Yesterday’s ₿ Word conference, organized by Ark Invest was a hit. The main speakers were Cathie Wood (CEO of Ark), Elon Musk, and Jack Dorsey. In today’s letter I’d like to address some points raised during the ‘₿’ word conference and bring context to some of the arguments that were made. Elon in particular shared opinions that in my opinion heavily dissent from fact, and need to be addressed. The statements I will be addressing are the following.
Bitcoin is still tuned for the 2009 internet
Bitcoin hasn’t had an upgrade since 2009
Bitcoin energy consumption still harmful
Bitcoin is Still Tuned for the 2009 Internet
I used to think of Bitcoin as old, clunky, and “1st generation” blockchain technology. I do believe this to be a fundamental misunderstanding of what Bitcoin actually is.
Bitcoin is a protocol, much like TCP/IP and HTTP. We don’t call TCP/IP and HTTP “1st generation” internet technology. We call them essential layers on which the entire internet (including Bitcoin) is built. In the same line of thinking, power lines aren’t 1st generation electricity tech, and roads aren’t 1st generation transportation tech.
Protocols other than TCP/IP could have existed that facilitate information transfer just as efficiently, or better than TCP/IP. But yet, the only information sharing protocol that we use today is TCP/IP. That’s because there is social and commercial infrastructure built up around, and on top of TCP/IP. It can then be said that TCP/IP, as “archaic” a form of technology as it is, forms the fabric of the internet of information.
Similarly, Bitcoin is not just 1st generation blockchain software. It is a socially promoted and commercially adopted infrastructure for the internet of value. Thousands of companies have built their businesses on top of Bitcoin, and millions of people are using it to benefit their lives. This makes Bitcoin a vital infrastructure for the efficient operation, and evolution of the internet itself.
Bitcoin Hasn’t Had an Upgrade Since 2009
Bitcoin has most certainly been upgraded since its launch in 2009. In fact, the majority of the upgrades took place while Satoshi was still at the helm of the project between the years 2009 and 2011. After this time, upgrading the network as a whole has become much more difficult, due to the level of decentralization the network has achieved. Since there was no longer a single individual (or group) leading the project, there was no actor that could make a unilateral decision as to the direction of the codebase, and thus feature set of Bitcoin.
Don’t “Hard Fork” Bitcoin
There is an ethic that seems to have taken hold within the Bitcoin community, and that is that we shouldn’t be hard forking Bitcoin. For those who are uninitiated into the lingo of blockchain forking, this is the way you need to think about it. For starters, “fork” is simply a synonym for upgrade.
There are two main types of forks, hard forks, and soft forks.
Soft Fork - A change in the codebase that IS backwards compatible
Hard Fork - A change in the codebase that is NOT backwards compatible
Backwards compatibility means that the new version of the code works just fine alongside earlier versions of the code. The reason why hard forking has become so contentious is because everyone needs to agree on the change taking place, or else risk dividing the network and community. A fragmentation of the Bitcoin community on a massive scale could cause unpredictable disruption to the social layer of Bitcoin.
The ethos of not hard forking Bitcoin is one that recognizes that the original design fulfills all of the requirements of a well functioning system. It is akin to the saying, “If it’s not broke, don’t fix it”. All the while, maintaining the ethics of continuous improvement.
2017 SegWit Upgrade
The 2017 SegWit upgrade was a soft fork upgrade to the Bitcoin codebase that allows for moderate improvements on the scalability of Bitcoin. It helps miners fit more transactions in a single block. So when someone makes the claim that Bitcoin hasn’t been upgraded since 2009, this is the easiest upgrade that you can point to in order to refute the claim.
2021 Taproot Upgrade
The Taproot upgrade is by and large, the most important update to come to Bitcoin since its launch in 2009. Taproot is again, a soft fork, but one that ideally the entire network agrees to perform. The upgrade has already received support from the majority of miners, and is set to activate on block 709,632 which will take place sometime at the end of November of 2021.
