Hypothetical ETF disaster hardfork

[takuma sato]

I was looking for some ETF news and apparently the VanEck one will pledge 5% of earnings to "Bitcoin core developers" during the next 10 years from the money they'll make on fees.

I imagined an hypothetical scenario where there is a massive hack or some sort of a disaster scenario where there are massive losses, and now those same good samaritans that are funding developers start pushing a campaign to engineer a rollback of the blockchain Vitalik style. What would happen? If in the future ETF holders become the 99% and 1% are self-custodians, then it will be on their interest to push this agenda. What if they have enough % of developers under their payroll, and enough people supporting it because they lost their money, and start pushing for a hard fork? What would be the game theory outcome scenarios at play here?

This could be applied to any other narrative to come up with a hardfork. Like, BTC pollutes the environment, let's go to PoS, or this and that. But the one I could see coming, is seeing a massive loss and then angry people wanting a rollback and start campaigning to pass laws that force developers to do this and so on. Most custodians are using Coinbase, but some will be self-custodians, Fidelity being one of them. I expect their efforts to pass such hardfork to fail, but who knows if like I said, most people in the future depend on ETFs and start pushing for laws to "protect investors" that force developers and miners to do rollback plans and so on. This sounds ridiculous now but you never know.

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[mikeywith]

and now those same good samaritans that are funding developers start pushing a campaign to engineer a rollback of the blockchain Vitalik style. What would happen?

Nothing, core devs can't do rollback/reorg on the blockchain, only miners can, rollbacks are super expensive (usually cost more than whatever benefit you get from it) and miners who invest their hard-earned money in the space won't even risk going that route, Binance lost 7000 BTC (worth 40M $ at that time) and they didn't get away with a tweet that mentioned the word rollback, let alone trying to actually push that.

If in the future ETF holders become the 99% and 1% are self-custodians

That won't be possible, the majority of BTC is already in the hands of the people, what's left of it or what those large corps can buy will likely never make a majority, if that happens it means they must spend unrealistic amount of money to acquire them, and if they do -- they would be very careful when attempting anything that might hurt bitcoin and thus hurt their pockets.

IMO, we should not fear those who have skin in the game, people are always worried about miners doing some nasty shit to BTC which is a stupid assumption given that miners have the most skin in the game, others are worried about core devs (many people already claim core devs are controlled by Blockstream "or is it someone else today"?, to me, all of these entities have skin in the game and have more to lose than to gain if they decide to do anything stupid, if there is anyone we should fear would be those old farts in the government.

[pooya87]

What would happen? If in the future ETF holders become the 99% and 1% are self-custodians,

In a scenario where almost nobody owns bitcoin and things have gotten this centralized, we can say with confidence Bitcoin is already dead so who cares what happens!

then it will be on their interest to push this agenda. What if they have enough % of developers under their payroll, and enough people supporting it because they lost their money, and start pushing for a hard fork? What would be the game theory outcome scenarios at play here?

They'll need to get high percentage of the hashrate on their payroll and a high percentage of the community that includes full nodes, bitcoin users and the economy built on top of bitcoin.

Immutability is one of the fundamental principles of Bitcoin, people aren't gonna give it up that easily.

[ABCbits]

I imagined an hypothetical scenario where there is a massive hack or some sort of a disaster scenario where there are massive losses, and now those same good samaritans that are funding developers start pushing a campaign to engineer a rollback of the blockchain Vitalik style. What would happen?

Unless those developer willing to lose their reputation on Bitcoin community, they won't participate on such campaign.

This could be applied to any other narrative to come up with a hardfork. Like, BTC pollutes the environment, let's go to PoS, or this and that. But the one I could see coming, is seeing a massive loss and then angry people wanting a rollback and start campaigning to pass laws that force developers to do this and so on. Most custodians are using Coinbase, but some will be self-custodians, Fidelity being one of them. I expect their efforts to pass such hardfork to fail, but who knows if like I said, most people in the future depend on ETFs and start pushing for laws to "protect investors" that force developers and miners to do rollback plans and so on. This sounds ridiculous now but you never know.

I expect we'll see another community split where new forked coin is created. Although looking at ETH and ETC split, we can't be fully sure Bitcoin which doesn't implement rollback or other major change could remain most popular coin.

[tbct_mt2]

I was looking for some ETF news and apparently the VanEck one will pledge 5% of earnings to "Bitcoin core developers" during the next 10 years from the money they'll make on fees.

