Why Taking the Unpopular Path Makes Bitcoin Successful

Bitcoin does not succeed because it follows all the popular trends and plays the supply and demand game to a specific demographic. On the contrary – the network is the exact opposite of what the largest majority of money systems are trying to accomplish.

Creating strict consensus rules, establishing a fixed monetary supply that doesn’t take into account human needs, crises, or market demand, emphasizing on a “code is law” philosophy since day one, prioritizing security over speed or scalability… these are all signs that Bitcoin succeeds specifically because it’s stubbornly different and keeps on consolidating these rules every day.

Now take a look at pretty much every other money system. There seems to be a prevalent emphasis on democratization, voting, human control over policy, and scaling to have millions of transactions per second on the base layer. The metrics don’t really concern decentralization (I can argue that voting on crucial matters can also get rigged), but focus more on popularity. Even in the case of banks, it’s more important to talk about the amount of customers using service than limiting monopolies and/or oligopolies.

Pretty much every cryptocurrency that isn’t Bitcoin (with the exception of a couple of privacy projects) systems are much more comfortable with turning into a trusted third party (sometimes referred to as “benevolent dictator”). We’re talking about projects that would gladly sign contracts with governments and banking institutions, and also tend to emphasize on ideology over computer science principles (low fees, environmentally-friendly, based in one country and therefore “friendly” to the existing power structure).

In an interview, cypherpunk and Blockstream CEO Adam Back explained that the main difference between Bitcoin and Nick Szabo’s Bit gold is inflation: in Bit gold, the supply of coins is driven by market demand. So there could be times when lots of bitgold coins would get mined, and others when there would be very little activity. This libertarian approach to monetary supply is definitely interesting, but it once again proves that Bitcoin is a strange beast which didn’t follow any clear trend or ideological path.

In Bitcoin’s case, the supply is programmed to follow a pre-determined schedule. So no matter how many people mine, how great the hashrate turns out to be at a point in time, and how much demand there is for the coins, you’re going to get the same programmed block rewards at a fairly predictable rate.

The choice to be “weird” while chasing security and decentralization may also be the reason why Bitcoin is counter-intuitive to understand at first. We grow up using money systems that are controlled by people and follow the decision-making process of voters and bureaucrats. In the case of governments and traditional finance, supply and demand can get artificially adjusted to support a plan. But Bitcoin doesn’t care – in times of crisis, people won’t be able to create more coins to support their spending habits.

This can be both a blessing and a curse: this means that Bitcoin is the superior reserve currency, but also signals an unlikeliness that governments will ever accept it as an official currency. Perhaps this is also the reason why Bitcoin makes a lot more sense as digital gold: it can fly under the radar for a longer time as a store of value, while it develops and gets traction to earn its place among traditional currencies.

But even in the whole debate about the functions of money, Bitcoin still makes the less popular choice. For short-term growth, it would have been better to allow more people to make BTC payments (a path which big blockers underwent with BCH, a fork which is more Keynesian in philosophy). Yet the likeliness of getting banned would have been higher, while the risk of compromising centralization could irreversibly destroy the qualities of the Bitcoin project.

High-throughput advocates would say that Bitcoin should provide “utility” (a rather vague term which only describes their narrow set of expectations and resent for the store of value function).

This goes back to Zooko’s triangle, a trilemma first described in 2001 to suggest that you can’t have decentralization, security, and “human meaningfulness” all at the same time. Systems usually have to choose two of them. And this is why Bitcoin has second layers and sidechains which bring scalability at the expense of security and/or decentralization – so the base layer remains uncompromisingly secure and decentralized, while everything else gets developed on top of this robustness.

Most networks are user-minded and start from the assumption that everything should be about the people and their desires – and this leads to centralization, as well as potential security issues.

In its path to success, Bitcoin makes lots of unpopular choices. And while this means that in the short term fewer people will appreciate its qualities, it also strengthens its value proposition over time and makes it a lot more valuable to those who figure it out.

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Vlad Costea

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