Unchained - Why Bitcoin May Split In Two And How To Prevent It

Episode Date: April 4, 2017

Please take the Unchained podcast survey! https://www.surveymonkey.com/r/unchained The bitcoin community is mired in a civil war. In this episode of the Unchained podcast, supporters of opposing sides -- former Bitcoin Core developer Jeff Garzik and Litecoin creator Charlie Lee -- explain why nuclear options are on the table. The discussion touches on whether high transaction fees are bad for the network or a necessary evil, which would be considered the "true" bitcoin if the currency split in two, and whether the cryptocurrency is already centralized, or controlled by a few. We also discuss why bitcoin can't just look at the playbook of other open source projects to get past this stalemate. And they give advice to current bitcoin owners wondering whether to sell or hold through this bitcoin game of chicken. Show notes: https://www.forbes.com/sites/laurashin/2017/04/04/why-bitcoin-may-split-in-two-and-how-to-prevent-it/   Other links: Bloq: http://bloq.com/ Coinbase: https://www.coinbase.com/ Litecoin: https://litecoin.org/ This episode was sponsored by OnRamp: http://www.thinkonramp.com/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, a podcast engineered by fractal recording and produced by me, your host, Laura Shin, a Forbes contributor covering blockchain and cryptocurrencies. Thanks for tuning in. First on today's agenda is that I'm conducting a survey. I want to learn more about you, the listeners, and get your feedback on the show. Go to surveymonkey.com slash R slash Unchained to fill out the survey or find the link in the show description of this episode. Again, that's surveymonkey.com slash R slash unchained. I would so appreciate hearing from you so I can improve the podcast. Also, if you've been enjoying Unchained, please share it with others on Facebook, Twitter, LinkedIn, or with any friends or colleagues who might be interested. Also, please rate, review, and subscribe to Unchained on iTunes or wherever you get your podcasts. That also helps get word out about the show. I'd like to extend a big thank you to our sponsor, OnRamp.

Branding isn't just a logo. Your brand is the essence of who you are and what you offer your podcast. customers. OnRamp is a full-service creative and design agency that provides its clients with concise and exceptionally designed branding, websites, and marketing materials that will resonate with your audience, affect its purchase decisions, and ultimately grow your business. You can learn more at thinkonramp.com. Today we'll be discussing something that's been on the minds of everyone in Bitcoin over the last few years, and that is how to scale Bitcoin. In the last two weeks, this has become a much more urgent question. Will Bitcoin split into two?

versions, and if so, which coin will become the dominant one. Heads up that this is a longer intro than normal, but some background is necessary so we can dive into the meat of the discussion. For the last two years, the community has been in a debate over how to increase the capacity of the network, which currently caps the data in each block of transactions to one megabyte. That works out to about a handful of transactions per second. Blocks have become increasingly full, sometimes delay transactions are making them more expensive than they have been in the past. The Bitcoin Core developers who've been managing the protocol for the last several years want to keep the limit at one megabyte, but make the network more efficient. They propose a technology upgrade called

Segwit, which stands for segregated witness, that would reorganize information in blocks, effectively enabling a greater number of transactions per block. The reason the debate has hit a fever pitch has to do with another proposal called Bitcoin Unlimited, which would do away with a one megabyte limit in favor of a flexible cap. This winter, It had been gaining support from an increasing number of computers on the network. Then, in mid-March, Bitcoin core supporters perceived that the team behind Bitcoin Unlimited would soon be bringing online a significant amount of hashing power that would enable Bitcoin Unlimited to achieve what's called a contentious hard fork.

Basically, they would be able, by brute force, rather than community consensus, to create a second version of Bitcoin. It's not necessarily a bad thing if the majority of miners decide that they say, support a certain version of the Bitcoin software. But in this case, the conspiracy theory went that it would be a small number of people. And if they controlled the network, then Bitcoin would no longer be decentralized. As one of my sources said, it would be no different from a financial system that was controlled by, say, bankers or high-frequency traders in New York or a government. However, as you'll see from this episode, this is only one interpretation

and not necessarily the truth. It took me while to decide which guests to put on the episode. The debate has become so politicized. I didn't want to do a show where listeners would be pre-judging the guest comments or where my podcast would just rehash the finger-pointing that we've seen on Twitter and Reddit. But I believe I found a couple guests who will be able to have a thoughtful discussion about the debate. Jeff Garzik is the CEO and co-founder of Block, a blockchain enterprise company whose co-founder Matt Rosak was an earlier guest on the podcast. Charlie Lee is the director of engineering at Coinbase and also the creator of like coin. Welcome, Jeff and Charlie. Thanks, Laura. It's great to be here. Yeah, thanks, Laura.

Jeff, let's start with you. Tell us your history with Bitcoin. How did you hear about it? And what has your involvement been over the years? Well, after spending 10 or 15 years in the open source community with one of the world's largest open source projects, Linux, it was very natural and interesting to jump on this new cryptocurrency bandwagon in July of 2010. what I call the great slash dotting of 2010. There was a story on a website, amusingly labeled News for Nerds, which described this currency, which had no central bank.

