XT of using populist arguments and alarmist strategies to bring people on their side. Others claimed that, by promoting a hard fork, Bitcoin XT developers were doing exactly what the Bitcoin protocol was meant to prevent: they were creating a situation whereby people from each side of the network would be able to spend the same bitcoins twice.
In some cases, the conflict eventually resulted in outright censorship and banning of Bitcoin XT supporters from the most popular Bitcoin websites. In the face of these events, and given the low rate of adoption of Bitcoin XT by the Bitcoin community at large, 15 Mike Hearn, one of the core developers and key instigators of Bitcoin XT, decided to resign from the development of Bitcoin — which he believed was on the brink of technical collapse.
But the conflict did not end there. Bitcoin XT was only the first of a series of improvements which were subsequently proposed to the Bitcoin protocol. As Bitcoin XT failed to gain mass adoption, it was eventually abandoned on January 23rd. New suggestions were made to resolve the block size problem see e. The most popular today is probably Bitcoin Classic, which proposes to increase the block size cap to 2 megabytes instead of 8 by following the same scheme as Bitcoin XT i.
One interesting aspect of Bitcoin Classic is that it also plans to set up a specific governance structure that is intended to promote more democratic decision-making with regard to code changes, by means of a voting process that will account for the opinions of the broader community of miners, users, and developers.
It is, at this moment in time, quite difficult to predict where Bitcoin is heading. Some may think that the Bitcoin experiment has failed and that it is not going anywhere; 16 others may think that Bitcoin will continue to grow in underserved and inaccessible markets as a gross settlement network for payment obligations and safe haven assets; 17 while many others believe that Bitcoin is still heading to the moon and that it will continue to surprise us as time goes on.
It has also emphasised the tension between the theoretically decentralised nature of the Bitcoin network and the highly centralised governance model that has emerged around it, which ultimately relied on the goodwill and aligned interests of only a handful of people. Governance structures are set up in order to adequately pursue collective goals, maintain social order, channel interests and keep power relations under check, while ensuring the legitimacy of actions taken collectively.
They are therefore closely related to the issue of trust , which is a key aspect of social coordination and which online socio-technical systems address by combining informal interpersonal relations, formal rules and technical solutions in different ways Kelty, In the case of online peer-production communities, two essential features are decisive in shaping their governance structure, namely the fact that they are volunteer-driven and that they seek to self-organise Benkler, Nicolas Auray has shown that, although the nature of online peer-production communities can be very different ranging from Slashdot to Wikipedia and Debian , they all face three key challenges which they need to address in order to thrive Auray, :.
Understanding how each of these challenges is addressed in the case of the Bitcoin project is particularly difficult, since Bitcoin is composed of two separate, but highly interdependent layers, which involve very different coordination mechanisms. On the one hand, there is the infrastructural layer: a decentralised payment system based on a global trustless peer-to-peer network which operates according to a specific set of protocols.
On the other hand, there is the layer of the architects : a small group of developers and software engineers who have been entrusted with key roles for the development of this technology. The Bitcoin project can thus be said to comprise at least two different types of communities — each with their own boundaries and protection mechanisms, rewards or incentive systems, and mechanisms for conflict resolution.
The other is the community of developers, who are contributing code to the Bitcoin project with a view to maintain or improve its functionalities. What the crisis described above has revealed is the difficulty of establishing a governance structure which would properly interface both of these dimensions.
As a consequence, a small number of individuals became responsible for the long-term sustainability of a large collective open source project, and the project rapidly fell prone to interpersonal conflict once consensus could no longer be reached among them.
This section will describe the specificities of the two-layered structure of the Bitcoin project and the mechanisms put in place to address these key challenges, in order to better understand any shortcomings they may display. As described earlier, the Bitcoin network purports to be both self-governing and self-sustaining. The rules governing the platform are not enforced by any single entity, instead they are embedded directly into the network protocol that every user must abide to.
Given the open and decentralised nature of the Bitcoin network, its community borders are extremely flexible and dynamic, in that everyone is free to participate and contribute to the network — either as a passive user or as an active miner. The decentralised character of the network however, creates significant challenges when it comes to the protection thereof, mainly due to the lack of a centralised authority in charge of policing it. Bitcoin thus implemented a technical solution to protect the network against malicious attacks e.
