On the surface, bitcoin is having a very good year. The price of the digital currency reached record highs well over $1,000 after years of stagnation following a major crash. But if you pull back the curtain, the civil war rages.
The global community of companies, coders, and opportunists who control the bitcoin network is now on the verge of revolt after more than two years of infighting. Basically, the bitcoin network is moving data at a painfully slow pace, and the community can’t agree on how to fix it. So, one increasingly powerful group is threatening to “hard fork” the project. In other words: They could split bitcoin into two separate digital currencies.
The ongoing battle represents a fundamental flaw not only with bitcoin, but with so many other projects based on the idea of a blockchain, the underlying technology that makes bitcoin possible. A blockchain is designed to operate without a central authority, securely verifying and recording transactions through a network machines rather a single government, bank, or company. Across Silicon Valley and beyond, many see this big idea as a way of significantly streamlining the exchange of money—maybe even changing the very nature of business. But at the same time, the decentralized nature of these projects is a burden. There’s no good way for the many participants to readily change the underlying technology.
‘If we have a process for dealing with disagreement … we won’t have all the collateral damage we see with bitcoin.’ Arthur Breitman, Tezos
The community behind Ethereum, another influential part of this movement, recently forked its project after hackers exploited a bug in its code. That was their best option. And now, bitcoin is facing much the same conundrum. It’s a flaw that could ultimately bring the digital currency crashing down.
But Arthur and Kathleen Breitman are working to eliminate this flaw. They’re building a new blockchain where the stakeholders can change the underlying technology through a kind of online voting system—a blockchain that can evolve according to the will of its community. “If we have a process for dealing with disagreement, for being constructive and moving on, we won’t have all the collateral damage we see with bitcoin,” says Arthur Brietman, 35, a French-born financial trader and technologist who spent several years with big-name banks like Morgan Stanley and Goldman Sachs. “The biggest risk to bitcoin is a split in the community. That would harm the network. This is the kind of thing we’re trying to avoid.”
The project may indeed provide a better way of building this kind of vastly distributed system—and possibly create a new kind of business. But it also raises questions about the fundamental nature of these projects and, indeed, the fundamental nature of democracy.
A New Democracy
The Brietmans are husband-and-wife entrepreneurs based in Silicon Valley. Part of the vibrant, idealistic, and sometimes strange community of young free thinkers working to build a new kind of company using blockchain technologies, they call their creation Tezos. Under the cheeky pseudonym LM Goodman—a thinly veiled reference to the Newsweek journalist who incorrectly identified the creator of bitcoin—they first released a paper describing the project in 2014. Now, as they prepare to unveil the technology amid the battle over bitcoin, it carries a new significance.
On the bitcoin blockchain, transactions are processed and recorded by a vast network of “miners,” specialized machines that lend their computing power to the operation. In exchange for their participation, the miners receive bitcoin. But Tezos doesn’t work that way. It will sell its tokens to the world at large, and then the token holders will help process and record the transactions. Basically, in recording each transaction, the system asks for help from a random token holder.
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What’s more, these token holders will have the right to suggest and vote on changes to the network itself. The more tokens you hold, the more voting power you have. In other words, the token holders control the system in full. In this way, Tezos becomes a working democracy. Everyone can vote, and the vote decides outcomes. Some blockchain veterans believe Tezos could fundamentally change the dynamics of blockchain technology, helping to move projects closer to the grand ideals they espouse.
“It’s like the American democratic system,” says Olaf Carlson-Wee, the first employee at Coinbase, Silicon Valley’s most important bitcoin company, who has invested in Tezos through his hedge fund, Polychain. “When you vote, even if your candidate doesn’t win, you accept that democracy was in action. When people participate in a Tezos network, they’re accepting that the democratic vote of the other coin holders will govern the way the protocol moves.”
Bitcoin, you could argue, is also a democracy. But the system operates in an ad hoc way. Participants must individually and manually upgrade the software running on miners and other machines, and this leads to the kind of thing you now see with the digital currency: months of people arguing, both online and off, about how the network should evolve. Tezos removes this unorganized in-fighting—and then some. Through the Tezos voting system, stakeholders can also change the voting system. “We are not necessarily beholden to voting as a governance mechanism,” Breitman says. “Every part of the system can evolve, including the governance system itself.” He compares this means of self-correction to a constitutional amendment—another powerful idea in light of the conflict over bitcoin.
Knock-on Effect
If Tezos works, the knock-on effect is potentially enormous. Like Ethereum, the Tezos blockchain is designed to run “smart contracts,” online agreements built with computer code that can be used to bootstrap all sorts of other businesses and applications. (Ethereum, for instance, is now driving everything from hedge funds to distributed supercomputers.)
Tezos could extend this growing trend. But it’s also another invitation to completely start over. Though Bitcoin and Ethereum have the momentum, Tezos is asking coders and companies to move onto yet another blockchain. And how that will play out is anyone’s guess. Breitman argues that bitcoin and Ethereum are still relatively small—and in the future, distributed networks will be significantly larger. “If you compare them to any other industry, their capitalization is very small and the amount of programming work is still tiny,” he says. “It is still early in this game.”
Over the next several weeks, Breitman and his company will put this stance to the test. First, they will launch an ICO, or initial coin offering, letting anyone buy a digital token tied directly into the operation of the Tezos network. Such offerings are now common practice in the blockchain world, a new way of funding online companies, but also a new way of running them. Those who hold the tokens actually own and control the operation, something that’s particularly true with Tezos.
But Breitmans and their idealism may run into reality. “It will work crytopgraphically, just in terms of programming language theory,” says Zooko Wilcox, who created the bitcoin alternative ZCash. “But it is an experiment.” Naturally, Wilcox mentions the DAO, an effort to create a kind of automated venture capital fund atop Ethereum.
The DAO was the largest crowdfunded project ever, and thanks to a bug in its smart contract, it was hacked to the tune of $50 million. This catastrophe is what eventually led to the Ethereum fork. “Imagine that there is a bug in the version you have all upgraded to,” he says, imagining one potential future for Tezos. “What if that’s a bug prevents future upgrades?”
Brietman admits that his democracy could go wrong. But he also points out that this is true of any democracy, including the one here in the US of A. “Democracy isn’t necessarily about making good choices,” he says. “It’s about avoiding conflict.” Of course, there are other ways of avoiding conflict, and in the online age—the post-Trump age—it’s worth asking whether a true democracy is the best method. The crowds don’t always get things right. The hope is that at the very least, democracy will eventually produce more good than bad.
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