There was no company running it. It was not a product from a company. It was something totally new and totally different. A set of disorganized, decentralized, decentralized computers, all collaborating together, together to create a single currency with a supply that could not be manipulated by politicians, bankers, users, etc. And as an engineer, I was naturally skeptical. I have thought many times,

how would we create this just absolutely wonderful, decentralized, not run by one company or government type of approach? And I didn't believe it. I didn't believe it. I didn't I thought that there had to be some tricks. So I looked deep enough and because it's open source, it's open to inspection by any engineer with the knowledge. It impressed me. It really did work. And that's how I got started.

I got started by contributing more and more changes to the software, eventually becoming what they call a Bitcoin Core developer, one of the more noted developers in that project for several years. So from 2010 until present, I've been involved in the Bitcoin project, watched it grow, and seen it through many bumps, turns, hills, and valleys. Are you still a court developer? I'm not.

I'm building a company right now. The idea behind Block, which we can cover in-depth at some other time, was generally, where do we, how do we mature an ecosystem that's still a sort of, volunteer-driven, download-it-yourself type experience? How do we take that to larger businesses that don't necessarily have the engineers on staff with this knowledge? They don't necessarily have the ability to support it 24-7. And so really, I took a break from core development to take Bitcoin to a wider audience. And Charlie, what about you? How did you hear about Bitcoin and how have you been involved? Sure.

I first heard about Bitcoin in early 2011. It was from, I think, a wired article on Silk Road, the drug marketplace that only accepted Bitcoin. Right. So Bitcoin was or is a uncensoredable currency, and that really threw my interest because I saw it as kind of like digital gold. And then in late 2011, I created like Bitcoin,

which is a fork of Bitcoin. also popularly known as silver to Bitcoin's gold. And in 2013, I decided to quit Google, which is where I was working at the time, and joined Coinbase as the second engineer. And then I helped Coinbase build out GDax the exchange and also starts supporting Ethereum and Like Coin. And I'm currently the director of engineering at Coinbase. And I should also mention that your brother was the last guest on Unchained, and he did talk about how you were the one who introduced him to Bitcoin. Okay, so let's dive right into, you know, the main topic of today's discussion.

Between these two choices that are being talked about a lot in Bitcoin, Segwit versus Bitcoin Unlimited, can each of you describe from me which one of these you support and what? or if there's something else you support? Sure. So I try to have much more of a deeply nuanced view than this or that. I think that one of the biggest questions that has been facing this community for many years is really how do we upgrade Bitcoin consensus rules? And the consensus rules, I like it to or draw an analogy to the U.S. Constitution.

The consensus rules in Bitcoin are the rules that every participant in the network must adhere to. Otherwise, the network considers their transactions invalid. And so that is a very big inflection point in terms of governance. If you're upgrading to new rules, potentially you are introducing new features which change. the currency supply. It potentially introduces rules that change how bitcoins are spent. There's basically just like any time you change the Constitution, it's literally anything can happen, both on the benefit side as well as on the risk side. And just like in law, it's intentionally set up such that it's very, very difficult, therefore, to change the Constitution, the

foundation foundational law of the land in the United States. Similarly, you don't want to make it easy to change the foundational rules of Bitcoin. Otherwise, Bitcoin really wouldn't be Bitcoin. So it's really been a story of, I think, how do we upgrade Bitcoin, number one, in a way that doesn't break Bitcoin. And this is why a lot of the sort of Bitcoin core segregated witnesses, supporters have been focusing on the safety of the upgrade is how do you upgrade the network in a safe way. And there's also, and this is where a lot of the community divide comes in, is there's the feeling that if you travel, put this upgrade down a particular path, i.e. segregated witness, then you're putting Bitcoin down a specific economic path, which,

is potentially not what many in the ecosystem wanted. So I think that that's really the fundamental issue here. It's not Bitcoin Unlimited versus Segwit. That's really just the question of the day, and obviously why we're having this podcast, but it's really, is it that Bitcoin core path or a protest path? And I think that that's really a signaling for a protest path rather than for a Bitcoin Unlimited itself.

And, Jeff, when you say that, you know, where you think the community divide comes in, is that one of these has a specific economic path with it? What is that economic path? Yeah, basically, you know, again, describing blockchain, it's sometimes you have to use analogies. One of the analogies I use is that the block capacity, that we're talking about, the way Bitcoin works, imagine you have a never-ending line of buckets that are filling up with water. And the water that's going into each bucket, you have a certain amount of bucket capacity, say, one liter every 10 minutes.