Yet, while the protocol has proved successful thus far, it remains subject to a lot of criticism. Beyond the problems related to the high computational costs of Proof-of-Work, 21 the Bitcoin network can also be co-opted by capital. With regard to status recognition , the Bitcoin protocol eliminates the problem at the root by creating a trustless infrastructure where the identity of the participant nodes is entirely irrelevant.
In Bitcoin, there is no centralised authority in charge of assigning a network identifier or account to each individual node. The notions of identity and status are thus eradicated from the system and the only thing that matters — ultimately — is the amount of computational resources that every node is providing to the network.
Conversely, the reward system represents one of the constitutive elements of the Bitcoin network. The challenge has been resolved in a purely technical manner by the Bitcoin protocol, through the notion of mining. In addition to providing a protection mechanism, the Proof-of-Work algorithm introduces a series of economic incentives to reward those who are contributing to maintaining and securing the network with their computational resources or hashing power. The mining algorithm is such that the first one to find the solution to a hard mathematical problem whose difficulty increases over time 22 will be able to register a new block into the blockchain and will earn a specific amount of bitcoins as a reward the reward was initially set at 50 bitcoins and is designed to be halved every four years.
From a game-theoretical perspective, this creates an interesting incentive for all network participants to provide more and more resources to the network, so as to increase their chances of being rewarded bitcoins. Finally, with regard to the issue of conflict resolution , it is first important to determine what constitutes a conflict at the level of the Bitcoin infrastructure. If the purpose of the Bitcoin protocol is for a decentralised network of peers to reach consensus as to what is the right set of transactions or block that should be recorded into the Bitcoin blockchain, then a conflict arises whenever two alternative blocks which are both valid from a purely mathematical standpoint are registered by different network participants in the same blockchain — thus creating two competing versions or forks of the same blockchain.
Given that there is no way of deciding objectively which blockchain should be favoured over the other, the Bitcoin protocol implements a specific fork-choice strategy stipulating that, if there is a conflict somewhere on the network, the longest chain shall win. It is clear from this description, that the objective of Satoshi Nakamoto and the early Bitcoin developers was to create a decentralised payment system that is both self-sufficient and self-contained.
Perhaps naively, they thought it was possible to create a new technological infrastructure that would be able to govern itself — through its own protocols and rules — and that would not require any third-party intervention in order to sustain itself. And yet, in spite of the mathematical elegance of the overall system, once introduced in a particular socio-economic context, technological systems often evolve in unforeseen ways and may fall prey to unexpected power relations.
In the short history of Bitcoin, indeed, there have been significant tensions related to border protection , rewards systems and conflict resolution. Some of these issues are inherent in the technological infrastructure and design of the Bitcoin protocol. Perhaps one of the most revealing of the possible ways of subverting the system is the notion of selfish mining whereby miners can increase their potential returns by refusing to cooperate with the rest of the network.
Gox scandal 28 of — which led to the loss of , bitcoins worth more than US million dollars at the time — as well as many other scams and thefts that occurred on the Bitcoin network over the years. Just like many other internet protocols, Bitcoin was initially released as an open source software, encouraging people to review the code and spontaneously contribute to it.
Despite their formal emphasis on openness , different open source software projects and communities feature very different social and organisational structures. Moreover, different open source communities enjoy a more or less formalised governance structure, which often evolves as the project matures.
Bitcoin definitely falls into the second category. Indeed, since its inception, Satoshi Nakamoto was the main person in charge of managing the project, as well as the only person with the right to commit code into the official Bitcoin repository. Hence, just like many other open source projects, there is a discrepancy between those who can provide input to the project the community at large and those who have the ultimate call as to where the project is going.
Indeed, while anyone is entitled to submit changes to the software such as bug fixes, incremental improvements, etc. This is justified partly by the high level of technical expertise needed to properly assess the proposed changes, but also — more implicitly — by the fact that the core developers have been entrusted with the responsibility of looking after the project, on the grounds of their involvement and, to some extent, shared ideology with the original concept of Satoshi Nakamoto.
