The most radical part of the Bitcoin experiment, or cryptocurrencies in general, is that no one owns the network. Nobody is in charge of Bitcoin; there is no CEO or regulatory structure. All that exists is the open source code.
But Bitcoin isn’t a sentient being that can evolve on its own—someone has to code, fix bugs, test and deploy changes, and upgrade the software.
Some of these changes are relatively trivial to implement as they only relate to decisions made by each individual wallet or user. For example, there doesn’t need to be a uniform mechanism to estimate transaction fees: Each bitcoin wallet makes the calculation independently, and miners can individually choose which transactions to include in a block to maximize their revenue.
Other decisions, like the block size or signature verification, require the entire network to agree on certain parameters, or else the system risks splitting. But who decides on these parameters, and how are such decisions deployed?
This article looks at the various actors within the Bitcoin ecosystem to see who makes which decisions.
Bitcoin miners run specialized hardware, known as Application-specific integrated circuits (ASICs) to solve a guessing puzzle.
The problem is relatively straightforward. Software will guess a number, hash it together with existing, pre-calculated, numbers, then check the resulting hash against a target number set by the network.
Solving the Bitcoin “puzzle” allows the miner to create a “block.” A new block is created every ~ten minutes, but it has to follow certain rules to be accepted by the rest of the network.
Miners also decide which transactions they want to include in a block. Their algorithms run on how to sort transactions, and while miners can’t make blocks as big as they want, they can make them as small as they want. Miners can even refuse to include any transactions in a block which gives them, potentially, a lot of power, as they could bring the system to a halt.
What keeps the network alive is that an interrupted system would come at great expense to the miners. They would no longer be able to spend the coins they create, but would still have to invest in electricity to create the blocks. The halt would mean continuous accumulative loss while mining empty blocks.
Miners can, however, change the protocol in what is commonly called a “soft fork,” where they merely restrict the existing rule set.
Soft forks are often considered coercive and non-competitive as users are not specifically asked to opt into the changes. However, the soft fork doesn’t violate the existing rules users consented to, such as the total amount of all Bitcoins, or what constitutes a valid signature. As such, a soft fork is only able to change a limited set of parameters and is hardly able to expand the capabilities of the network.
When Satoshi Nakamoto mined the first block on January 9, 2009, he (or she, or they) set the rules of Bitcoin in stone. While Nakamoto, at this moment, yielded tremendous power over Bitcoin, he gave it up by publishing the source code, before leaving the project entirely just under two years later.
Today, anyone can theoretically fork the code, incorporate changes and propose these to the community. In reality, however, those in charge of the most popular repositories yield some power of what is accepted “Bitcoin.”
Big Bitcoin players include the domain bitcoin.org and bitcoin.com, which are run by two different teams with separate views and visions on Bitcoin’s future. The Github account github.com/bitcoin is maintained by a loose group of people. Similarly, when you type “apt install bitcoin” into a Linux terminal, it will install the source code managed by a group of individuals who decide which code to present you. The number of users supported by these repositories grants them significant control over the Bitcoin network.
So while it’s true that anyone can submit changes to these repositories, nobody can be forced to accept these changes. A significant change to Bitcoin requires the innovator to compile the new version from source, fork the code base, and convince others to change their repositories—a tough uphill battle.
Exchanges & Payment Processors
Miners need to pay their electricity bill in an established fiat currency, which they obtain in exchange for their mined Bitcoin. Bitcoin exchanges hold a lot of power in the event of a chain split because the liquidity and availability of cash might be what convinces miners to mine on one chain versus another.
Luckily, exchanges are not monopolies, and it’s relatively easy to support multiple coins or chains. As long as there is demand for a trade, exchanges will list the crypto-assets.
How much power a Bitcoin exchange can yield over the ecosystem depends on how competitive the area is. One reason why we see a lot of exchanges push for more regulation in the field is it makes it easier to find bank accounts and eliminate competition.
Maybe one-day decentralized exchanges can make it easier for users to trade cryptocurrency without having to put trust, and power, into the hands of exchanges.
It can be hard to define what a Bitcoin user exactly is—miners and exchanges are also users. A user could be as broad as anybody who makes a transaction, but this would still exclude long-term investors.
For the sake of this argument, a user is everyone who runs a full Bitcoin node. A node is a copy of the Bitcoin software through which transactions are independently received, verified, and stored. Whether users relay these transactions or allow for incoming connections (e.g., opening their network ports) is irrelevant, as is how long they store them.
The primary importance of a user lies in verifying the blocks created by miners and the transactions within them. As long as people run their nodes, miners have little power over the network, as they will only accept blocks and transactions created by the rules the users opted into.
Additionally, users exercise power over the network when they chose to buy, sell, or transact in Bitcoin. It’s these users that decide the value of a coin, especially during a chain split. Depending on what users accept or want to invest or divest in, the value of a particular chain goes up and down. Miners are forced to follow this value with their hashing power unless they are willing to subsidize a chain at a loss.
Miners, developers, and exchanges all yield some power over the Bitcoin protocol and ecosystem. But eventually it’s the user who gives the system value, and it’s the user who decides on the outcome of coin splits or network upgrades.