And that's sort of where Bitcoin is, is we have one megabyte every 10 minutes on average. And the way the Bitcoin fee market works is that each bucket, the space in that bucket is subject to competitive bidding. And so I attach a transaction fee to my transaction. It's a push-style transaction, as all Bitcoin transactions are. And I'm bidding for space in that bucket. And if sufficient people bid above my bid, then my transaction, comes later after those other transactions that bid higher. And what we're talking about here,

both with segregated witness as well as Bitcoin Unlimited and some of the other upgrades, is are we going to increase that bucket size? And what happens when you increase that bucket size? It's just like when you wave a magic wand and increase the housing supply in San Francisco, is this has market impact, has impact on how much fees are bid up, how much transactions appear on the network.

And as we're seeing today, at higher transaction fee prices, some businesses are priced out of Bitcoin completely. ShapeShift and BitPay have both sent notices to their customers, indicating that transactions below a one to five U.S. dollar mark are economically infeasible to process through their system. And as the transaction fees on the network, which are around 50 cents to a dollar, depending on when you're listening to this podcast, that prices out many smaller economic transactions. And so that is really getting to the heart of the debate is more about who is picking this value, how much transaction capacity there, is how do you upgrade that value?

What is the governance around that upgrade? Because just like it was mentioned earlier in this podcast, that fear that miners become the FOMC, the Federal Reserve of Bitcoin, you have the same fear that folks who are authoring the segregated witness are also picking and choosing those economic attributes. And so that's the larger discussion, I think. And what you're seeing here is interesting because early on Bitcoin was often praised for the fact that you could send money for a much lower fee than you would over, for instance, the Visa Network. So, you know, people would often, or, and it wouldn't even be Visa. It didn't even have to be Visa. It could be, you know, any, if you compare it to any of the traditional financial services like, you know,

international wire transfers or remittance services or whatever. So it's interesting how you're saying that some of these choices are actually resulting in fees that are somewhat comparable. But just to get this on the record, so you don't really see these two choices as being the only two choices. So how, so what would you say is, you know, what you support? No, absolutely. I think that segregated witness is a great sort of Lego block or foundational set of features for Bitcoin. Something that I just tweeted out, I guess your listeners, it'll be several days old by the time they hear this,

that Lightcoin is actually trialing segregated witness on the Lightcoin network. And one of my criticisms of Segwit is not a good. or bad, but much more of a nuanced view of it needs more testing. And the light coin network is going to provide that, it looks like. Bitcoin Unlimited on the other side of the scale is very new and doesn't meet many of the criteria for a safe hard fork. Many of the ancillary pieces of software, such as the wallets that hold and manage digital assets, the front-end client applications, they are not, in my opinion, ready for an abrupt

Bitcoin Unlimited-style hard fork. So I definitely have a much more nuanced view. I think that segregated witness as a soft fork has poor governance properties, but segregated witness as a hard fork has much better governance properties. But that sort of Stakesh is probably a podcast in and of itself. But ultimately, coming from one of my previous projects, which was putting, you know, speccing out a satellite that puts a blockchain in space, it was a, you know, there are plenty of puns around that. It, you know, failed to launch, never, never got to space, etc.

But one of the lessons learned was that there is a nine-stakes, ladder that NASA uses to gauge technology readiness, TRL, or technology readiness level. And since NASA deals with so many new, unproven technologies that just appeared in the lab, and they have to, many years down the line, do planning to decide, are we going to invest tens of millions of dollars in this in the lab feature, in the hopes that five years from now it will be in space flight ready flight proven each uh feature in blockchain technology bitcoin needs uh that same evaluation that technology readiness level and so what we have at bitcoin today is we have a uh capacity solution that uh increases capacity a little bit and it's a voluntary upgrade that's seg wit but it really is it appears unlikely

to address those high fees to a notable extent, or we have another solution that is software is equally unprepared for Bitcoin Unlimited. And so a pragmatic, honest view of both of these technologies, I think, leaves some room for criticism on both sides. So I think that there needs to be a base block size increase along with segregated witness. so I think there needs to be both. But the problem in sum is that Segwit and Lightning Network, which is predicated on Segwit, as a payments replacement, is simply not ready.

It's low on that TRL technology readiness level scale as a payments replacement. And so therefore, Bitcoin is sitting at a decision point where payments on chain are being priced out by high, transaction fees and the proposed replacement is still years away. Okay, before we get into, because a lot of this stuff is really pretty detailed, but let's just turn to Charlie. So the way that I originally phrased this question of Jeff was a choice of Segwit versus Bitcoin Unlimited, but in a way you could also phrase it as Segwit versus just bigger blocks in some form. Which do you support and why? I do support the Bitcoin Core side, which is segregated witness. segregated witness is not actually incompatible with BU or bigger blocks.

I do think that we should do segregated witness now today because it's safer and in a year or two if we still need to do a block size increase we can do a hard for then to increase the block size. So that's my position and I like to talk a little bit about the background about why we're coming we're reaching this impasse today. It's because the way I see it, Bitcoin is initially when people first got into Bitcoin like three, four years ago, three or five years ago, Bitcoin was like the perfect money, right? It was everything to everyone. It had high security, decentralization, low fees, fast payments, basically just worked perfectly for both store value

and payments. But unfortunately, as the block size, the block rewards decreases over the years, you kind of had to choose, pick and choose. Bitcoin can either be good at store of value, uncensurable transactions, or it can be good at payments. It can't really be good at everything anymore. And I think this is a tradeoff that eventually we have to make. So for on-chain payments.