What if they have enough % of developers under their payroll, and enough people supporting it because they lost their money, and start pushing for a hard fork? What would be the game theory outcome scenarios at play here?

Bitcoin blockchain has never been rolled back like Ethereum blockchain. It is one of big factors make people to believe in Bitcoin.

ETF, VanEck cause Bitcoin hardfork, it sounds too much exaggeration about impacts from VanEck.

Recent months, if you follow the Bitcoin blockchain, its mempools and read reports, you know the biggest problems are from Ordinals, BRC-20 tokens and Inscriptions. They cause mempools become bigger and bigger and transaction fee becomes more expensive.

If any hardfork happens, it will be to resolve Ordinals annoying issues on mempools and transaction fees.

Inscriptions, mempools and miners

[takuma sato]

and now those same good samaritans that are funding developers start pushing a campaign to engineer a rollback of the blockchain Vitalik style. What would happen?

Nothing, core devs can't do rollback/reorg on the blockchain, only miners can, rollbacks are super expensive (usually cost more than whatever benefit you get from it) and miners who invest their hard-earned money in the space won't even risk going that route, Binance lost 7000 BTC (worth 40M $ at that time) and they didn't get away with a tweet that mentioned the word rollback, let alone trying to actually push that.

If in the future ETF holders become the 99% and 1% are self-custodians

That won't be possible, the majority of BTC is already in the hands of the people, what's left of it or what those large corps can buy will likely never make a majority, if that happens it means they must spend unrealistic amount of money to acquire them, and if they do -- they would be very careful when attempting anything that might hurt bitcoin and thus hurt their pockets.

IMO, we should not fear those who have skin in the game, people are always worried about miners doing some nasty shit to BTC which is a stupid assumption given that miners have the most skin in the game, others are worried about core devs (many people already claim core devs are controlled by Blockstream "or is it someone else today"?, to me, all of these entities have skin in the game and have more to lose than to gain if they decide to do anything stupid, if there is anyone we should fear would be those old farts in the government.

I should have said miners and developers. Of course you need the hashrate too, but that can be bought. If ETF-BTC can promise higher valuations, miners may follow, since they are economic actors that seek profit. If the majority of economic activity is happening on ETF-BTC, they may get more from the fees in there. As far as developers, we have developers fucking with our money in the form of Ordinals already. They could also buy people like Elon Musk type PR to pump their hardfork. They could also buy lobbysts to pass laws that outlaw non ETF-BTC for enabling money laundering or whatever. Im sure that's their long term goal with all of this actually. Does anyone seriously think they have approved ETF's if they don't think they can use it to control BTC? Their motto has been "We'll tame Bitcoin" for years now. This is all part of the plan. The question is, if community of actual BTC holders will fall for it. At the end of the day, in any hardfork both sides get shares of each token, so we'll see who dumps on who.

[NotATether]

I should have said miners and developers. Of course you need the hashrate too, but that can be bought. If ETF-BTC can promise higher valuations, miners may follow, since they are economic actors that seek profit. If the majority of economic activity is happening on ETF-BTC, they may get more from the fees in there. As far as developers, we have developers fucking with our money in the form of Ordinals already. They could also buy people like Elon Musk type PR to pump their hardfork. They could also buy lobbysts to pass laws that outlaw non ETF-BTC for enabling money laundering or whatever. Im sure that's their long term goal with all of this actually. Does anyone seriously think they have approved ETF's if they don't think they can use it to control BTC? Their motto has been "We'll tame Bitcoin" for years now. This is all part of the plan. The question is, if community of actual BTC holders will fall for it. At the end of the day, in any hardfork both sides get shares of each token, so we'll see who dumps on who.

Many Bitcoin developers are already sponsored by various companies so they won't need the donation money coming from an ETF fund. Besides, a hack doesn't always have to result in an attempted hardfork. I mean look, Monero's development fund was hacked somehow and they didn't try to roll back the chain like the Ethereum folks did. So why assume that everyone will be like that.

[BlackHatCoiner]

and now those same good samaritans that are funding developers start pushing a campaign to engineer a rollback of the blockchain Vitalik style.

There is one big difference here. Nobody thinks Ethereum is decentralized to begin with. Sure, when they hardforked, Ethereum Classic was born, but who gives a damn about Ethereum Classic?

Ethereum is a premined, centrally controlled cryptocurrency, which is now even worse with their Proof-of-Stake model, operated by Vitalik and his rich friends. Apples and oranges with bitcoin.

