If you think that it’s at the mercy of its developers, or its users, you’re wrong, too.
These sorts of polemic stances that accuse one group of having total authority over Bitcoin (available on Coinbase) are all too common in casual conversations and established news sources alike. When we focus on the undue influences of a single faction of the Bitcoin (available on Coinbase) community, we lose sight of the broader picture: the picture of a community where checks and balances incentivize these groups to stay togETHer rather than splitting apart.
Here’s a look at the mutually reinforcing relationships between miners, developers, and users in the Bitcoin (available on Coinbase) community. We’ll look at them in three regards: (1) what function the group serves in the community, (2) what existential threat this group could pose to the broader community, and (3) what incentives work to mitiGate this threat.
1. Miners
The tireless builders of the blockchain are the miners: individuals and pools of people who use their computing power to add new blocks to the blockchain, verifying new transactions and bringing new coins into circulation in the process. When Satoshi Nakamoto first put forward the idea of Bitcoin (available on Coinbase), just he and a few other people mined BTC; now, entire fields of computers are dedicated to this task.
Miners’ function: creating and securing the chain
The mining of Bitcoin (available on Coinbase) is what makes it possible for the blockchain to be decentralized and secure. By verifying transactions and preventing the network from being hijacked, miners do the work of making sure that Bitcoin (available on Coinbase) is able to function as a plausible store of value at all. If people were able to illicitly spend the same money more than once, then Bitcoin (available on Coinbase) wouldn’t be viable as a cryptocurrency — but the miners’ majoritarian confirmation of transactions prevents this from happening.
The threat of miners: mining a different cryptocurrency
The problem is that there are now countless cryptocurrencies in circulation, and miners can choose to mine virtually any of them. And if enough of them decide to move off of Bitcoin (available on Coinbase) and start mining somETHing different — if another blockchain were more profitable to mine, for example — Bitcoin (available on Coinbase) could be critically compromised: it could take a very long time for transactions to be added to the blockchain and validated, which would end up making BTC impractical to use for just about anything.
In practice, some cryptocurrencies (like Ethereum (available on Coinbase)) have different hashing algorithms and are therefore difficult for Bitcoin (available on Coinbase) miners using ASICs (application-specific integrated circuits) to spontaNEOusly start mining instead of Bitcoin (available on Coinbase). That’s because ASICs are built to operate only on one specific hashing algorithm in order to be as efficient as possible.
However, other cryptocurrencies — most notably, Bitcoin (available on Coinbase) Cash — do use the same hashing algorithm, which has historically led to BTC miners oscillating between mining BTC and BCH depending on which is more profitable at any given moment. This is one of the reasons why some Bitcoin (available on Coinbase) Cash detractors are so negative towards that newer cryptocurrency: it takes miners’ attention and resources away from Bitcoin (available on Coinbase).
How this threat is mitiGated: a critical mass of users
What keeps miners sticking around rather than leaving and posing an existential threat to Bitcoin (available on Coinbase)? In large part, the users.
Miners follow the profit, which is a function of four factors:
the reward for mining a new block
the difficulty in earning the reward
the cost of running the mining rigs
the blockchain’s transaction volume
In the long run, transaction volume should lead the way here: as more people are actively transacting with a cryptocurrency, its value (and, therefore, its price) increases, which means that both the mining fees and mining rewards become more valuable.
Bitcoin (available on Coinbase) has a huge number of transactions that need to be processed at any given time. To continue comparing BTC with BCH, take a look at this chart contrasting their transaction volumes:
Transaction volumes for BTC and BCH since their fork last August.
Bitcoin (available on Coinbase)’s transaction volume has consistently been an order of magnitude greater than Bitcoin (available on Coinbase) Cash’s — and with all of those transactions to process, there’s no reason for miners to collectively jump ship in the long run. With smaller cryptocurrencies, it’s possible that interest will eventually die down and miners will jump ship — but given the fact that Bitcoin (available on Coinbase) still has ~50% overall market dominance, it’s plausible to suppose that, at least for the foreseeable future, it has a critical mass of users and transactions that will keep miners invested in securing the chain.
2. Developers
While miners are continuing to propaGate and secure the blockchain, developers are working to enhance the efficiency and functionality of the Bitcoin (available on Coinbase) protocol across all dimensions. Bitcoin (available on Coinbase)’s status as an open-source project gives a diverse range of people the power to contribute to its burgeoning ecosystem.