And the reason why Bitcoin core supporters are very conservative is because we don't want to lose the decentralization aspect of Bitcoin. And with that, we lose the uncensurability. So there are tons of payment options out there today. Bitcoin is not better than any of the other ones. The one thing that makes Bitcoin unique is the fact that it has uncensurable transactions.

And in order for Bitcoin to scale on-chain today, it would have to risk this feature for it to compete with other payment methods. So I think the strategy, the plan for for Bitcoin Core is to keep this special feature of uncensurability with Bitcoin and scale off-chain as much as possible via lightning or other methods. And if we have to, in a few years, we'll have more, better idea about how much we can scale on-chain without hurting the security and decentralization of Bitcoin. And at that time, we're more able to make a decision to

increase the box size. Okay. So just for listeners who aren't familiar with Lightning and some of these so-called second layer payment channels and stuff like that. Can you just describe that in lay terms for someone who maybe is new to this concept? Yeah, sure. It's quite technical, but I think the general idea is that instead of putting your transaction on the blockchain and mine and confirmed by a miner, the transactions will be shared between the payer and the receiver, and it's not broadcasted. So the receiver, both sides have a transaction of A paying B,

and if they need to, they can broadcast the transaction on the network. And A can pay more to B, and then they would replace the transaction with a transaction where A pays more. Or the opposite, if B wants to pay A money, then they replace that transaction with a newer one where A pays B less. And Lightning Network also allows to have multiple parties. So A can pay B, but going through it intermediary. So A pays someone else and that person pays B.

So it gets quite complicated, but the general idea is that it becomes kind of like an IOU that's off-chain, but eventually can be settled on-chain. So it won't require any network fees, until it settles. So in the meantime, you can move money around with very little or no fees paid to the lightning nodes. And only when it settles on-chain, would you need to pay the on-chain fees? With Amex Platinum, almost every purchase made with your card can be covered with points, including new tastes, new fits, and virtually everything in between. That's the powerful

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Okay, one other thing that I wanted to ask you about was your support of segregated witness. Last year, your employer, Coinbase, supported an effort that I guess is even still ongoing, although not very robust right now, which is called Bitcoin Classic, which proposed bigger blocks. Did you at that time support Bitcoin Classic and bigger blocks? I supported it to a certain degree. I think if at that time, I mean, the community is ready to upgrade to two megabyte blocks. It's just that it needed to be safe.

So it needed like more time for the code to be deployed and tested and then for people to upgrade and make sure everyone is upgraded before the fork happens. Otherwise, you may have a split of the coin. So I think it was clear back then that it didn't get it didn't get the, it didn't get, it didn't have consensus. Like not everyone was on board. So that's why Bitcoin. or push for a 2 megabyte hard fork did not go through.

So, and Bitcoin Core's answer to that is segregated witness, which is a soft fork, which is a safer upgrade, which also gives us effectively 2 megabytes or close to that, and it's done in a much safer way. And I do support that today because the code is ready. We just need miners to start signaling for it and for it to activate. So it can activate as quickly as 2nd2. as two to four weeks.

And this is the safest path forward today. So then, and either you or Jeff could respond to this, but why is it that we've only seen support for segregated witness at less than 50%? It's kind of stalled around like 25, 30%, I think. Why is that? So right now, segregated witness is being activated with minor signaling.

So we're basically asking the miners to tell the rest of the network when they're ready to enforce segregated witness. And there's this whole controversy with BU and some of the pools and miners support BU and feel like segregated witness will undermine their position so they're not signaling for it. So unfortunately, Bitcoin mining is not,

is pretty centralized today. in terms of a few big pools and most of the miners being in China. So being centralized, it makes it, it makes it such that a few big players can actually decide whether or not to push through segregated witness or a fork for BU. Okay. And then the last thing actually that I wanted to ask you, Charlie, was about this trial of Segwit on Lycoin. How does that work? And once we finish the trial, how will that affect what happens with Bitcoin? Yeah. So we decided to also adopt Seguratorial Witness for Lightcoin and hoping that miners for

light coin would more easily push through Segretary Witness. And just recently, F2 pool started, the largest light coin mining pool started signaling for Segwit. So it's starting to look more. more likely. So once Segwit actually activates on Lycoyne, then people can actually test out lightning transactions on the Lycoyne network. Because there's, then you can transfer real value, so you can actually test, and then there may be people who might want to steal from a lightning network transaction, for example. So there will be real world testing. And I think after with enough real world testing, people and miners and pools on Bitcoin might

