Stick Another Fork in Bitcoin

Here we go again. Come the Ides of November, some subset of Bitcoin nodes will switch to an incompatible protocol that doubles the block size while retaining the compacted data structure of segregated witness, also known as segwit. (Back in August, a BitcoinCash fork was created for bigger blocks without segwit).

The upside of a decentralized currency is that no one can ever agree on anything, making it difficult to engage in shenanigans like open market operations and debt monetization. The downside of a decentralized currency is that no one can ever agree on anything.

If everyone collectively decides to change the rules, it’s consensus. If a subset of the population decides to change the rules, that’s collusion. Every user has a different threat model, and hence a different threshold for what constitutes consensus.

If your chief concern is the ability to spend money overseas, then the only consensus that matters is between yourself and the person you wish to pay. Your threat model is customs and border control, which can be thwarted using concealed private keys. Actually, you don’t even need private keys when fleeing the country. Just take your Coinbase password. Or a Visa debit card.

If you also worry about things like consensus rules and the monetary policy that governs your block chain, then you need the help of full nodes. Your threat model is miner collusion. As long as full nodes perform block validation, Bitcoin miners can control all the hashpower in China and still have no ability to change the rules of the network – full nodes will drop invalid blocks.

If you don’t trust yourself to secure a private key, then your threat model is your own unreliable self. You probably have an account with Coinbase, BitGo, Bitfinex, or some other service. The nodes run by exchanges and wallet providers are economically important, because many people rely on them to participate in the network.

But maybe you don’t trust the economically important nodes either.

Maybe Goldman Sachs gets into the business of trading Bitcoin. Maybe they go long on Bitcoin credit default swaps, get in over their heads, their counterparty goes bust, and now they want a bailout. Maybe Lloyd Blankfein is buddies with the CEOs of Coinbase, BitPay, and all those other economically important nodes. Maybe the CEOs and miners gather for a secret meeting in New York, and agree to hard fork a bailout.

If your threat model is everyone but yourself, and you would rather adhere to consensus rules than follow the economic herd, then you need your own full node.

(And if you would rather follow the economic majority regardless of preconceived rules, then go back to the US dollar.)

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