The latest buzz among the various Bitcoin factions is whether or not to consider the SegWit2X hard fork a "corporate takeover."

In some ways it is but, as I'll explain in this article, it's nothing to fear. In fact, the mindset that the motives of miners should be distrusted by default is a dangerous one that should be pointed out and debunked whenever it is voiced.





Origins of the Mindset

All Bitcoin transactions take up a small amount of room in a "block." When Satoshi Nakamoto originally described Bitcoin, it had no restrictions on how large blocks could be. Initially this was not a problem because barely anyone knew about the network. However, increasing interest in Bitcoin eventually brought in its fair share of bad actors. Hash power of the network was so low, attackers realized they could flood the network with tiny transactions which would make blocks gigantic. Most nodes of the network were just enthusiasts mining on their home computers, with ISP transfer limits and bandwidth restrictions. Huge blocks would essentially exclude them from mining altogether.

So in response to this, a block size cap of 1MB was introduced. It's important to note that this cap was always intended to be increased as capacity of the network grew. As is clear from the original Bitcoin white-paper and his later forum posts, Satoshi understood that as the value of Bitcoin grew, mining would pass out of the hands of enthusiasts and into specialized mining farms.

Fast-forward to today and somehow the idea that Bitcoin should remain an enthusiast project has ossified into zealotry. The 1MB cap is treated by Bitcoin Core developers as an inviolable tenet that keeps Bitcoin "Bitcoin." By enforcing the 1MB cap, small-time enthusiasts can still run non-mining, verifying nodes which makes many self-styled "cypherpunks" feel good about themselves.

But in doing this, the network became clogged. The rising profile of the Bitcoin brand meant many new people wanted to use the system, but the restriction on block size began causing delayed transactions and exorbitant fees.





What is SegWit2X?

Instead of simply making blocks bigger, Core proposed a "solution" to the full-blocks situation called SegWit. Under SegWit, some of the witness data for each transaction would be discarded once the transaction was confirmed. Instead of a block size increase, it was a block capacity increase.

Some people didn't agree with the fact that this data was discarded. Several high-profile articles were written explaining how a Bitcoin stripped of this data would no longer function like Bitcoin as described in the white-paper. However, many other people praised SegWit because it was a soft fork. That meant upgraded nodes would be backwards compatible and thus be very unlikely to split the network into two coins. This was a key selling point of SegWit.

But a curious thing happened: Publicly, many high-profile developers, Bitcoin startups and communities supported SegWit, but the miners actually doing the proof-of-work did not. With each block produced, a miner could add a token which signaled their intention to support SegWit, yet the percentage of blocks displaying such a token remained below 40%.

Despite this, Bitcoin Core developers refused to listen to (and censored) alternative solutions like increasing the block size. They were happy to wait for the pain of user fees and transaction delays to become absolutely unbearable in order to force miners to accept SegWit. Miners on the other hand, were not.

In early 2017, many of the largest miners and Bitcoin companies came together in New York to finally break the impasse without interference from the Core developers. They agreed to implement SegWit on the condition that the block size would be doubled in a hard fork. This agreement came to be known as SegWit2X.

With this agreement in place, support for SegWit on the network suddenly shot up to 100% in late July 2017. SegWit was locked in and activated on the Bitcoin network in late August of the same year.





Corporate Takeover?

Because Core was not invited to the negotiations in New York, many people now refer to the agreement as a "corporate takeover" of Bitcoin. In a way this is true. "Corporations" of miners which have invested an incredible amount of wealth into network infrastructure are announcing their intention to go against the wishes of the volunteer[1] developers in charge of the main repository of Bitcoin code.

It's very easy to stereotype each side considering the crony capitalist system many of us in so-called "Western" nations live under. It's taken for granted that corporations exploit, and open source software developers are our saviours. But are these stereotypes really correct?

Certainly corporations are not always benevolent, or kind, or fair. Yet one thing is true: absent government rent-seeking, subsidy or bailout, corporations that profit can only do so by serving customers. A corporation that doesn't serve customers does not earn a profit and ceases to be a corporation. One of the reasons people find it so easy to decry "exploitation" by business, is that all the businesses which actually followed their outrageous demands to play "fair" no longer exist. Selection bias at its finest.

Corporations exist to earn money, and they do this by serving customers. Miners are corporations that serve customers by keeping the Bitcoin network functional. Miners are not run by stupid people who don't understand the technology behind Bitcoin as much as Core professes they do. In fact, it is the miners who may likely be the most knowledgeable, since they witness the number-crunching stats of running hundreds of thousands of ASICs first-hand.

When blocks became full and fees began to rise, Bitcoin became less functional. Miners grew concerned not because they thought control of Bitcoin would be better off in their hands, but because they saw that Bitcoin was failing to serve customers . This is not a "take over", it is in fact a struggle to overcome obstacles in providing the best utility to as many users as possible. In this case, the obstacle is Core, and their refusal to increase the block size. But it could have been any number of other things.