feel more comfortable activating Segwit and therefore lightning on Bitcoin also. And that's what I'm thinking. Okay, great. I just want to pause things right here to bring in an important word from our sponsor, OnRamp. The best companies in the world obsess about branding. Killer branding will transcend your company and strategically and competitively position you in the market. Done well, a remarkable brand will affect buyers and their purchase decisions and give your organization a voice that sets you up for long-term success. OnRamp is a full service, creative, agency that helps their clients maximize brand awareness, gain market momentum, and accelerate growth. Whether it's branding and identity for a new startup, redesigning an existing website to generate traffic

and leads, or executing a custom design project or marketing strategy, on ramp will get your organization strategically poised for the future. You can learn more and see examples of its work at think onramp.com. I'm speaking with Jeff Garzik of Block and Charlie Lee of Coinbase. So one of the things I wanted to ask you both about is these potential nuclear options that are on the table. In one of my recent stories about the potential hard fork, I found that the two quote unquote sides, which someone on Twitter said that there are no sides in Bitcoin, but I think, you know, we can effectively say that these two teams don't really have the same vision, which are core and unlimited. And unlimited's nuclear option is that if it obtains the majority of hashing power on the network and splits the blockchain,

then they could attack the minority chain to make sure it doesn't survive. And Core's nuclear option is to, because, you know, core is created, is made of the developers, is to alter the Bitcoin software so that won't run on current mining equipment and that would completely cut miners out of the system. How have we gotten to this point where both sides are considering or even threatening the other side with these nuclear options? Well, a lot of that really comes down to there's just such a low level of trust between the two sides. You know, rewinding back to 2016, there was a meeting in Hong Kong where the miners met some of the the Bitcoin core team, and there was an agreement of there would be segregated witness activation

if there was also a base block size increase. And without going into the sort of the back-and-forth drama there, at least on the miners, they feel that their trust is pretty low. They feel that they made an agreement and that was broken by the other side. And so things just sort of detainees. from there in the community. There are a lot of companies, myself included, that are, have been trying to build bridges between the two sides such that they can come to the table and avoid these nuclear options that are really to the detriment of everyone in the market. I think no one really wants to see any of those happen. And also, it's really going to be a case of of if that happens, the miners potentially segment themselves away from the economic majority.

And so thereby hurt their own income. And there's also the potential for, on the other nuclear option, segmenting yourself away from where the Bitcoin gets its most security, which is that hash power security against transaction reversal and against transaction censorship. And so a lot of these, I think, tend to be chess moves that the vast majority of the market participants, the Bitcoin holders, they don't really want to see either option happen. And, Charlie, what do you think? Yeah, I mean, it's kind of like nuclear weapons in real world, right? They're not really used.

And it's just to prevent war, right? So it's a threat of nuclear option that forces the other side to behave, kind of. So it's a bad idea for BU to fork at 75% start attacking the minority chain. And it's also a bad idea for Bitcoin to change proof of work to destroy the value of all the Bitcoin miners out there. So it's just two nuclear options that are just hoping to prevent the other side from making a stupid decision of doing something that would destroy, that would be bad for both sides. So one solution that's come up both in this podcast, and I've seen it multiple times on social media, and I've also had multiple sources say something about this to me. And this is also something I've wondered myself. And this is actually what Jeff referred to when he was talking about that Hong Kong agreement.

Why is it that the core developers are against doing both Segwit as well as increasing the block size? This is, as I mentioned, just a suggestion I've seen so many places. People seem to that. I think it's kind of a good common sense compromise, but why is that not on the table? Well, doing a hard fork today will take at least six months. Some people think it needs a year or even two for a safe hard fork. So Segwit is available today, right? If the miners start signaling, we can have larger blocks in two to four weeks. So why compromise?

Why spend the work to kind of come up with a Segwit plus two megabyte? fork that would take at least six months to activate when we can activate separate today and then worry about increasing the block size in the future. And also I want to mention that Bitcoin Core is not a centralized group, right? It's a bunch of developers that all work on Bitcoin together, and they don't come to a meeting and make decisions. So, like, the few core developers that went to Hong Kong explicitly said that they're speaking for themselves, that they would try to convince the team to hard fork.

But they can't be sure that the team will agree or that there is consensus among like everyone that a hard fork is necessary. So it's not easy. And coming out of the Hong Kong agreement, I think there was some misunderstanding where the miners felt that Bitcoin Core as a whole promised this. And because it didn't happen, they felt that they got that the agreement wasn't upheld. But that's not the case because it's two Bitcoin Core developers speaking for themselves. And Jeff, how do you see it? Well, there's definitely a difference of opinion on a few points. For example, the claim that Segwit will deliver capacity in two to four weeks is something that

Segwit supporters have been claiming on social media since 2016. So it's something that clearly is not meeting optimistic expectations, number one. And number two, when you hear that claim, the two to four weeks to capacity, it's also misleading because it's a two-step upgrade. Segwit requires that people who create new transactions upgrade security sensitive code, the code that adds digital signatures to each transaction. This means embedded hardware wallets, financial exchanges that process millions in liquidity every day. And so that's a big risk surface to upgrade. And that's part of the reason why there's a lot of reservation towards Segwit.