With this in mind, we can now provide a second perspective on the three key challenges facing Bitcoin, and analyse how they are being dealt with from the side of its architects : the Bitcoin developers. The definition and protection of community boundaries , and of the work produced collectively, is a key issue in open source collectives. In the case of Bitcoin, community borders are — at least in theory — quite clearly defined. Just like many other open source software projects, there exists a dividing line between the community of users and developers at large, who can provide input and suggest modifications to the code by making a pull-request, for instance , and the core developers who are in charge of preserving the quality and the functionality of the code, and who are the only ones with the power to accept or refuse the proposed modifications e.
However, the distinction between these two communities is not as clear-cut as it may seem, since the community at large also has an important albeit indirect influence on the decisions concerning the code. Specifically, consensus formation among the Bitcoin core developers has been formalised through a process known as Bitcoin Improvement Proposals BIPs 30 , which builds heavily on the process in place for managing the Python programming language PEPs or Python Enhancement Proposals.
The BIP process requires that all source code and documentation be released and made available to anyone, so that a multiplicity of individuals can contribute to discuss and improve them. Yet, the final call as to whether a change will be implemented ultimately relies on the core developers assessing the degree of public support which a proposal has built, and finding a consensus among themselves:.
We are fairly liberal with approving BIPs, and try not to be too involved in decision making on behalf of the community. The exception is in very rare cases of dispute resolution when a decision is contentious and cannot be agreed upon. In those cases, the conservative option will always be preferred. Having a BIP here does not make it a formally accepted standard until its status becomes Active. For a BIP to become Active requires the mutual consent of the community.
Those proposing changes should consider that ultimately consent may rest with the consensus of the Bitcoin users. This description provides a concise overview of the structures of legitimacy and accountability which govern the relationship between the Bitcoin architects or core developers and the Bitcoin users. While the community is open for anyone to participate, decision-making is delegated to a small number of people who try to keep intervention to a minimum.
If the core developers were to make a modification to the code that the community disagrees with the miners, in particular , the community might simply refuse to run the new code. Regarding acknowledgment of status , this requires balancing rewards for the most active and competent contributors, while promoting and maintaining the collective character of the overall endeavour.
Indeed, open source developers are acutely aware of the symbolic retributions which they can acquire by taking part in a given project, and are also monitoring other contributors to assess their position within communities which display a strongly meritocratic orientation Stewart, Some communities rank individuals by resorting to systems of marks which provide a quantitative metric for reputation; others rely on much less formalised forms of evaluation. In the case of Bitcoin, some measure of reputation can be derived from the platform used to manage the versioning of the software — Github — which includes metrics for users" activities such as number of contributions, number of followers, etc.
However, the reputation of the core developers is on a completely different scale, and is mostly derived from their actual merit or technical expertise, as well as a series of less easily defined individual qualities which can be understood as a form of charisma. Finally, conflict management is probably the most difficult issue to deal with in consensus-oriented communities, since it requires a way to avoid both paralysing deadlocks and divisive fights.
Taking Wikipedia as an example, the community relies on specific mechanisms of mutual surveillance as the most basic way of managing conflicts; however, additional regulatory procedures of mediation and sanctions have been established and can be resorted to if needed Auray, , p.
The Debian community is also well known for its sophisticated rules and procedures Lazaro, Though not immune to deadlocks and fighting, these communities have managed to scale while maintaining some degree of inclusivity, by shifting contentious issues from substantive to procedural grounds — thus limiting the opportunities for personal disputes and ad hominem attacks.
Obviously, the Bitcoin community lacks any such form of conflict management procedures. As described above, failure to reach consensus among the core developers concerning the block size dispute led to an actual forking of the Bitcoin project. Forking is a process whereby two or more software alternatives are provided to the user base, who will therefore need to make a choice: the adoption rate will ultimately determine which branch of the project will win the competition, or whether they will both evolve as two separate branches of the same software.
