The Bitcoin software core is currently being managed by no more than a handful of volunteers. In comparison, Microsoft employs thousands of developers fulltime to build their flagship OS. Can Bitcoin’s core development resist being hijacked by corporate interests?
The years 2013 and 2014 have seen multi-million dollar investments in Bitcoin companies such as BitPay, Circle and Coinbase. Each of these companies is backed by over $20 million dollars worth of investment. These investors will want to see a healthy return. Here is a number of problems that corporate Bitcoin investors will take charge of:
The Bitcoin mining algorithm favors economies of scale. Bigger mining pools are more efficient. But why would BitPay or Circle want a third party like Ghash.io to process their customer’s transactions? The top three mining pools own 80% of Bitcoin’s hashing power, giving them extraordinary power over Bitcoin’s transaction fee structure. For example, imagine if BitPay paid Ghash.io a premium to process its transactions before Coinbase’s? Moreover, why should mining companies be in such a position to dictate Bitcoin’s transaction fees to begin with? A much more likely future is that Bitcoin’s major investors will command control of mining, make it much less costly to do and set their own transaction fees.
Seven transactions per second
The current state of the Bitcoin technology allows for 7 transactions per second (tps). So what will major investment-backed Bitcoin companies such as BitPay, Coinbase and Circle do once their combined transactions hit more than 7 per second? To make matters worse, increasing the tps rate from 7 to, say, 7,000 requires a hard fork of the Bitcoin network. That means every Bitcoin user needs to update their software, preferably at the same time.
Update: former Bitcoin lead developer proposes a hard fork to scale Bitcoin.
Know Your Customer (KYC)
Government authorities still have the power to ban the use of unregulated cryptocurrencies such as Bitcoin. In order to ‘play nicely’ with such authorities as the US government, Bitcoin may require built-in tools too verify a customer’s identity. Although the grassroots Bitcoin community will oppose such measures, the investors behind BitPay, Coinbase and Circle will want too see mass adoption. And without proper KYC-regulations in place, Bitcoin mass adoption may be stifled by governments central banks. It appears that corporate interest in Bitcoin already has a mismatch with the grassroots community.
In order to compete with traditional banking systems, Bitcoin, at the bare minimum, should offer a way to process recalls. Bitcoin’s grassroots community will defend that irreversible transactions are a “feature”, but the rest of the world tends to disagree. If Bitcoin transactions remain irreversible, and individual wallets cannot be frozen, then Bitcoin will only be useful for micropayments. The idea of a ‘trustless’ Bitcoin did not stop MtGox from stealing 650,000 Bitcoins, nor will it stop future heists.
In conclusion, it seems inevitable that Bitcoin’s major investors will appoint some central authority to control the future of Bitcoin’s development in their own best interest.