The Bitcoin drama has gone by different names. Before it was called “the blocksize debate” and now it’s called “Core vs. Classic,” but at the root of it all is the issue of centralization, so I’m calling it the centralization wars. Power in Bitcoin is centralizing, that’s clear, but it’s not clear how it should centralize in the future.

How did the conversation about Bitcoin become a conversation about centralization? In a way, the creation of Bitcoin in 2009 was a political statement on centralization. Satoshi designed it to avoid the corruption of state-run currencies by fixing monetary policy in the codebase. Furthermore, unlike state-run currencies, anybody could play the part of Treasury and create coins, so long as they had a fast computer to run the code.

But wherever there is money, there’s greed, and sooner or later, big players were going to step into Bitcoin. The first major one was the Mt. Gox bitcoin exchange, who by 2013 was handling 70% of all bitcoin transactions. And as predicted, corruption followed centralization, and Mt. Gox shut down after getting caught stealing funds.

Today, while the largest Bitcoin exchanges account for 6–14% of traffic each, some of the major branches of Bitcoin are still highly centralized: The miners, the ones who run powerful, dedicated machines to mint new bitcoins, are concentrated in China and number in the low double-digits; The ranks of the Core developers who maintain the Bitcoin code have thinned out some, and many are now on the payroll of one company Blockstream; And the discussion boards have consolidated around /r/bitcoin, which is heavily moderated by one user theymos.

All of these parties have competing interests: The miners are quiet, but seem like they would support any code that decreases opportunities for individual miners or increases opportunities for transaction fees; Blockstream wants code changes that accommodate their own technology platform Lightning Networks; And theymos’s motivations are unclear, although he has been aggressively censoring posts on Bitcoin proposals he dislikes.

Centralization — or more specifically, factionalism — has led many early adopters to quit Bitcoin. Some, like long-time Bitcoin developer Mike Hearn, have penned essays about quitting Bitcoin as if they were quitting an abusive relationship.

Having said all that, there are still two branches of the Bitcoin democracy that are decentralized, but their control is largely symbolic: The exchanges want anything that increases the volume of transactions of Bitcoin, so that they can profit off commissions; And Bitcoin users want anything that makes transactions cheap and fast, while growing the value of their existing coins.

It’s the code, not the factions, that will determine the fate of Bitcoin, and the code is hard to change.

All of this drama masks the inherent truth about Bitcoin and other cryptocurrencies: Once their networks are big enough, nobody has power. While minor changes to Bitcoin don’t take much approval, larger changes, which are called hard forks, change the way Bitcoin transactions are recorded, and are therefore much harder to approve. People can’t just radically change the Bitcoin ledger. For one, there are too many nodes who would have to agree to upgrade in unison. For another, there’s too much at stake.

Given the current price of Bitcoin and the number of outstanding coins, small fluctuations in price can cause million-dollar changes for large stakeholders. Even daily fluctuations,which are at .74%, can cause the total value of all bitcoins to change on average $50 million. This is a concern for exchanges, miners, and high-net-worth individuals, but less of a concern to Core developers who may or may not hold many bitcoins. However, the Core developers have their reputations at stake, and right now being a custodian of Bitcoin is one of the most elite positions a coder can have.

And yet, many users and some factions want — no, demand — a hard fork. The way the ledger is designed now, with small blocksizes, it can barely handle the current volume of transactions. Further network congestion will slow down how fast money can move, which limits one of the core initial selling points of Bitcoin. But change — or lack of it — affects each faction differently. Larger blocksizes makes it harder for small miners, for example, which, rightly or wrongly, has some Bitcoin users up in arms. All the bickering has led to inaction thus far, and so some wonder ifBitcoin will adapt or die.

Game theory predicts that any future changes to Bitcoin will be the ones that rock the boat the least.

The model for Bitcoin’s governance comes from game theory, in particular Keyne’s beauty contest:

Imagine a newspaper contest where readers are asked to pick the most beautiful face among six choices. The winner is given a prize if they pick the face that is the most-picked. At first, it seems like the best strategy is to pick the most beautiful face. But once you understand the rules, that you only win if everybody else picks the same face, the best strategy is to pick the face that you think most people will pick as beautiful. But then once you realize that everybody else will behave in the same way, you have to pick the face that most people will think most people will think is the most beautiful face. This chain can go on indefinitely, and often what results is a face with the most average features. This is why when people are asked to describe the faces of famous actresses, their descriptions are vague and indistinct.

In game theory, the outcome of the beauty contest is called Nash equilibrum, where all players, when looking at their decision tree, and anticipating everybody else’s decision trees, end up in a predictable spot.

Slowly, but surely, Bitcoin is becoming a conservative central bank.

The Nash equilibrium for Bitcoin is any obvious, non-controversial, i.e. “safe” choice. All the factions may vigorously push their own agenda, creating the appearance of a conspiracy with all its requisite propaganda and death threats — yes, death threats — but everybody ultimately cares more about the overall health of Bitcoin.

While the Chinese miners could pick a new codebase in an instant, they are beholden to the community’s sustained perception of the health of Bitcoin, which keeps the price of Bitcoin high. Right now, the community vaguely trusts the Core developers. Even if the community doesn’t actually trust the Core developers, it’s perception that matters most, like in the beauty contest. Everybody “believes” in Core because they think everybody else thinks everybody else believes in Core.

Likewise, Core could push their own changes in an instant, but they are concerned about their credibility as custodians of the Bitcoin source. Bitcoin is open-source, so their custodianship is inertia, not merit. For whatever luck of history, these coders are the ones the community designates as “Core.” It’s circular: They’re in charge because they are, but that could also change if another more credible group of coders gains momentum, such as Bitcoin Classic.

And while it seems like theymos has an iron grip on any discussion of Bitcoin, it’s trivial to start a new forum. The main alternative /r/btc is growing faster than /r/bitcoin.

The likely outcome then is either a watered-down version of Core’s proposal, one that only asks for blocksize changes, or it’s Bitcoin Classic, which is just a blocksize change. Any other code that introduces new concepts to Bitcoin, such as Core’s proposed Segregated Witness, which changes the way signatures are stored on the ledger, are too controversial to pass the beauty contest. Meanwhile, the miners are heavily incentivized not to act until the community is absolutely certain of what it wants.

In this way, Bitcoin governance is operating similarly to the Federal Reserve or the U.S. Treasury, i.e. very conservatively.