Taproot will once again help miners fit more transactions into a single block, but also carries with it several very useful features for the privacy and efficiency of Bitcoin transactions. Taproot will obscure some of the details of transactions, and hide them within cryptographic signatures instead of including them within blocks.
As it currently stands, different kinds of Bitcoin transactions look different. In other words, we can tell the difference between a transaction that was from a multi-signature address, and a transaction from a single signature address. Taproot will make it so all transactions that take place on Bitcoin look the same.
This drastically improves the efficiency of the lightning network, which is the main way that Bitcoin intends to scale for payments. The base blockchain also stands to benefit as more transactions will be able to be included in each block. This will surely bring fees down, at least in the short term.
How Does this Affect You? A Bitcoin User
Most people won’t notice a thing. Maybe you will take note that fees on Bitcoin are lower than they used to be. The changes that are taking place alter small details about how the whole system runs, but will end up having a big impact on important aspects, privacy being the bigger one. Privacy is, and will continue to be a massive contentious issue that divides us socially.
I am personally on the side of having my privacy preserved, and under my control. Privacy is one of those things that you’d rather not need but have it, instead of not having it and needing it. Bitcoin specifically is important for preserving the privacy of the individual because of what can be gleaned by analyzing transaction data.
If analyzing social media data such as twitter posts and facebook messages can tell companies and government how we think, then analyzing how and where we spend our money tells companies and government how we act. I want to be using technology that gives me the most optionality over my privacy, and that is Bitcoin.
You won’t need to do anything to any of your wallets, or exchanges in order to use the Taproot upgrade. It will be automatic after block 709,632.
Bitcoin Energy Consumption is Still Harmful
This part of the conversation at the ₿ word conference was probably the most impactful. Elon made a comment that Bitcoin has still yet to reach the point where it is supported by more than 50% green energy sources. Cathie and Jack both chimed in with references citing that Bitcoin is actually accelerating us towards a future where renewable sources are more in demand1.
It’s jarring to hear a perspective that is both counterintuitive and counter to the narrative put forth by mainstream media. Yet we now have new information at our fingertips that add credence to the supposition that Bitcoin helps us achieve a greener future.
For example, China just shut down Bitcoin mining, and they were a large contributor to using coal to mine Bitcoin. Since the miner exodus from China, we moved to a world where more than 50% of the Bitcoin hashrate comes from renewable sources.2 3
A High Quality Economic System
The great thing about the session with Jack, Cathie, and Elon was that they all started from a point of agreement. Elon made a comment early on in the discussion to which Jack and Cathie nodded their heads in agreement.
“I think it makes sense to support something that improves the quality of information with which we conduct the economy” — Elon Musk4
Just before he said this quote, he defined “quality of information” for the audience. He says that the information system should have high throughput and the least amount of error. He went on to define error as fraud, and government interference with the currency.
This last point, government interference, is really important to highlight, bold, and zoom in on, because it gives additional context to the energy usage of Bitcoin. The entire reason that Bitcoin requires that miners spend energy to participate in the mining process, is that so no one actor can amass more computational power and energy expenditure than any other one actor. From this perspective, the chance of government interference is significantly reduced if not eliminated entirely.
What this conversation demonstrated to me is that in general, those of us that are proponents of cryptocurrency agree on the problem we’re trying to solve, and disagree with how we think we should solve it.
Parting Thoughts
I think much was achieved in the ₿ word conference in terms of straightening out the narrative on Bitcoin. In the future, I would like to see other voices in the space brought into the limelight, instead of the biggest names and faces that are bound to bring the most attention. On the top of my mind is four things.
Keeping up on how El Salvador is making out with making Bitcoin legal tender
Seeing how the China Miner Exodus plays out into the market
Seeing how the Taproot upgrade helps scale Bitcoin
Watching the lightning network expand and grow in real time
Cheers,
Keegan
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