So the Segwit upgrade is a two step of one miners signal that capacity can be brought online. It's not brought online, it can be. And then that second step is that there's a voluntary opt-in upgrade that slowly over time increases capacity. And so some of the problems therefore are we have today these high transaction fees. Some people are running realistic predictions of $5 transaction fees by the end of the year, even if Segwit activates. And so we wind up with this point where we are still not solving the

problems that users in the field are actually seeing today. yet, as was mentioned earlier in the podcast, they want to wait until Segwit does or does not fulfill these capacity predictions. And then as a next step, six months a year down the line, we'll decide, well, the Segwit experiment did not bring the desired capacity online. Now we have even more transaction fee to bear. now let's look at plan B. And so it's that lack of plan B and that apparent lack of time pressure that a lot of people are fairly critical over.

This has been optimistic projection after optimistic projection. And yet transaction fees are going up and capacity is not coming online. So that's sort of the larger picture that a lot of people are looking at right now is that there's a lot of cheerleading for an in-the-lab solution that probably is not going to deliver for another year or two in terms of bringing cheap payments online.

So something that's interesting to me about this discussion is both of you are engineers, so I'm sure you are much more familiar with the Bitcoin software code than I or many of the listeners. and yet it's interesting to see how two people who are kind of really steeped in that technical perspective have a really different view. So I think this actually really kind of encapsulates what is going on in the broader community where you have these pretty strong opinions about how technical decisions will affect the network. So even as we're seeing this play out just in the small microcosm of this little podcast and between you two, when you Look at that and these differences, how likely do you think a contentious hard fork is?

Earlier you were saying, oh, it's just the nuclear option to, you know, kind of try to get your way. But it really sounds like you guys and the two sides have very different views. More immediately, I tend to think it's pretty unlikely. I think that it's more chess moves and signaling. And the vast majority of people on all sides of this debate, they want a Bitcoin that's stable, that works that doesn't lose all the properties that we all cherish today. And so I think everybody in the room really wants the same thing at the end of the day. But if we look at it very, very philosophically, is ultimately any of these blockchains and Bitcoin is not unique in this regard,

again, going back to that analogy with the U.S. Constitution, eventually in one of these blockchains, Ethereum Ethe Classic as an excellent example, you are going to have a philosophical agreement, excuse me, disagreement. And if you have a philosophical disagreement, you're going to have an unresolvable fork. You're going to have the blockchain equivalent of a stock split, where previously you had one coin and now you have two quantities of two different coins. And this is chaotic. This is awful from a market perspective. It's awful from a brand confusion perspective.

And so all parties are really working hard to avoid a contentious hard fork. That's why it's mentioned so much is because the outcome is not desirable at all. But from a philosophical and policy standpoint, a lot of people do feel that if not this year, if not next year, then eventually, Eventually, these chains will have an unresolvable, a philosophical split, and you will see two communities going two different ways. And Charlie, what do you think? Do you think a contentious hard fork is likely or not? In the near term, I don't think it's likely. I mean, I agree with Jeff.

I think it's a lot of chess moves. I'm not sure if this... I'm optimistic that Segwit would activate, and Lightning would. would help solve this problem. Or lending or other future technologies will help solve this, help make Bitcoin a useful as a payment method as it is as a store value. And we can please both sides of this camp.

But if it can't, then there may be a split where people who care more about Bitcoin being a gold replacement on one side and Bitcoin as a kind of a payment replacement on the other side. And that may be a good thing when that happens, but today I don't think that's good for anyone, for Bitcoin to split into two coins like Ethereum did. So since you're both saying that it is a distinct possibility, let's just run through this hypothetical. Let's say that there is a contentious hard fork in which one chain obtains the majority of the computing power

and then maybe, you know, attacks the other chain, or maybe not, maybe there's just two chains. which chain do you think will be considered the quote unquote true Bitcoin after that? That's sort of the $10 billion question, isn't it? And it is from a social context, taking a step back. It's really just something fascinating to ponder and watch because you have, for example, some of the people who are feeling more pain on the payment side, they're saying that, that Bitcoin is the coin with the majority hash power, that's the most secure chain from a minor perspective.

And then you have obviously a vastly different philosophical position that says that it's more about following the Bitcoin Core developers, and it becomes a centralized on this party versus centralized on this other party type of divide. of which is productive or good for Bitcoin in the long term. The user experience, you would wind up with similar to Ethereum, ETH Classic. You're holding Bitcoin one day, and then the next day you're holding Bitcoin A and Bitcoin B in equal amounts. And you and the rest of the market has the subjective task of figuring out which is the real Bitcoin. And I don't think there are any easy answers, and that's why people are really working so hard to avoid that sort of chaos.

