Commentators often try to compare the current stage of the cryptocurrency ecosystem to the internet years. But are we in 1990? 1995? 1998?
An equally valid comparison is to ask where we are in democracy years.
The United States, the first modern democracy, ratified the Articles of Confederation in 1781 following the end of the Revolutionary War. They served as the “operating system” of the U.S. government until 1788 when they were replaced by the current constitution which sought to remedy problems discovered with the first modern democratic OS.
Cryptocurrency governance systems may be at a stage analogous to the Articles of Confederation era, when the country was trying a new system of governance that seemed promising, but still had major kinks to be worked out.
The questions being asked at that time in American history were not unlike the questions being asked now about bitcoin and cryptocurrency more broadly:
- How much and what type of power should each branch of the federal government have? (How much and what type of power should miners, developers and users have?)
- How much power should be decentralized and given to states, and how much should they cede to the central government? (Is it better to scale out through layer 2 solutions like the Lightning Network, or scale up through a block size increase?)
There are even questions we still confront today in American politics that bitcoin now faces, too.
- What was the founding fathers’ vision? (What was Satoshi’s vision?)
- Should we care about the founding fathers’ vision or adjust to our own current needs? (Should we care about Satoshi’s vision or adjust to our own current needs?)
An important difference with democracy, however, is that these new forms of crypto-governance bring a different mechanism to wrestle with those questions: forking.
The best revenge
Attempting to explain American democracy to other European aristocrats, Alexis de Tocqueville wrote in 1840 that elections were mini-revolutions. Instead of letting tension build up over decades and end in violent revolution, democracy created a natural release valve in the form of elections. Participants in the network, citizens, were allowed to voice their feelings and hold leaders accountable, at least in some measure.
Forking adds a new dynamic. We are now able to not just vote, but fork the constitution and bootstrap new systems of governance to see which works best.
Forking allows participants to not just voice their concerns, but create a competing network that more closely mirrors their ideals and preferences. Instead of spending resources trying to convince another party of your views, forking makes it increasingly possible for participants to just build what they believe will be a better network.
In the same way the internet enabled permissionless innovation by allowing anyone to create a website without asking permission, forking allows anyone to create their own network without asking permission. It’s A/B testing on steroids.
However, one of the things we learned from the controversy over the suspended Segwit2x fork is that the possibility of forking changes how participants in the network use voice.
In his 1970 treatise, “Exit, Voice and Loyalty,” Albert Hirschman argued that members of an organization, be it a business, nation or any other group, have two possible responses when they’re unhappy with the governance of the organization.
They can exit (leave the relationship), or they can use voice (try to improve the relationship through communication).
Citizens of a country can respond to political repression by emigrating (exit) or protesting (voice). Employees can choose to quit their unpleasant job (exit), or talk to management to try and improve the situation (voice). Disgruntled customers can opt to shop elsewhere, or they ask for the manager.
Forking makes exit a much more viable option than it has been in the past. In doing so, it changes the role of voice.
An employee at, say, Google who has three other job offers on the table is more likely to stand up to management and advocate for the change she wants to see. Because the job offers make exit less costly, the offers also increase her willingness to use voice.
The increased ability to exit in the cryptocurrency community, and the increase in voice that accompanies it, may look like toxicity and confrontation on the outside. However, it is facilitating the expression and debate of the best ideas, leading to a more meritocratic outcome.
The employee at Google who is able to leave is actually more likely to create meaningful change in the organization than the one who can’t leave.
The ability to fork drives adaptation both through the fork (by creating an alternative protocol that can then compete), but also through enabling participants in the network to have more voice.
What we’re seeing with bitcoin cash is the former. This group of big-blockers created an alternative protocol that they are now working to build an ecosystem around and convince miners, developers and users to invest in.
What we saw with Segwit2x was the latter. The anti-2x community knew that the proposed fork could create a competing blockchain, but they were confident it would not destroy their blockchain. They weren’t shy about expressing themselves because they were in the same position as an employee who has other job offers on the table.
If 80 percent of Google could walk out the door tomorrow and take all the company’s assets with them, you can be sure they’d be a lot more vocal about the changes they wanted to see. You can also be sure that management would be a lot more responsive.
We don’t know how these ecosystems will play out, but the possibility of forking, and the increase in voice it facilitates, suggests we may be evolving towards a more meritocratic form of governance.