Editorial note: I published this almost three years ago on my Tumblr, which I keep semi-private and so don't want to link to. This is a verbatim repost from there, despite the fact that I disagree with some portions of this text nowadays.

Bitcoin, Magical Thinking, and Political Ideology

edwardspoonhands:

I get asked all the time what I think of BitCon…this guy says it better than I could.

+1 for linking to something by Alex Payne. I love him.

About the actual content, at one point Alex says this:

We’re told that Bitcoin “fixes serious problems with existing payment systems that depend on centralized services to verify the validity of transactions.” If by “fixes” you mean “ignores”, then yes: a Bitcoin transaction, like cash, comes with the certainty that a definite quantity of a store of value has changed hands, and little else. How this verifies any “validity” or cuts down on fraud I’m not sure; stolen Bitcoins are spent as easily as stolen cash, which is why theft of Bitcoins has been rampant.

I think the concern isn’t with fraud or validity. The problem that Bitcoin solves is with the centralized banking model. The fundamental idea behind Bitcoin is that it cannot be centrally controlled or taken down, like the internet. It is impossible to flip a switch and “turn off” the Bitcoin network. It is possible to do that with a centralized bank: in that case, “flipping the switch” ends up being “shut down the bank”. Or, “drive the bank out of business”.

If Bitcoin’s strength comes from decentralization, why pour millions into a single company? Ah, because Coinbase provides an “accessible interface to the Bitcoin protocol”, we’re told. We must centralize to decentralize, you see; such is the perverse logic of capital co-opting power. In order for Bitcoin to grow a thriving ecosystem, it apparently needs a US-based, VC-backed company that has “worked closely with banks and regulators to ensure that the service is safe and compliant”.

Maybe the problem isn’t with Bitcoin itself, but with what Coinbase is doing with the Bitcoin protocol. Now, to be clear, I think the Bitcoin to USD bridge aspect of Coinbase is OK. But I think that this paragraph is very, very true: it is perverse that we have centralized a decentralized protocol. Decentralized protocols tend to be very dangerous, IMHO, because of the tendency of users to just go with the most popular provider because it’s the easiest solution, and then effectively centralizing the network in the process.

Anyone remember XMPP? XMPP was supposed to be great. It was supposed to be the future of communications on the internet. But in practice, XMPP servers are unreliable. It’s hard to find one that works well. I don’t actually use XMPP a lot myself, but there are a lot of problems with connections, chat requests being undone (so you have to add a contact for a second time), etc. So what happened because of these problems (and the fact that everyone uses Gmail)? The most-used XMPP server is talk.google.com. At least it was, until Google replaced Google Talk with Google Hangouts, which uses a proprietary protocol with no XMPP bridge - and so the network got screwed over, because suddenly, a lot of people upgraded to Hangouts and cut themselves off from the XMPP network. The sad truth, though, is that it almost doesn’t matter. Take a survey of any random Google Talk user. I will bet you $100 that less than 1 out of 50 people who you talk to won’t know that Google Talk is based on XMPP, much less what XMPP is. And there’s almost zero chance that they understand why XMPP matters, or why federated protocols and networks matter.

I’m getting off track, though. So back to Bitcoin and Coinbase. I think what Coinbase is doing by hosting people’s Bitcoin wallets and transactions is fundamentally wrong, because I truly believe that it damages the Bitcoin ecosystem. The centralization in Coinbase is, IMHO, a major problem.

I wonder if this will be solved with a project like arkOS. I mean, maybe the solutionv that will ultimately happen is for people to spin up their own instances of a Coinbase-like Bitcoin wallet. I think it’s pretty clear that people, in general, like cloud apps better than desktop apps. Access from any computer is a really nice feature to have. Maybe projects like arkOS will help decentralized protocols like Bitcoin remain decentralized in practice.

Or maybe Bitcoin will effectively die, just like XMPP did. I mean, sure, XMPP is still a network. But no one really uses it consciously. Almost everyone who uses XMPP nowadays does so accidentally, through a service that just happens to have an XMPP bridge. Google Talk was a prime example of this, but it’s dead. Now, I’ll bet money that the most-used XMPP provider is Facebook. Never knew that Facebook Chat had an XMPP bridge? That’s because Facebook doesn’t advertise it; the only time it’s mentioned is in the developer docs. The mainstream does not care about the XMPP protocol, because we centralized it. What the mainstream does care about is the services that we centralized it on: Google and Facebook. And that’s a real problem.