And Charlie, what do you think, which one will be considered the true Bitcoin? Well, I think where Bitcoin really brings value is the uncensurability aspect of it. So if one side is sacrificing securing decentralization for payments, I think that Bitcoin, is not going to be worth much. Because, yeah, if Bitcoin is going to be start competing with like Visa, then I might much rather use my Visa card than that Bitcoin versus, whereas the other Bitcoin, the one where, for the core supports, is the one where we kind of optimize for security and decentralization above all else.

And that is what I think brings Bitcoin real value, where I can pay anyone anywhere in the world without risk of, being that transaction being blocked by a third party or the government. And for that, I'm willing to pay like even the dollar or two for moving money. It's much faster and much cheaper than currently a wire transfer is. Well, so something that's interesting to me is I saw that on Twitter, Naval Ravakant, the CEO of Angelist, who is also a super smart thinker in the space. He said that he thought the chain that would be considered more valuable as the one that was thought to be more decentralized. And I think right now people have this conception that the one that, like let's say that there

were two chains, one of which was kind of like run by core or would be the one that core supported and then the other perhaps like the Bitcoin unlimited chain, people have this, seem to have this perception that the Bitcoin core chain would be the one that would be more decentralized. But I found myself when I was reporting this story about the potential hard fork really questioning how I know which one is decentralized. Because, you know, if we're going to follow kind of the current narrative, which is that, or at least the one that was popular a few weeks ago, where Bitcoin Unlimited represents this, you know, small group of people trying to take over the network. But then when I interviewed one of the people who's involved with Bitcoin Unlimited, his name is Ji Han Wu. and he owns some of the mining companies and also one of the mining equipment companies. He really tried to emphasize to me that he's not forcing people to choose one side or the other,

particularly not his side. And if I think over the years about all the different developers who've left Bitcoin Core because they supported big blocks and found that they were not able to stay on the team and have that view. Then I started wondering, well, maybe, you know, there is kind of like a small group of people who believe in small blocks who are now in control of the software. And then I really just went through this whole thing where, you know, I just felt like, well, it's kind of impossible to tell which side is, quote, unquote, decentralized. I don't know what you guys think of that is, first of all, do you agree with Naval that the more, the one that's perceived to be more decentralized

would win? And if so, how will people determine which one really is more decentralized? Yeah, there are absolutely many elements to decentralization. And either side of the argument has some centralization aspects to it. And so there's a lot of people who believe, and I'm one of those, that there's a lot of developer centralization as well. Part of what we've seen of the debate over the past several years, there's been a lot of compromise and multiple efforts outside of Bitcoin Core, but at the same time that Bitcoin Core has not really compromised at all. And so there's been that aspect of it. The higher transaction fees without having a replacement like Lightning actually deployed,

ready in the field, this gets back to the technology. readiness is this pushes people onto centralized systems. And so if you're priced off the Bitcoin network, then you're going to be using a much more centralized platform to interact with the Bitcoin network at all. And so that leads to a sort of a negative adoption factor that a lot of people are concerned with, where it's a gap between killing the current payment

experience, which is where the current transaction fee levels are pushing, and that gap between when the next solution is going to be ostensibly in optimistic projections available. And so that introduces a lot of centralization on the platform side as well. So it's a minor versus dev decentralization argument on both sides of the debate. And just to elaborate on what you were talking about here where you mentioned it sort of pushes people onto centralized platforms. You mean that these second layer solutions that we talked about earlier, that those are platforms that will be run by certain companies and people will interact on those and then those will tap into the Bitcoin network. Is that what you mean? Yeah, yeah, that's right. Is, you know, factually speaking, lightning is not

in user hands today. This wonderful payment network that is supposedly the hope and savior of Bitcoin payments. It doesn't exist from a user perspective. It's not deployed in the field. And so if you're looking to do micropayments or small economic payments with Bitcoin, your choices are very, very limited. It's basically you can go to a Coinbase, you can go to a 21.co or a blockchain.Info, a very limited number of sites. And if you transact between two users on that site, you can avoid the high transaction fees, the dollar per transaction that you're seeing on the network today. And so economically, these high transaction fees push you off the Bitcoin network and onto one of these websites that mitigates that high cost. And so that's a centralization factor that we're seeing today. And Charlie, I wanted to direct that question to you as well, the one about how Naval sees this as something where decentralization will be the determining factor. And, you know, I asked, first of all, do you agree? And second, how will people decide which is more decentralized?

Well, I don't fully agree that, like, you can really measure decentralization and that determines who wins. In the end, if there's a split, it's more about, like, who the community or the exchanges or the wallet. wallets or the merchant processors, what they call Bitcoin is, and that's Bitcoin. Right. So if all the exchanges and wallets all follow BUs chain and call that Bitcoin, then that will be Bitcoin. So, or vice versa, if they follow, if they keep following the core chain and keep calling that Bitcoin, and that's Bitcoin, right? So it's basically, like, Bitcoin is decentralized. So people, whatever they want to consider to be Bitcoin, is.

is Bitcoin. And that's what's going to happen. Right. But do you feel like there's any particular thing that will make people say to themselves, oh, that's the real Bitcoin? I think if there is a contentious fork, it's going to take a while before we know which one is the real one. And I think what would determine that is just market value. So if both coins are traded on in exchange, people would buy the one they feel like is the real Bitcoin. And that would determine what the real Bitcoin is. So because you're both technical people, I also wanted to ask you about other open source efforts.