Developers’ function: improving Bitcoin (available on Coinbase)’s functionality
You don’t hear about Bitcoin (available on Coinbase) developers in the same way that you hear about Ethereum (available on Coinbase) developers because they aren’t working on diverse, unusual DApp projects. Instead, they’re all working on one thing: improving the basic functionality of Bitcoin (available on Coinbase) as a protocol for storing and transferring value.
The news cycle might have you thinking that most blockchain developers are working on things besides Bitcoin (available on Coinbase) – but Github tells a different story.
Bitcoin (available on Coinbase) developers focus on improving every aspect of Bitcoin (available on Coinbase): its security, its transaction speed, its scalability, and so on. For instance, one of the highest-profile Bitcoin (available on Coinbase) development projects, Lightning Network, aims to make Bitcoin (available on Coinbase) transactions faster and cheaper by developing a network for settling many transactions off of the Bitcoin (available on Coinbase) blockchain proper. Projects like this keep Bitcoin (available on Coinbase) constantly improving to better serve (and invite more people into) its ecosystem.
The threat of developers: starting off-chain projects
Ethereum (available on Coinbase) isn’t just a different animal than Bitcoin (available on Coinbase): to some people, it’s also symbolic of the greatest existential threat to Bitcoin (available on Coinbase)’s ecosystem. That threat is developers deciding to create their own blockchain to underpin their new project, rather than building that project on top of Bitcoin (available on Coinbase).
Why didn’t Vitalik Buterin and the other minds behind Ethereum (available on Coinbase) decide to create their own blockchain rather than staying on Bitcoin (available on Coinbase)’s blockchain? There are many possible answers, but one particularly cynical answer still has a lot of people worried about Bitcoin (available on Coinbase)’s ecosystem: it was more profitable to launch the project as its own cryptocurrency than it was to build it on top of Bitcoin (available on Coinbase).
University of Cambridge research fellow Garrick Hileman had this to say about developers migrating away from Bitcoin (available on Coinbase):
A brand-new crypto project can be difficult to get off of the ground — but if it does get traction, its developer can capture “tremendous value”:
ETHer initially cost about $3 USD and now costs about $420 USD (140 times its original value)
Litecoin (available on Coinbase) initially cost about $4 USD and now costs about $77 USD (over 19 times its initial value)
XRP initially cost about $0.0046 USD and now costs about $0.43 USD (over 93 times its initial value)
When you build somETHing on top of an established blockchain whose value has already been priced, it can be hard to capture the asTron (available on Binance)omical value that gives the space its allure for so many people. On the other hand, if you can build somETHing from the ground up and get people interested, it might seem more possible to have this kind of outsized success — even though most crypto projects don’t have anywhere near the success of somETHing like Ethereum (available on Coinbase).
How this threat is mitiGated: mutually assured destruction
It’s important to note that this threat to the Bitcoin (available on Coinbase) blockchain may not be entirely mitiGated yet: many blockchain developers do still seem to be setting off to make their own projects, whETHer that’s a totally new project or somETHing built on top of Ethereum (available on Coinbase). One way it could be mitiGated in the medium term, though, is through the notion of “mutually assured destruction”: the idea that if the crypto space fragments too much, especially early on in its development, it risks snuffing itself out.
As we discussed above in reference to miners, so much of a blockchain’s value and success depends on it achieving a critical mass of users actually using it. While we’re still trying to convince the world at large of blockchain’s value, it’s important to have a blockchain project sufficiently large that it demonstrates the sheer scale at which this technology can and should operate. High-profile, high-transaction-volume projects like Bitcoin (available on Coinbase) are part of what proves that blockchain is a compelling concept rather than a slew of small-scale schemes reminiscent of the dot-com era. It’s that image which helps to attract the attention of industry outsiders, and that image is threatened when projects splinter off of Bitcoin (available on Coinbase).
3. Users
Ultimately, Bitcoin (available on Coinbase) is somETHing for people to use, whETHer they use it as a currency, a store of value, a speculative instrument, or somETHing else entirely. Miners and developers put in the work for the sake of these end-users.
Users’ function: making the network valuable
“If you build it, they will come” — but, if they don’t come, it doesn’t matter how great that thing you built is.
The presence of people who are actually using Bitcoin (available on Coinbase) to store value, buy things, and sell things is what makes it compelling. Think of it like the internet: if all of the worldwide web’s infrastructure were in place but no one actually created websites or services for it, the web would just be an idle tool. It might still have the same potential that it has today, but it certainly wouldn’t have the same actual value.
