What a time to be alive. The blockchain dramas that have unfolded over the last year or so have never failed to amuse.
The most recent events with Ethereum’s adoption of a hard fork and the unexpected support that Eth-classic has received continues to demonstrate the divergent philosophies between the Ethereum and Bitcoin communities. It has also demonstrated how these two protocols address the issue of uncertainty.
Radical uncertainty is a fascinating topic within economics. It is at the center of Mervyn King’s new book — “The End of Alchemy : Money, Banking and the Future of the Global Economy” (King was the governor of The Bank of England from 2003–2013). King points out something that economists like Frank Knight (1885–1972) and John Maynard Keynes (1883–1946) have argued before — there will always exist uncertainty that can not be accounted for. Or as Donald Rumsfeld famously put it — “the things we do not know we do not know.” Radical uncertainty, as defined by Knight, is risk that is immeasurable, and not possible to calculate.
Others, like Nobel winning economists Milton Friedman, have argued that uncertainty, can in fact, be addressed and disagreed with the notion of total or radical uncertainty. Economists try to address this issue by applying probabilities to events or outcomes within their models that help guide regulators and policy makers. These models, therefore, make assumptions. Sometimes, these assumptions are very big and very wrong, as was the case in 2007/08. Few people would have predicted that Northern Rock, a major UK mortgage lender, would have failed and tipped the UK into a financial crisis. It was presumed to be a secure and stable financial institution because, based on decades of data, mortgages were a safe and low-risk bet. An assumption with drastic consequences.
Greenspan explains how his model of reality became evidently flawed after the financial crisis.
Mervyn King, and others, advocate the need to re-think our ability to predict outcomes and to both embrace and prepare for “the things we do not know we do not know.”
How is this relevant to the world of blockchain technologies? Well, in the case of Ethereum and Bitcoin, any changes to the source code or the implementation of a hard fork creates unknown unknowns. Changes can provide a new vector through which malicious actors could game the system for financial reward — as was seen with the DAO. These two protocols are also up against technological hurdles that need to be resolved in order to meet the needs of mass adoption — ie. scalability, privacy, and security.
Here is where we see the divergence in philosophy. Bitcoin has laid the foundation for blockchain technology. It is the most secure, most stress tested, and reliable protocol for transferring value. Satoshi incorporated high-level game theory and computer science to create a decentralized and open system. Anyone can use it and anyone can attack it. Bitcoin intentionally used a limiting and non-Turing complete scripting language in order to reduce the vectors through which an attack can occur. Satoshi also chose a predictable inflationary monetary policy where the supply of bitcoin is set. Creating a “decentralized wire-transfer” is no easy task, and there is a big bounty for anyone who can break it — so far no one has.
Now enters Ethereum. Ethereum’s founders recognized Bitcoin’s limitations and sought to create a new blockchain that could do what many projects like Namecoin, colored coin, metacoin, etc. are attempting to do and more. To quote Vitalik’s white paper:
“a blockchain with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralized applications where they can create their own arbitrary rules for ownership, transaction formats and state transition functions.”
This is an incredibly ambitious project. Not only does it allow for the development of complex on-chain applications that can do much more than multi-sig transactions, but Ethereum also aims to solve scalability through a largely untested consensus algorithm — Proof of Stake. This creates a lot of unknown unknowns. As Balaji Srinivasan stated — “[Ethereum] has a much broader attack surface…”. Additionally, the validity of Proof of Stake and the Solidity programming language continues to be challenged by many.
So, are the founders of Ethereum delusional? No. They simply have a different approaching to uncertainty than Bitcoin does.
Vitalik addressed uncertainty in a recent Reddit post:
“In the short and medium term, we are still under conditions of high technical uncertainty. For example, Vlad and I continue to argue about whether or not a fixed currency supply can offer sufficient incentives through transaction fees alone to secure the network. If we had agreed, for example, to a “100 million ETH and never a single bit more” principle on day one, we would have dug ourselves into a rather deep hole if the research ends up showing that low inflation (or something more complex, like expected low deflation but the possibility of low inflation under conditions of low Casper participation) is the only safe way forward. Similarly, “it is possible to create a contract that lasts forever” is also something that is economically dangerous to commit to. Hence, principles on these kinds of matters may need to be settled only later.”
In the same post he also states:
“I personally was okay with a fork in light of this context, together with a philosophical belief that a principle does not need to have literally infinite weight in order to have value.”
It is no surprise that Vitalik, Vlad, and others in the Ethereum foundation were open to a hard fork. They are in uncharted waters with ambitious goals. Having an adaptive mentality to unknown problems allows for the consideration of a multitude of solutions, whether these solutions are known to us now or will be later on.
Bitcoin’s approach to uncertainty is far more cautionary. It has intentionally limited its capabilities in order to ensure security and reliability. There are many stakeholders within Bitcoin — miners, consumers, core-developers, wallets, and exchanges. Additionally, this is an open source project which often lacks clear leadership and has been conflicted by competing ideas on how to address issues like scalability. On top of all this, there are some heavily held principles within these stakeholder groups — one of which is immutability. This has evidently prevented any aggressive developments of the Bitcoin protocol — for example — a limiting block size still remains to be resolved.
Bitcoin has overcome huge obstacles and has gotten to where it is today through a cautionary philosophy mixed with cypherpunk principles. The Ethereum foundation, and to some extent the community, seems to embrace uncertainty and has committed to an ambitious road map. This alternative approach to progressing a blockchain protocol does not seem compatible with strongly held principles since it must open itself up to unknown futures.
Given enough time, it will become clear that Ethereum and Bitcoin are by no means competitors and will eventually find their places within a multi-blockchain future. A ‘one-chain to rule them all’ ideology ignores the messiness and complexity of our world.