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Stakeholders: Who's in Charge?

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Stakeholders: Who's in Charge?

We'll look at all the ways that the world of Bitcoin and cryptocurrency technology touches the world of people. We'll discuss the community, politics within Bitcoin and the way that Bitcoin interacts with politics, and law enforcement and regulation issues.

To really understand what is special about Bitcoin, we need to understand how it works at a technical level. We’ll address the important questions about Bitcoin, such as: How does Bitcoin work? What makes Bitcoin different? How secure are your Bitcoins? How anonymous are Bitcoin users? What determines the price of Bitcoins? Can cryptocurrencies be regulated? What might the future hold? After this course, you’ll know everything you need to be able to separate fact from fiction when reading claims about Bitcoin and other cryptocurrencies. You’ll have the conceptual foundations you need to engineer secure software that interacts with the Bitcoin network. And you’ll be able to integrate ideas from Bitcoin in your own projects. Course Lecturers: Arvind Narayanan, Princeton University All the features of this course are available for free. It does not offer a certificate upon completion.

Skills You'll Learn

Bitcoin Network, Blockchains, Cryptocurrency, Bitcoin

Taught By

Arvind Narayanan
Associate Professor

Transcript

In section 7.3, we'll talk about who are the stakeholders in BitCoin.

Really, the question is who is in charge?

We've talked about how Bitcoin relies on consensus and

about how the rule book of Bitcoin is written in practice.

We've talked about the possibility of a fork or

a fight about what the rules should be.

So now I want to come to the question of who actually has the power

to determine who might win a fight like that?

So, who has the power?

Well, suppose there is a negotiation about rule setting.

There is a discussion within the community,

there's a disagreement about which rule set should be used.

Who actually controls the outcome?

Now, if you think about it, as with any negotiation, one of the most important

factors in understanding who has an advantage in the negotiation, is

to look at what happens if the negotiation fails and it comes down to a fight.

And generally speaking, whoever has the best alternative to a negotiated agreement

is going to have the advantage in a negotiation.

In other words, whoever is likely to win a fight is likely to win the negotiation.

It's the longstanding rule that on the playground, that the biggest,

strongest person is likely to get their way, even if no blows are exchanged.

So let's talk about who actually has the power, and

who would be able to win if there were a fight involving a fork in the rules and

a struggle for power over what the future of Bitcoin would be.

So we can make a bunch of claims on behalf of a bunch of different stakeholders.

The first claim is that the Bitcoin core developers have the power.

Whoever it is that develops the core software, they have the power.

They write the rule book.

They literally have their fingers on the keyboard.

And have the ability to change the code that gets hipped.

Since they write the rule book, since almost everybody does use their code and

does follow their rules and practice, you could argue that they have the power.

Because they can actually put a change out there

that other people would at least by default accept.

So the first stake holder is the developers.

A second claim though that we might make,

is that it's the miners who have the power.

Why?

Because miners are the ones that write the history.

The miners are the ones who make the blocks that record the transactions that

have happened and so if the miners decide to follow a certain set of rules,

then arguably everybody else has to follow it.

We talked in previous lectures about what happens if you have a majority of miners.

Certainly if there's a disagreement among the miners, and

let's say 80% of them want one rule set, 20% want the other.

Well, the 80% group is going to be able to build a bigger,

more impressive block chain.

And so they have some ability to push the rules in a particular direction.

Now how much power they have depends maybe on whether the fork is a hard fork or

a soft fork.

This can get a little bit technical into the details of the dynamics of Bitcoin.

But bottom line is, miners have some amount of power because they get to write

the history and the history is going to be consistent

with whatever consensus rules the miners end up following in the long run.

So the second claim is that the miners have the power.

You might also claim, though, that investors have the power.

Why?

Because investors are the ones who buy a lot and hold a lot of the Bitcoins, and so

it's the investors who decide whether Bitcoin has any value.

If the miners control the consensus about the history,

and the developers control the consensus about the rules.

It's the investors who control the consensus that Bitcoin will have value, or

at least that's the way the argument goes.

So, in the case of a hard fork, the investors, if they all or

mostly decide to put their money on one branch, on the a coin or

the b coin, then that one will have a lot of perceived legitimacy.

And so the investors have a lot of power to decide which way things go,

if there is a fork.

On the other hand, we could claim that merchants and

their customers are the ones who have the power.

Why? Because merchants and

customers are the ones who generate the primary demand for Bitcoins.