More specifically, in classic weberian terms — and as can often be observed in online communities — Bitcoin governance consists in a form of domination based on charismatic authority O'Neil, , largely founded on presumed technical expertise. The recent crisis experienced by the Bitcoin community revealed the limits of consensus formation between individuals driven by sometimes diverging political and commercial interests, and underlined the discrepancies between the overall goals of the project a self-regulating decentralised virtual currency and payment system and the excessively centralised and technocratic elites who are in charge of the project.
In the early days, the political objectives of Bitcoin were clearly and explicitly stated through the desire of changing existing power dynamics between individuals and the state. Decentralisation inherently affects political structures by removing a control point. Regarding Bitcoin, decentralisation is achieved through a peer-to-peer payment system that operates independently of any trusted third party.
As a result, not only does Bitcoin question one of the main prerogatives of the state — that of money issuance and regulation, it also sheds doubts on the need and, therefore, the legitimacy of existing financial institutions. On the one hand, as a decentralised platform for financial transactions, Bitcoin sets a limit on the power of central banks and other financial institutions to define the terms and conditions, and control the execution of financial transactions.
On the other hand, by enabling greater disintermediation, the Bitcoin blockchain provides new ways for people to coordinate themselves without relying on a centralised third party or trusted authority, thus potentially promoting individual freedoms and emancipation. As Bitcoin evolves — and in the eventuality that it gets more broadly adopted — it will need to face a growing number of technical challenges e.
The mistake of the Bitcoin community was to believe that, once technical governance had been worked out, the need to rely on government institutions and centralised organisations in order to manage and regulate social interactions would eventually disappear Atzori, ; Scott, Politics would progressively give way to new forms of technologically-driven protocols for social coordination Abramowicz, — regarded as a more efficient way for individuals to cooperate towards the achievement of a collective goal while preserving their individual autonomy.
Yet, one cannot get rid of politics through technology alone, because the governance of a technology is — itself — inherently tied to a wide range of power dynamics. As Yochai Benkler elegantly puts it, there are no spaces of perfect freedom from all constraints, only different sets of constraints that one necessarily must choose from Benkler, Bitcoin as a trustless technology might perhaps escape the existing political framework of governmental and market institutions; yet, it remains subject to the invisible politics of a handful of individuals — the programmers who are in charge of developing the technology and, to a large extent, deciding upon its functionalities.
Implicit in the governance structure of Bitcoin is the idea that the Bitcoin core developers together with a small number of technical experts are — by virtue of their technical expertise — the most likely to come up with the right decision as to the specific set of technical features that should be implemented in the platform.
Such a technocratic approach to governance is problematic in that it goes counter to the original conception of the Bitcoin project. There exists, therefore, an obvious discrepancy between the libertarian vision of Bitcoin as a decentralised infrastructure that cannot be regulated by any third party institution, and the actual governance structure that dictates the technological development of Bitcoin — which, in spite of its open source nature, is highly centralised and undemocratic.
While the a political dimension of the former has been praised or at least acknowledged by many, the latter has remained, for a long time, invisible to the public: the technical decisions to be taken by the Bitcoin developers were not presented as political decisions, and were therefore never debated as such.
The block size debate is a good illustration of this tendency. Although the debate was framed as a value-neutral technical discussion, most of the arguments in favour or against increasing the size of a block were, in fact, part of a hidden political debate.
Indeed, except for the few arguments concerning the need to preserve the security of the system, most of the arguments that animated the discussion were, ultimately, concerned with the socio-political implications of such a technical choice e. Yet, insofar as the problem was presented as if it involved only rational and technical choices, the political dimensions which these choices might involve were not publicly acknowledged.
Moreover, if one agrees that all artefacts have politics Winner, and that technology frames social practice Kallinikos, , it follows that the design and features of the Bitcoin platform must be carefully thought through by taking into account not only its impact on the technology as such i. Social organisations are thus faced with the difficult challenge of accommodating incompatible and often irreconcilable interests and values.
The solutions found by modern day liberal democracies involve strong elements of publicity and debate. The underlying assumption is that the only way to ensure the legitimacy of collective decisions is by making conflicts apparent and by discussing and challenging ideas within the public sphere Habermas, Public deliberations and argumentation are also necessary to achieve a greater degree of rationality in collective decisions, as well as to ensure full transparency and accountability of the ways in which these decisions are both made and put into practice.