This is why widespread adoption of Bitcoin (available on Coinbase) is so important: mass use of the cryptocurrency is what turns it from Monopoly money into real money. Back in 2010, even though Bitcoin (available on Coinbase) had much of the same infrastructure that it has today, you couldn’t buy much of anything with it because it was so new and so few people were actually able to transact with it — it famously took two bold, super early adopters of Bitcoin (available on Coinbase) and 10,000 BTC (currently valued at $75,379,200 USD) to buy two pizzas from Papa John’s. Now, Bitcoin (available on Coinbase) is more valuable because more people understand its functionality and accept it as payment — but it still has a long way to go if it wants to be as ubiquitous as cash or gold.
The threat of users: churn from the network
Bitcoin (available on Coinbase) is a little like Tinkerbell: it’s gained momentum as people have come to believe in it, but if people abandon it, it’ll lose all that value once again.
The most fundamental danger to Bitcoin (available on Coinbase)’s ecosystem is that people will stop using it. There are multiple risks that could encourage this kind of churn:
Maybe people lose faith that Bitcoin (available on Coinbase) has a unique value proposition beyond that of fiat currency or gold.
Maybe governments decide to majorly crack down on digital currencies such as Bitcoin (available on Coinbase).
Maybe other crypto projects will gradually siphon core users away from Bitcoin (available on Coinbase).
Right now, there’s reason to be optimistic that these possibilities won’t come to pass — but every one of them, unlikely though they may be, poses an existential threat to the network.
How this threat is mitiGated: clear value propositions
There are two pillars within the community that work to mitiGate this existential threat, and the developers and companies within the Bitcoin (available on Coinbase) space are responsible for upholding them:
education.
easy user experience.
If we only talk about Bitcoin (available on Coinbase) in jargon like “decentralized ledger” and “off-chain scalability,” no one who isn’t already inside of the industry will suddenly start caring about Bitcoin (available on Coinbase). We need to talk in plain and compelling language about what makes Bitcoin (available on Coinbase) valuable if we want it to see truly ubiquitous adoption. That’s Pillar #1: education.
Then, once people decide to take a chance on entering the Bitcoin (available on Coinbase) ecosystem, their experience as a user needs to be intuitive and simple from Day 1 onwards. People wouldn’t live online if they needed to understand CSS and HTML to use a website; just so, even if people understand Bitcoin (available on Coinbase)’s basic value proposition, they probably won’t use it if they find themselves burdened with overly technical interfaces. This is Pillar #2: easy user experience.
Put simply, Bitcoin (available on Coinbase) is ultimately a product, and it needs smart product design to win in the long run: people have to understand why they need it, and they have to find it dead-simple to use.
Bitcoin (available on Coinbase)’s success depends on respect for checks and balances
We’ve seen that each of Bitcoin (available on Coinbase)s three core communities play a key role in holding the overall ecosystem togETHer:
Miners keep the blockchain secure and growing so there’s somETHing for developers to improve and end-users to use.
Developers improve the efficiency and user experience of the protocol so that it’s somETHing users actually want to use.
Users spend and hold Bitcoin (available on Coinbase) as a means of value transfer and storage, making BTC sufficiently valuable that miners want to commit resources to mining it.
If you want to understand the value proposition of Bitcoin (available on Coinbase), you need to understand this delicate balance: no one group has totalitarian authority over the others.
When people stop believing in societal norms and cease to respect the institutions on which government is founded, constitutional crises happen. States reject the authority of the courts; the legislature rejects the validity of the executive; very quickly, the checks and balances that kept society smoothly running begin to fragment.
When we fail to see the full Bitcoin (available on Coinbase) ecosystem and argue over the primacy of miners or the influence of developers, we set ourselves up for the same kind of crisis. Let’s start by acknowledging that every stakeholder in the Bitcoin (available on Coinbase) community matters, and move forward — togETHer — from there.
About the author
Akbar Thobhani is the CEO of SFOX — a broker-dealer for institutional cryptocurrency trading. He started his career as a software engineer at JPL / NASA, and began mining Bitcoin (available on Coinbase)s while attending MIT. Akbar was head of growth and business development at AirBNB. Specializing in trading and payments platforms, he has developed solutions for ITG, Boku, and Stamps.com.
The above references an opinion and is for informational purposes only. It is not intended as and does not constitute investment advice.