How do those tend to decide upon controversial questions like this? And what lessons could the Bitcoin community learn from them? And what processes do you think maybe the Bitcoin developers should adopt to avoid these kinds of stalemates? The other open source projects don't have a similar problem with Bitcoin, where there's a huge network effect. So if there's a split, you have to, it's without the network effect, you're not, it's not the same. So with other open source projects, if there's a contentious decision, people can just split off, fork off to a different project and keep and release two different products. And there's no issue. But with Bitcoin, I think it's more, it's much more an issue where there's a lot of value in it. And a split coin is bad for both sides. So everyone wants to stay together. But there's a lot of value in it. And a split coin is bad for both sides. So everyone wants to stay together. But there's, but there's,

also this tension where they don't agree on a certain thing. So I think we're seeing something that's happening for the first time and that's, and people don't know how to kind of wrap their minds around it. Yeah, absolutely. It's very different from, for example, my Linux experience where like Charlie said, if someone disagrees with the quote-unquote benevolent dictator, the project leader, Linus Torvalds, you just fork off your own software. And you're your own new project leader, and the market will decide which is the better piece of software.

And adding the economic component in here, Bitcoin, is what makes that decision point so different. Is you're really changing not just software, but the economy itself. And so, number one, that has to be done with great caution, great care. No one wants to break the 10 billion plus machine that is Bitcoin. And at the same time, it's getting into a dangerous, untried new ground where developers are asked to make economic decisions. Developers potentially are picking winners and losers in the market with the intended and unintended consequences of those decisions. And so that's number one new ground and number two, quite frankly, a position that developers really don't want to be in.

And so trying to find that governance solution is an ongoing problem to be solved. And have either of you seen any proposals that would help deal with this problem? I think it's getting into how do we make laws in Bitcoin, which is something that people don't want to do. So it's almost a paradoxical question. How do you govern the ungovernable? How do you create a, how do you make a decision in a decentralized leaderless environment? And so that's really boiling it down the problem that we're all facing right now. And if anyone had a solution that was workable and obvious and successful, I think it would already be on the table. Well, I happen to be talking to Emin Gonsir the other day, who is a Cornell professor, who is also a cryptocurrency expert. And he said something about, you know, kind of running different tests to see how different decisions would affect the network and the economic system. Is that something that people have considered?

Absolutely. It's a matter of simulation, whether you're simulating a technical upgrade or whether you're simulating some of the economics. But simulations are by their nature imperfect. They absolutely help. But it's a economy or market-driven instrument. And so ultimately, how do you simulate the real world? How do you simulate market dynamics, price dynamics, Application A running on Bitcoin has a demand and set of actors different from application B. And so that's ultimately the difficulty in simulating or analyzing this. How do you simulate the real world? Okay. So right now, and I'm glad that we brought up the economic question, right now when people don't know what's going to happen to Bitcoin,

do either you have any particular recommendation for what people should do with the Bitcoin that they own? should they sell it? Should they hold on to it? What are you guys planning to do? I think they should hold onto it in their own like wallet so that they have control. And just forget about this whole issue and come back in like a year or two. Things will be settled or at least we'll be in a better shape than it is today. And just yeah, don't worry about it. And the price will be probably higher. Jeff, what do you think? Yeah, I absolutely agree with Charlie there is that this will get sorted out.

I'm very bullish about Bitcoin in general. I think it's an amazing invention, and you have a ton of smart people motivated to make it work, make it continue working. So that's really the non-technical advice is one of the great strengths of Bitcoin is that you control your own money. It's not an IOU and a bank. It's something that you can hold control over in its entirety.

And so that echoing Charlie is definitely the advice I would give as well is hold your keys, have a high security environment set up. And it will sort itself out in time. Great. Well, thank you both so much for coming on the show. Where can people learn more about your work and get in touch with you, Jeff? Block.com. And we have the, we're the only people in the industry with 24-7, enterprise blockchain support for Bitcoin as well as other chains.

And just to clarify, that's B-L-O-Q.com. That's right. And Charlie, what about you? At coinbase.com and also likecoin.org. Thanks for joining us today. If you're interested in learning more about Jeff and Charlie, check out the show notes, which are available on my Forbes page, Forbes.com slash sites slash Laura Shin. Thanks so much for tuning in to Unchained, which comes out,

other Tuesday, please check out that survey that I mentioned earlier, surveymonkey.com slash are slash unchained. And also, don't forget to share the podcast with friends and on social media and review, rate, and subscribe to it in iTunes or your preferred platform. Thanks again for listening.