But the antagonistic dimensions of social life constantly undermine the opportunities for consensus formation. This is perhaps even more crucial for technologies such as the internet or Bitcoin, which seek to implement a global and shared infrastructure for new forms of coordination and exchange. Bitcoin as an information infrastructure must be understood here as a means of introducing and shaping a certain type of social relations Star, ; Bowker et al.
It is, therefore, all the more important to make the design choices lying behind its technical features more visible, in order to shed light on the politics which are implicit in the technological design. It should be clear, by now, that the political intentions of a technology cannot be resolved, only and exclusively, by technological means.
While technology can be used to steer and mediate many kinds of social interactions, it should not and cannot be the sole and main driver of social change. As Bitcoin has shown, it is unrealistic to believe that human organisations can be governed by relying exclusively on algorithmic rules.
In order to ensure the long-term sustainability of these organisations, it is necessary to incorporate, on top of the technical framework, a specific governance structure that enables people to discuss and coordinate themselves in an authentically democratic way, but also — and perhaps more importantly — to engage and come up with decisions as to how the technology should evolve. In that regard, one should always be wary that the decision-making process involve not only those who are building the technology i.
Different dimensions of the internet have already been analysed from such a perspective within the broader framework of internet governance DeNardis, ; Musiani et al. These could prove useful in better understanding and formulating a novel governance structure for the Bitcoin project — one that is mediated rather than dictated by technological rules. The researchers estimated the electricity consumption and carbon dioxide emissions in for each stage of Bitcoin mining, from the extraction of raw materials to make the equipment to its production, use and recycling.
They calculated that the Bitcoin network consumed The location of the miners had the largest impact on the environment, with areas that use mostly fossil fuels for electricity, such as Inner Mongolia, China, contributing more to the carbon footprint than regions using renewable resources, such as Sichuan, China. The analysis also predicted that the environmental impact per miner will shrink if mining equipment becomes more efficient, use of renewable energy sources increases, or miners relocate to cooler climates, where less energy is needed to cool the computers.
However, the overall number of miners is likely to continue increasing, at least in the short term, the researchers say. Materials provided by American Chemical Society. Note: Content may be edited for style and length. Science News. The authors acknowledge funding from the Independent Research Fund Denmark. Life Cycle Assessment of Bitcoin Mining. ScienceDaily, 20 November American Chemical Society. Estimating the environmental impact of Bitcoin mining. Retrieved February 12, from www.
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By , this was halved again to If you want to keep track of precisely when these halvings will occur, you can consult the Bitcoin Clock , which updates this information in real-time. Interestingly, the market price of bitcoin has, throughout its history, tended to correspond closely to the reduction of new coins entered into circulation. This lowering inflation rate increased scarcity and historically the price has risen with it.
Although early on in Bitcoin's history individuals may have been able to compete for blocks with a regular at-home computer, this is no longer the case. The reason for this is that the difficulty of mining Bitcoin changes over time. In order to ensure the smooth functioning of the blockchain and its ability to process and verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or so.
However, if there are one million mining rigs competing to solve the hash problem, they'll likely reach a solution faster than a scenario in which 10 mining rigs are working on the same problem. For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining every 2, blocks, or roughly every two weeks. When there is more computing power collectively working to mine for Bitcoin, the difficulty level of mining increases in order to keep block production at a stable rate.
Less computing power means the difficulty level decreases. To get a sense of just how much computing power is involved, when Bitcoin launched in the initial difficulty level was one. As of Nov. All of this is to say that, in order to mine competitively, miners must now invest in powerful computer equipment like a GPU graphics processing unit or, more realistically, an application-specific integrated circuit ASIC.
The photo below is a makeshift, home-made mining machine. The graphics cards are those rectangular blocks with whirring fans. Note the sandwich twist-ties holding the graphics cards to the metal pole. This is probably not the most efficient way to mine, and as you can guess, many miners are in it as much for the fun and challenge as for the money. The ins and outs of bitcoin mining can be difficult to understand as is. And there is no limit to how many guesses they get.