This is a fundamental mechanism of Capitalism. It's not pretty, nor elegant. Yet in overcoming obstacles to bringing products and services to as many people as possible, there is no other system of economics that comes close to its level of success. The Core developers of Bitcoin don't understand this. They believe a directed Bitcoin, a harnessed Bitcoin, a controlled Bitcoin is the best Bitcoin for everyone. Soon they will learn, like in any free-market system, that artificially restricting the utility of a resource does not protect or increase demand for that resource. Instead demand will be driven to competitors more willing to cater to customers such as Bitcoin Cash or alt-coins.





Miners as Bad Actors?

A common worry is that once miners "take over" they can do anything they want with the protocol, such as colluding to raise fees, or even going so far as to raise the 21 million coin cap. Yet those are the same apocryphal accusations brought against any big business cornering markets which sound logical in theory, yet never occur in reality (except as enabled by government coercion). Even Standard Oil, the "monopoly" which controlled 95% of the oil market in the 1800s, over a number of decades, lowered the cost of fuel oil from dollars to pennies. That is increasing utility, which is what every corporation legitimately struggling to serve and survive wishes to do.

For those who have a fundamental (and ultimately collectivist) distrust of business and the free-market, it is very difficult to imagine how a system of "dog-eat-dog" competition among market actors relentlessly pursuing profits can maximize stability of anything. Yet evolutionary biology is founded upon this very tenet. Each organism wishes to maximize its fitness (utility) in order to survive (profit). It's a messy process, but one that has managed remarkably well, and has produced astounding resilience and diversity.

Miners, like organisms desperate to pass on their genetic information, want to survive. To do this as corporations, they need to serve customers . The Bitcoin network is the product and, as much as Core wishes you to disbelieve it, miners are intensely concerned with its health. Doing something to the network that causes it to lose utility will damage their own survivability. This includes betraying user confidence by raising the 21 million coin cap, or altering the proof-of-work algorithm to make mining easier. They know why the network has value and the incentive to expand that value is intense and growing .

Viewed in that light, it gets difficult to believe that the miners' motive for sticking with the SegWit2X hard fork is in any way malicious. Core developers and organizations promoting sidechains such as Blockstream like to state deceptive statistics such as 75% of polled Bitcoin users and blockchain-based start-ups are opposed to the 2X part of SegWit2X. Yet the key difference is that those users and start-ups have no financial investment in supporting the network itself. They add value to the network by using it, but they do not keep it functioning as an ecosystem. Miners do.

Satoshi understood this from the beginning with his "one-CPU-one-vote" philosophy. Only those supporting the network by generating proof-of-work get the privilege of casting votes on the direction of the protocol. This is done because those supporting the network may not have the most to lose if the utility of the network is damaged or destroyed, but they do have the most to gain if the network can achieve more utility and value.

Likewise, businesses in a system of free-market capitalism have the most to gain if situations which damage the utility of their products and services can be avoided. It's true that bad decisions may be made to avoid such situations, however those most qualified to make those decisions are the shareholders financially invested in the business (miners), and not customers (users), special interests (start-ups, sidechainers) or employees (developers).





Conclusion

The Core developers have a vision for Bitcoin of a decentralized utopia where everyone has enough computing power to run a full node and people transact on the network only rarely to store their wealth for the long term. But this is not what Bitcoin was meant to be.

Bitcoin is peer-to-peer electronic cash, meant to move, meant to be dynamic, designed to plug into a world moving at a faster and faster pace. The world doesn't need another slow-moving store of value like precious metals or equities. It needs a new form of dynamo. Like the printing press and the combustion engine, Bitcoin is a technology meant to be unlike anything that ever came before. Digital gold is pretty much the most boring and useless thing that could possibly be done with the incredible technology we've been given.

Unlike every other economic system, capitalism doesn't promise a utopia. There will be winners and losers, and some people will slip through the cracks. But what capitalism does promise is to maximize the rate we as an economic species generate wealth. That's "wealth" not defined by how many Bitcoins you have in your pocket, but by how easily you can turn those coins into the things you want out of life.

That is the utility miners want for Bitcoin. Because increasing utility of the network means more users which translates to more total value, which ultimately results in more reward for miners. Conversely, trying to corral Bitcoin to decrease its utility, hoping that will increase demand and value (as Core and Blockstream are doing) is a regressive strategy doomed to go extinct.

Capitalism may be the most chaotic, and undirected system of economics, but understanding that its goals are aligned with improving the lot of every human on earth is key to also understanding why the profit motive, in other words the motive to serve others, is the most noble motive of all.





For more information on capitalism as a moral argument see:

Capitalism: The Unknown Ideal - Ayn Rand

Economics in One Lesson - Henry Hazlitt

The God of the Machine - Isabel Paterson

Essentials of Economics - Faustino Ballvé