[mikeywith]

I should have said miners and developers. Of course you need the hashrate too, but that can be bought. If ETF-BTC can promise higher valuations, miners may follow, since they are economic actors that seek profit.

It is like saying someone will trade the oxygen in their lungs for another chemical element that "might" be more efficient, it either works great or you die.

This might be a bad exaggeration but as someone who has spent almost everything I have on my mining business, I would not take the smallest risk for burning that down, reflect that on others who invested more than I did and probably have debt to pay, nobody in their right mind would risk damaging bitcoin in the way you describing, ya a little more profit for some thing "unethical" is always expected, aside from that, it won't happen.

The main major aspect of Bitcoin POW security is that miners will always try to protect BTC from such attacks that could deem bitcoin worthless.

[takuma sato]

I should have said miners and developers. Of course you need the hashrate too, but that can be bought. If ETF-BTC can promise higher valuations, miners may follow, since they are economic actors that seek profit.

It is like saying someone will trade the oxygen in their lungs for another chemical element that "might" be more efficient, it either works great or you die.

This might be a bad exaggeration but as someone who has spent almost everything I have on my mining business, I would not take the smallest risk for burning that down, reflect that on others who invested more than I did and probably have debt to pay, nobody in their right mind would risk damaging bitcoin in the way you describing, ya a little more profit for some thing "unethical" is always expected, aside from that, it won't happen.

The main major aspect of Bitcoin POW security is that miners will always try to protect BTC from such attacks that could deem bitcoin worthless.

The big problem is as the mainstream (voters) get into BTC through ETF and other user friendly products, that means potential voters losing money that turn into pissed off costumers at BTC, which start demanding changes on the code. Politicians will do whatever it takes to collect ballots, so if there is a big movement of angry people that want to change the BTC protocol for whatever reasons, that's something to consider.

There may also be a big chunk of the population mad to see others getting rich from BTC, and start demanding that mining is banned and whatnot. Consider that people like AOC could become presidents in the future. If they get a real chance to ban mining, they will try.

BTC should wake up from this ETF euphoria one day and realize it is an adversarial asset in nature, and must be ready for that.

[HeRetiK]

The big problem is as the mainstream (voters) get into BTC through ETF and other user friendly products, that means potential voters losing money that turn into pissed off costumers at BTC, which start demanding changes on the code. Politicians will do whatever it takes to collect ballots, so if there is a big movement of angry people that want to change the BTC protocol for whatever reasons, that's something to consider.

There may also be a big chunk of the population mad to see others getting rich from BTC, and start demanding that mining is banned and whatnot. Consider that people like AOC could become presidents in the future. If they get a real chance to ban mining, they will try.

BTC should wake up from this ETF euphoria one day and realize it is an adversarial asset in nature, and must be ready for that.

I think you overestimate both the amount of retail investors that will get into BTC through ETFs and the power that voters have on policy-making. Bitcoin has faced (and is facing) much more adversarial situations from both within (e.g. the blocksize debate and subsequent fork wars) and outside (e.g. accusations of money laundering, fraud, wastefulness); so the threat of a "rollback campaign" due to a financial loss event is imho miniscule in comparison.

What I do believe we need to be more vigilant about when it comes to Bitcoin ETFs is a kind of regulatory capture. If ETFs become the main way people invest in Bitcoin you can expect further steps that will make the private ownership and transaction of cryptocurrencies more and more legally precarious. That is to say, while ETFs may be a way for Bitcoin to get deeper into the mainstream, they may also result in Bitcoin and other cryptocurrencies being engulfed in the tradtional banking system to the point of uselessness, even without changes to the code or enforced rollbacks.

[pooya87]

The big problem is as the mainstream (voters) get into BTC through ETF and other user friendly products, that means potential voters losing money that turn into pissed off costumers at BTC, which start demanding changes on the code. Politicians will do whatever it takes to collect ballots, so if there is a big movement of angry people that want to change the BTC protocol for whatever reasons, that's something to consider.

There may also be a big chunk of the population mad to see others getting rich from BTC, and start demanding that mining is banned and whatnot. Consider that people like AOC could become presidents in the future. If they get a real chance to ban mining, they will try.

BTC should wake up from this ETF euphoria one day and realize it is an adversarial asset in nature, and must be ready for that.

They will not be able to force the "world" to change the protocol just because people in some country got angry after missing out and some politicians in that country wanted to do some crap. Bitcoin is too global for that.

