Let’s have a look at the philosophy behind Bitcoin:

Close followers of this column would remember that we looked into Blockchain philosophy couple of posts ago. Then in our previous post, we talked about the difference between Blockchain and Bitcoin. In order to have a comprehensive understanding of the issue, this time, let’s dive into the philosophy of Bitcoin.

Bitcoin is the first real-life use case of blockchain technology. Its origins date back to the Cypherpunk movement which we also covered in a prior post.

In essence, Cypherpunks believe in free software to be used and shared among people to defend themselves against corporates and governments. The open-source movement, which mainly used by created free software that compete with licensed products (such as Open -or Libra- Office vs. Microsoft Office suite). However, while such developments have been passionately pushed forward by enthusiasts, monetization of such initiatives has always been a weak point.

Bitcoin as an open-software, perhaps for the first time, gives these people an economic incentive besides a philosophical one. It also brought together a close group called Bitcoin maximalists, who believe that one day, Bitcoin will move from being an alternative investment to a global reserve currency.

Blockchain as a technology represents many opportunities and business models. However, Bitcoin maximalists believe ‘being a global reserve currency’ is a significant enough target to focus their efforts.

Image by Ricardo Goncalves from Pixabay

There is a simple logic behind this philosophy: Money in itself is a belief system, which is fully based on trust. If you lose people’s trust that the whole system collapses.

Any additional business model that you may want to build upon Bitcoin require a lot of modification in the underlying Bitcoin architecture and software. As we all know, technological innovations come with a certain level of uncertainty. If you want to move fast and bring new features, there would be a high chance that the software may break. If you aspire to be a rock-solid money, you cannot afford that.

Nevertheless, several significant changes have been incorporated into Bitcoin in the past. The last significant change was Segregated Witness (or SegWit) which allows users to include more transactions in a single Bitcoin block. SegWit change was introduced in 2015 and finally went live in 2017. The next significant change will be Taproot, which will add new privacy features and limited programming features to Bitcoin. Taproot proposal was introduced several years ago and will be live in November 2021.

As you see, there is a four years period between the most recent and the next major change in Bitcoin. This is not a bug itself but a carefully measured decision by the Bitcoin community. For a proposal to gain traction, it has to be circulated among developers, first via discussion forums. If and once the idea gets traction then draft code changes circulated and tested vigorously among developers. If all goes according to plan, the idea is floated among the miners and it is expected that 90% of the hash rate would accept such a change by a method called signaling.

Bitcoin maximalist philosophy aims to have a solid digital asset, that not only has the core attributes of money (such as being medium-of-exchange, store of value and unit of account) but additionally be censorship-resistant. These are significant asks from a technological perspective and it is understandable when Bitcoin core community acts slowly but surely going forward.

In our next post, we will look at those who prioritize technological innovation in front of such core attributes and the emergence of another philosophy: Ethereum.

This piece is first published in BlockchainIST Center on September 4th, 2021.

None of the views expressed in this article should be considered as investment advice