Let's say I'm thinking of the number There is no "extra credit" for Friend B, even though B's answer was closer to the target answer of Now imagine that I pose the "guess what number I'm thinking of" question, but I'm not asking just three friends, and I'm not thinking of a number between 1 and Rather, I'm asking millions of would-be miners and I'm thinking of a digit hexadecimal number.
Now you see that it's going to be extremely hard to guess the right answer. In Bitcoin terms, simultaneous answers occur frequently, but at the end of the day, there can only be one winning answer. Typically, it is the miner who has done the most work or, in other words, the one that verifies the most transactions. The losing block then becomes an " orphan block. Miners who successfully solve the hash problem but who haven't verified the most transactions are not rewarded with bitcoin.
Well, here is an example of such a number:. The number above has 64 digits. Easy enough to understand so far. As you probably noticed, that number consists not just of numbers, but also letters of the alphabet.
Why is that? To understand what these letters are doing in the middle of numbers, let's unpack the word "hexadecimal. As you know, we use the "decimal" system, which means it is base This, in turn, means that every digit of a multi-digit number has 10 possibilities, zero through nine. In a hexadecimal system, each digit has 16 possibilities. But our numeric system only offers 10 ways of representing numbers zero through nine.
That's why you have to stick letters in, specifically letters a, b, c, d, e, and f. If you are mining bitcoin, you do not need to calculate the total value of that digit number the hash. I repeat: You do not need to calculate the total value of a hash.
Remember that ELI5 analogy, where I wrote the number 19 on a piece of paper and put it in a sealed envelope? In bitcoin mining terms, that metaphorical undisclosed number in the envelope is called the target hash. What miners are doing with those huge computers and dozens of cooling fans is guessing at the target hash. A nonce is short for "number only used once," and the nonce is the key to generating these bit hexadecimal numbers I keep talking about.
In Bitcoin mining, a nonce is 32 bits in size—much smaller than the hash, which is bits. In theory, you could achieve the same goal by rolling a sided die 64 times to arrive at random numbers, but why on earth would you want to do that? The screenshot below, taken from the site Blockchain. You are looking at a summary of everything that happened when block was mined.
The nonce that generated the "winning" hash was The target hash is shown on top. The term "Relayed by Antpool" refers to the fact that this particular block was completed by AntPool, one of the more successful mining pools more about mining pools below. As you see here, their contribution to the Bitcoin community is that they confirmed transactions for this block. If you really want to see all of those transactions for this block, go to this page and scroll down to the heading "Transactions.
All target hashes begin with zeros—at least eight zeros and up to 63 zeros. There is no minimum target, but there is a maximum target set by the Bitcoin Protocol. No target can be greater than this number:. Here are some examples of randomized hashes and the criteria for whether they will lead to success for the miner:.
You'd have to get a fast mining rig, or, more realistically, join a mining pool—a group of coin miners who combine their computing power and split the mined bitcoin. Mining pools are comparable to those Powerball clubs whose members buy lottery tickets en masse and agree to share any winnings.
A disproportionately large number of blocks are mined by pools rather than by individual miners. In other words, it's literally just a numbers game. You cannot guess the pattern or make a prediction based on previous target hashes. Not great odds if you're working on your own, even with a tremendously powerful mining rig.
Not only do miners have to factor in the costs associated with expensive equipment necessary to stand a chance of solving a hash problem. They must also consider the significant amount of electrical power mining rigs utilize in generating vast quantities of nonces in search of the solution. All told, bitcoin mining is largely unprofitable for most individual miners as of this writing.
Source: Cryptocompare. Mining rewards are paid to the miner who discovers a solution to the puzzle first, and the probability that a participant will be the one to discover the solution is equal to the portion of the total mining power on the network. Participants with a small percentage of the mining power stand a very small chance of discovering the next block on their own.
For instance, a mining card that one could purchase for a couple of thousand dollars would represent less than 0. With such a small chance at finding the next block, it could be a long time before that miner finds a block, and the difficulty going up makes things even worse. The miner may never recoup their investment. The answer to this problem is mining pools.
By working together in a pool and sharing the payouts among all participants, miners can get a steady flow of bitcoin starting the day they activate their miner. As mentioned above, the easiest way to acquire bitcoin is to simply buy it on one of the many exchanges.