You are right for being worried about ETF, but I'd be more worried about market manipulation and how centralization is slowly infesting the Bitcoin world. ETF is just one of the small signs of it. Not to mention that I'm more worried about some form of fractional banking starting in this world (ie. when the centralized authority that holds the funds only has a small fraction of what they are giving people). They could easily end up selling 42 million bitcoin to idiots who buy their centralized IOUs (in case it isn't obvious bitcoin supply cap is 21 million).

[BTCapsule]

I imagined an hypothetical scenario where there is a massive hack or some sort of a disaster scenario where there are massive losses, and now those same good samaritans that are funding developers start pushing a campaign to engineer a rollback of the blockchain Vitalik style.

You don’t have to worry about this kind of attack. The worst thing these corporations could do is convince Bitcoin Core devs to argue about every soft fork so that Bitcoin is ossified and cannot scale. Or maybe use Core devs to convince us a certain soft fork is too dangerous, when it’s the only possible way for Bitcoin to globally scale and have truly private transactions.

[d5000]

Actually I think the scenario described in the OP is perfectly possible if enough custodial Bitcoin services (ETF companies, exchanges etc.) collude and the community is so indifferent towards Bitcoin's original "values" that it accepts it.

Developers on a payroll can be an element in such an "attack". Not because of the needed skills for the code changes, e.g. to roll back a transaction (I think that even I could do that, even with VERY limited C++ knowledge), but because of the influence of renowned devs like the current Core group on public opinion in the community. We've seen that already in the block size debate. I think if most Core developers hadn't taken such a strong stance for Segwit and a restrictive block size policy, then the current "Bitcoin" could actually be BCash or even BSV (which in my opinion would have been a much worse outcome).

Miners will follow the chain where they believe the value "is at" - if there are several options, they'd chose the one they think the community as a whole would pay more money (or other values) for a coin. Here, colluding services providers could be a big problem, not only because they directly demand Bitcoins, but also because they have also influence over the community's "collective opinion", above all over the more indifferent part of the Bitcoin users - those who only want to invest in Bitcoin and don't care that much about the deeper qualities like immutability.

However, if there are enough influencial voices in the community insisting exactly on these "deeper" qualities, then I believe the "attack" would fail, like BCash failed.

[goldkingcoiner]

I was looking for some ETF news and apparently the VanEck one will pledge 5% of earnings to "Bitcoin core developers" during the next 10 years from the money they'll make on fees.

I imagined an hypothetical scenario where there is a massive hack or some sort of a disaster scenario where there are massive losses, and now those same good samaritans that are funding developers start pushing a campaign to engineer a rollback of the blockchain Vitalik style. What would happen? If in the future ETF holders become the 99% and 1% are self-custodians, then it will be on their interest to push this agenda. What if they have enough % of developers under their payroll, and enough people supporting it because they lost their money, and start pushing for a hard fork? What would be the game theory outcome scenarios at play here?

This could be applied to any other narrative to come up with a hardfork. Like, BTC pollutes the environment, let's go to PoS, or this and that. But the one I could see coming, is seeing a massive loss and then angry people wanting a rollback and start campaigning to pass laws that force developers to do this and so on. Most custodians are using Coinbase, but some will be self-custodians, Fidelity being one of them. I expect their efforts to pass such hardfork to fail, but who knows if like I said, most people in the future depend on ETFs and start pushing for laws to "protect investors" that force developers and miners to do rollback plans and so on. This sounds ridiculous now but you never know.

Why are you thinking about ETF's? Have you forgotten that Bitcoin is not an ETF? And neither is it Ethereum (thank Satoshi!)
ETF is just a very important tool for more Bitcoin adoption.

Your disaster scenario is impossible, as many others have already pointed out in detail. No further need for explanation. Bitcoin is awesome, decentralization is awesome. Blockchain is super awesome.  

Actually I think the scenario described in the OP is perfectly possible if enough custodial Bitcoin services (ETF companies, exchanges etc.) collude and the community is so indifferent towards Bitcoin's original "values" that it accepts it.

Developers on a payroll can be an element in such an "attack". Not because of the needed skills for the code changes, e.g. to roll back a transaction (I think that even I could do that, even with VERY limited C++ knowledge), but because of the influence of renowned devs like the current Core group on public opinion in the community. We've seen that already in the block size debate. I think if most Core developers hadn't taken such a strong stance for Segwit and a restrictive block size policy, then the current "Bitcoin" could actually be BCash or even BSV (which in my opinion would have been a much worse outcome).

