Bitcoin has a governance problem, no matter who created it-Reuters

LONDON (Reuters -Jemima Kelly) – As one would-be father of bitcoin falls by the wayside, squabbling among the web-based currency’s lead developers is exposing a fundamental flaw: it must evolve to meet growing demand, but may lack a governance structure to achieve this.

The latest bickering erupted after Australian entrepreneur Craig Wright promised to prove he was the mysterious creator of bitcoin – which allows users to move money across the world quickly and anonymously – but then said on Thursday he could not provide further evidence to back this up.

Wright stopped short of reneging on his claim to be Satoshi Nakamoto, assumed to be a pseudonym for the person or people who launched the digital cryptocurrency in 2009. However, he apologised for damaging the reputations of bitcoin experts who had believed him.

Many members of the bitcoin community reckon this is all a distraction and agree with Wright when he said that the identity of Nakamoto “doesn’t, and shouldn’t, matter”.

“Satoshi’s biggest achievement was to create a system that doesn’t require his participation to run,” said Peter Todd, one of bitcoin’s core software developers. “That’s what makes all this stuff kind of funny. It’s like searching for the creator of a system that’s designed not to require a creator.”

While grey-suited central bankers print conventional currencies and commercial banks control transactions in them, no one person or entity is in charge of bitcoin. Instead it runs on a decentralised system of shared trust without any third-party verification of transactions – one reason why many people are attracted to it.

Critics, however, say it needs a “benevolent dictator” or at least some “adults” to manage the expansion that it needs to cope with the increasing number of transactions. Someone, or some group, must decide how to meet users’ requirements, they say.

Trades are handled by thousands of “mining” computers around the world which validate blocks of transactions by competing to solve mathematical puzzles every 10 minutes.

The first computer to solve the puzzle clears the transaction and is currently rewarded with 25 new bitcoins, now worth around $11,250.. This is how the computers’ owners cover their costs – largely power bills – and make a profit. The system also ensures there is no single point in the system that might fail.

CIVIL WAR

In practice, there do appear to be people who can make decisions, but it is also possible to be excluded from this magic circle.

One of the bitcoin experts who initially believed Wright’s claim is Gavin Andresen. Nakamoto handed control of bitcoin’s software to Andresen when he stepped aside in 2011, a transfer that kept the creator’s identity a mystery as it was conducted in cyberspace without human contact.

Andresen later shared that control with others. But when he stated publicly he believed Wright, sceptical developers responded by revoking his “commit access” to a shared repository of bitcoin rules.

Initially, these developers justified their move on security grounds, saying his computer must have been hacked – something Andresen denied. When Reuters asked Todd whether Andresen’s access would be reinstated, he responded: “Heck no”, saying a belief in Wright amounted to “inexcusable incompetence”.

Andresen admitted to bewilderment over whether he still believed Wright’s claims. “Ask me in six months; I don’t trust my own judgement right now after all the drama,” he said on Twitter.

The squabbling is not new. One of the lead developers, Mike Hearn, stood down from bitcoin in January because of a power struggle nicknamed the “bitcoin civil war”.

Hearn and Andresen had proposed increasing the size of the blocks in which transactions are processed but the other developers opposed this. In quitting, Hearn said that “what was meant to be a new, decentralised form of money that lacked systemically important institutions” had now become “a system completely controlled by just a handful of people”.

Many investors and start-up firms remain optimistic about bitcoin and are making money from it. But Emin Gun Sirer, a computer science professor at Cornell University, said the appearance of internal conflict was undermining it.

“For bitcoin to retain its value, it’s important to have hope that there’s good management in charge, that there are adults in charge,” Sirer said. “When we see opportunistic moves, that’s a problem.”

BENEVOLENT DICTATORS

But Sirer also said that any open-source project such as bitcoin, which runs using software that anyone can access, change, and distribute, faces the challenge of governance.

“Is it a pipe dream to expect to be able to build a currency system that is completely decentralized and free of any control whatsoever? The short answer to that is yes, but that’s not what anyone should have expected anyway,” he said.

Sirer added that he was concerned that his brightest young students at Cornell were being deterred from getting involved with bitcoin because of the in-fighting and the appearance that developers were unable to agree on change.

One other digital currency system which is attracting bright young minds is Ethereum, created in 2013 by Russian-Canadian Vitalik Buterin when he was just 19. It works with the “benevolent dictator model”, as Sirer calls it, with Buterin holding the decision-making power.

“Over the last couple of years it’s become apparent that having a static protocol is just not a viable approach,” Buterin told the Consensus bitcoin conference in New York earlier in the week. “Software has to evolve … and there has to be some mechanism for agreeing on how software is going to upgrade.”

Most, however, reckon that even if Nakamoto were to be found, the other developers – many of whom have written more code than he ever did in the seven years since bitcoin was launched – would not accept his having ultimate power.

“(Nakamoto) would be thanked for creating this amazing thing, but if there comes a time when there’s a technical debate over whether we should go one way or the other, his opinions would only be persuasive, not controlling,” said Jerry Brito, executive director of bitcoin advocacy group Coin Center.

Source: Jeremy Kelly – Reuters – http://in.mobile.reuters.com/article/idINKCN0XX1WJ?irpc=932

(Additional reporting by Toby Sterling in Amsterdam; editing by David Stamp)