Alternately, you can always leverage the "pickaxe strategy. Or, to put it in modern terms, invest in the companies that manufacture those pickaxes. In a cryptocurrency context, the pickaxe equivalent would be a company that manufactures equipment used for Bitcoin mining.
The legality of Bitcoin mining depends entirely on your geographic location. The concept of Bitcoin can threaten the dominance of fiat currencies and government control over the financial markets. For this reason, Bitcoin is completely illegal in certain places. Bitcoin ownership and mining are legal in more countries than not.
The risks of mining are that of financial risk and a regulatory one. As mentioned, Bitcoin mining, and mining in general, is a financial risk. One could go through all the effort of purchasing hundreds or thousands of dollars worth of mining equipment only to have no return on their investment.
That said, this risk can be mitigated by joining mining pools. If you are considering mining and live in an area that it is prohibited you should reconsider. In addition to recording your transaction history, those companies verify that transactions are not fraudulent, which is one reason your debit or credit card may be suspended while traveling.
Bitcoin, on the other hand, is not regulated by a central authority. Nodes store information about prior transactions and help to verify their authenticity. Unlike those central authorities, however, bitcoin nodes are spread out across the world and record transaction data in a public list that can be accessed by anyone. Between 1 in 16 trillion odds, scaling difficulty levels, and the massive network of users verifying transactions, one block of transactions is verified roughly every 10 minutes.
The bitcoin network is currently processing just under four transactions per second as of August , with transactions being logged in the blockchain every 10 minutes. At that point, waiting times for transactions will begin and continue to get longer, unless a change is made to the bitcoin protocol.
There have been two major solutions proposed to address the scaling problem. Developers have suggested either 1 creating a secondary "off-chain" layer to Bitcoin that would allow for faster transactions that can be verified by the blockchain later, or 2 increasing the number of transactions that each block can store.
With less data to verify per block, the Solution 1 would make transactions faster and cheaper for miners. Solution 2 would deal with scaling by allowing for more information to be processed every 10 minutes by increasing block size. The program that miners voted to add to the bitcoin protocol is called a segregated witness , or SegWit. Less than a month later in August , a group of miners and developers initiated a hard fork , leaving the bitcoin network to create a new currency using the same codebase as bitcoin.
Although this group agreed with the need for a solution to scaling, they worried that adopting segregated witness technology would not fully address the scaling problem. Instead, they went with Solution 2. Bitcoin Block Half. Board of Governors of the Federal Reserve System. Coin Desk. Your Money.
Personal Finance. Your Practice. Popular Courses. Part Of. Bitcoin Basics. Bitcoin Mining. How to Store Bitcoin. Bitcoin Exchanges. Bitcoin Advantages and Disadvantages. Bitcoin vs. Other Cryptocurrencies. Bitcoin Value and Price. Cryptocurrency Bitcoin. What Is Bitcoin Mining? Key Takeaways Bitcoin mining is the process of creating new bitcoin by solving a computational puzzle.
Bitcoin mining is necessary to maintain the ledger of transactions upon which bitcoin is based. Miners have become very sophisticated over the last several years using complex machinery to speed up mining operations. Article Sources. Investopedia requires writers to use primary sources to support their work.
These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
Related Terms What is block time in cryptocurrency? Block time in the context of cryptocurrency is the average amount of time it takes for a new block to be added to a blockchain. Bitcoin Bitcoin is a digital or virtual currency created in that uses peer-to-peer technology to facilitate instant payments. It follows the ideas set out in a whitepaper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified.
Litecoin Mining Litecoin mining is the processing of a block of transactions into the Litecoin blockchain. Cloud Mining Cloud mining enables mining of cryptocurrencies, such as bitcoin, without installation of expensive mining hardware. SegWit Segregated Witness SegWit is the process by which blocks on a blockchain are made smaller by removing signature data from Bitcoin transactions.
What Is Selfish Mining? Selfish mining is a bitcoin mining strategy that maximizes profits for miners at the cost of centralizing the system. Partner Links. Related Articles. Bitcoin How Bitcoin Works.
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