Yes, investors provide some of the demands that important for

pricing of the currency.

But the primary demand that drives the price of the currency,

as we saw in lecture four, is driven by a desire to mediate transactions

to use Bitcoin as a transaction technology.

And because merchants and their customers drive that demand

they're the ones who drive the long term price of Bitcoin.

Or so this argument goes.

Investors, according to this argument,

are just guessing where the primary demand will be in the future.

So investors are guessing where the merchants and

customers will go in the future, and therefore, it's the merchants and

their customers who really have the power.

On the other hand, we could argue that no,

it's the payment services that have the power.

They're the ones that really handle transactions.

A lot of merchants don't care which currency they follow,

they simply want to use a payment service which will give them dollars and

ease of use and handle all of the risk.

And so to the extent that merchants and customers have power and

that those people rely on the payment services to actually handle transactions,

well then maybe it's the payment services that have the power.

Because they drive primary demand and merchants, customers and

investors will follow them.

Okay, now I've argued for a bunch of different parties, all of whom I've

argued should have the power, and there's some merit to all of those arguments.

But the fact is all of those entities have some power.

In order to succeed, remember, a coin needs all these forms of consensus.

It needs a stable rule book, written by developers.

It needs investment.

It needs mining power and it needs participation by merchants and

customers and the payment services that support them.

So all of these parties have some power

in controlling the outcome of a fight about the future of Bitcoin.

And there's no one that we can point to as being the definite winner.

It's a big, ugly, messy consensus building exercise.

There's one more player that I want to talk about when I talk about

governance of Bitcoin, and that's the Bitcoin Foundation.

The Bitcoin Foundation was founded in 2012.

And it really does two main things.

First of all, it pays the core developers or at least some of the core developers,

it pays them a salary out of the foundation's assets.

So that they can work full time on continuing to develop the software.

The other thing that the Bitcoin Foundation does is it talks to government,

especially the US government, as the voice of Bitcoin.

People in the Bitcoin community said that we have a problem,

that there is no one to talk to government on our behalf, and so

our case is not being made, our arguments are not being heard in government.

We need to have an entity to do that, and

the Bitcoin Foundation was one of the things setup to do that.

And so that's the other function that the Bitcoin Foundation was set up to do.

Now, the Bitcoin Foundation is not in charge of Bitcoin,

any more than any of these other parties are.

It has membership from some members of the community,

not from other members of the community.

And it's success, ultimately like everything else in this kind of

open source consensus based ecosystem, will be drive

by how much support it can attract and retain from the community over time.

And it's worth discussing the points of controversy that have happened with

respect to the Bitcoin foundation.

There have been controversies over the membership in the board where some members

of the Bitcoin Foundation board have gotten into trouble.

They've gotten into criminal trouble or they've gotten into financial trouble and

the foundation has had to struggle with dealing with what to do about members of

the board that become liabilities and have to be replaced on short notice.

There's been some controversy from those people who believe that BitCoin should

operate outside of and apart from traditional national governments.

That Bitcoin shouldn't be in the position of negotiating with the government.

Bitcoin should be what it is,

be independent of government and simply operate across borders.

Not having to explain or justify itself to government at all.

People who believe in that point of view don't like the fact that there are people

in suits who hand out business cards saying Bitcoin on them and

talk to government as the voice of Bitcoin.

Finally there have been controversies over the Bitcoin Foundation in the question

of who put these people in charge.

There are members of the community who feel that the foundation, and

the people who set up the foundation, aren't really true

representatives of the community, and that they are anointing themselves

as leaders of something that they have no right to put themselves in charge of.

So, although the Bitcoin Foundation is prominent,

there are still some questions about what it's role is going to be in the long run.

I think it's fair to conclude that the Bitcoin Foundation in its dealings with

government, has done a fair amount to smooth the road for understanding of and

acceptance of Bitcoin, at least within the US government.

But still the foundation continues to be a somewhat controversial organization and

one that's going to be the topic of debate going forward.

So when we come down to the question of who's really in charge of Bitcoin,

who's in control, the answer is, in one way, nobody.

That there is no one entity, no one group that's definitively in control.

In another sense, the answer is everybody,

because it's really the existence of this consensus about how the system will

operate, the three interlocking forms of consensus on rules,

on history and on value, that really is what governs Bitcoin.

In any group, any rule set, any structure that can retain that

consensus will in a very real sense be in charge of Bitcoin.

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