Bitcoin Forum

This may or may not be a rant. I'm a writer, so I may not know.

The idea of BTC is like the idea of the internet: Forever stateless, ungoverned and uncontrolled (to some logical extent). Open-source projects are free and open, Redmond and the rest are closed and controlling. So the philosophy behind Bitcoin is essentially to remain open and free of centralized control. The centralized global banking network has shown that it can easily be used to propagate political ends, and we don't want that. We want people to be able to trade and buy stuff even if they live in Tehran or Pyongyang. And that is probably possible at present. However there are some aspects of the nature of Bitcoin that may cause it to be less decentralized in future. I'd like to point out a few and then everyone can poke holes in my propositions.

1. Bitcoin's blockchain

The blockchain is growing. I know this has been discussed widely and the solutions seem to focus on wallets that download less of the blockchain e.g MultiBit, or web wallets like blockchain.info. Now if we look at the philosophy of decentralization, and the appeal of controlling your own money then web wallets break this philosophy. When we use Inputs.io or blockchain.info we get convenience and probably more security than our own computers but we immediately lose the decentralization.

So some people remain faithful to Bitcoin-Qt which downloads the whole blockchain. With the blockchain and the wallet, you have complete control of your money. No one can block it or freeze it and that works well with the philosophy. When the blockchain hits a TB or something it will become impractical to store locally and people will be pushed to use web wallets or paypal-like services e.g. Coinbase. And the blockchain will remain stored in fewer and fewer places as it grows, discriminating against those who don't have the bandwidth or the storage to keep it. And the more people use BTC, the less people will have a complete blockchain, and those who do will become effectively a Bitcoin administration. They will likely include the exchanges and large traders. As Bitcoin matures it may very well become more and more like fiat (not a bad thing, but centralized and controlled). As the difficulty of mining grows, the masses fall off that bandwagon too, leaving a few miners with TH/s type mining power. As we go on, we may have a small club of miners and blockchain keepers.

2. Related to 1. When millions use BTC, the blockchain will be a monstrosity of size, with very few locations able to keep it stored (exchanges and large merchants). Fewer locations reduces the safety in numbers security blanket over the blockchain. Imagine a Stuxnet-type worm eating away most of the blockchains. Similarly, when mining is limited to a few large pools then the guys who run the pools may hold undue power.

3. Mobility. I'm setting up a system of mobile payment via Bitcoin in Kenya. The concept is great and our systems will likely run very well. But we can't call the solution decentralized. Carrying BTC around requires some service that manages your wallet while you use an email address, a phone number or something like that. It works, it's convenient but it breaks the mirage of decentralization. And the more BTC becomes like fiat, the less novel or attractive it is.

4. Buying BTC is HARD!!! For a revolutionary and open technology, I get more complications buying BTC than buying dollars. Proof of residence, ID card and so on - just to buy BTC. And it's harder for guys like me because I can't just connect my bank account to Mt.Gox. They probably don't know what a Kenyan shilling is :) And from my browsing, people are having problems like this globally. So Bitcoin is supposed to be open and ungoverned, but the reality is that it remains best acquired via donations or face-to-face.

I'm a Bitcoin user, I believe it's revolutionary and amazing. But so is Linux which I use. Think about how hard it has been for Linux to gain the acceptance of the average PC user despite obvious benefits and lack of cost. I think there's enough confidence that Bitcoin can become widely used, but first it has to be easily available. No one should jump through hoops to get bitcoin. So are the success of Bitcoin and its philosophy mutually exclusive?

These are great questions, that deserve well though-out answers!

Inputs.io was recently hacked, and this points to the increasingly urgent problem of online storage of assets. Having to place trust in an online, pseudo-anonymous third-party is going back to centralized banking without the legal protections that traditional banking has. Hardware wallets, or revolutionary new ways of holding money online safely are long overdue. A wallet based on a mobile phone, with strong linkage to the phone number may be a valid solution, because the way M-PESA works depends on phone number as the security.

A MAC address can also be a unique identifier to tie a wallet to, ensuring that it can only be used from a particular device or list of devices. Such measures may make the stealing of wallets pretty much a pointless exercise.

It may seem that centralization of the bitcoin economy degrades its security by making it an easy target.