Miners will follow the chain where they believe the value "is at" - if there are several options, they'd chose the one they think the community as a whole would pay more money (or other values) for a coin. Here, colluding services providers could be a big problem, not only because they directly demand Bitcoins, but also because they have also influence over the community's "collective opinion", above all over the more indifferent part of the Bitcoin users - those who only want to invest in Bitcoin and don't care that much about the deeper qualities like immutability.

However, if there are enough influencial voices in the community insisting exactly on these "deeper" qualities, then I believe the "attack" would fail, like BCash failed.

I think you might be underestimating the scale of the attack. The amount of payroll money alone.... How many people would you need to put on the payroll and for how much money? How decentralized does something have to be to make it 'technically impossible' to attack in such a way?

[BlackHatCoiner]

ETF is just a very important tool for more Bitcoin adoption.

Care to elaborate how an ETF helps on adoption? To me it rather seems as a tool for investors to not care about custody and regulation. It's just a little better than Binance's BTC IOU.

The worst thing these corporations could do is convince Bitcoin Core devs to argue about every soft fork so that Bitcoin is ossified and cannot scale.

You make it sound worse than it should. If corporations manage to persuade Bitcoin Core developers to adopt a specific roadmap, they would likely succeed in convincing the broader community of its merit. In the event that Core developers receive compensation for a hardfork, they would need to persuade others to embrace the fork, not just themselves.

[HeRetiK]

Actually I think the scenario described in the OP is perfectly possible if enough custodial Bitcoin services (ETF companies, exchanges etc.) collude and the community is so indifferent towards Bitcoin's original "values" that it accepts it.

True, but fortunately the Overton window for making a Bitcoin blockchain rollback acceptable seems far, far away.

I'm not even sure what kind of apocalyptic financial loss event it would take to nudge the community's openness towards a rollback in the slightest. Even with Ethereum it took something the scale of the DAO hack; and even then it wasn't entirely uncontroversial and would have had a good chance of failure if it weren't for Ethereum's heavily centralized leadership.

[d5000]

I think you might be underestimating the scale of the attack. The amount of payroll money alone.... How many people would you need to put on the payroll and for how much money?

Some Bitcoin Core devs are already on payrolls of Bitcoin service providers (Blockstream being probably the most well-known example). When we talk about developer influence on the public opinion in the community, then quality -- i.e. that these devs are "respected voices" -- is also more important than quantity. I believe from the current Bitcoin Core team nobody would agree to a rollback. But it's perfectly possible that a group of new developers in the coming years gain influence who don't consider immutability as that important anymore. If some of these devs are perceived as "the voice of Bitcoin", like people like Greg Maxwell today, then a handful of them could be actually quite dangerous.

Just to be clear: I don't consider such an attack likely, only possible. I think there's a high likelihood that we'll never see such an attack. But the community should be aware of the danger (see also my answer to HeRetiK below).

How decentralized does something have to be to make it 'technically impossible' to attack in such a way?

There isn't such a "number" or "limit". All decentralized systems can eventually degenerate. Bitcoin has however fortunately a quite good balance between powers, so the probability of a successful attack is much lower than it was in Ethereum where the rollback finally occured quite fastly.

True, but fortunately the Overton window for making a Bitcoin blockchain rollback acceptable seems far, far away.

I'm not even sure what kind of apocalyptic financial loss event it would take to nudge the community's openness towards a rollback in the slightest.

I agree, fortunately in the present and probably in the coming years such an attack seems highly unlikely.

I think however that this may change in the future if certain developments materialize, like a growing dependance on centralized providers (be it ETF operators or our good ol' exchanges, doesn't matter) and possibly if the connection to the cypherpunk movement and other groups which were essential for highlighting and defending Bitcoin's qualities like censorship resistance is lost. Thus the community should be aware of these dangers.

There's an (imo erroneous) belief that Bitcoin due to its current qualities, or software-related characteristics, is completely immune to such attacks. Bitcoin is a social system, and thus can be deeply changed and harmed if changes in the social composition of the community and its "values" change the way people perceive what Bitcoin should be. The Overton window thus could change in the future. I honestly was myself a bit shocked as a highly respected member of the German subforum once wrote here that he considers a rollback scenario quite likely (I hope he was wrong there).

In general I'm optimistic though.

[goldkingcoiner]

I think you might be underestimating the scale of the attack. The amount of payroll money alone.... How many people would you need to put on the payroll and for how much money?

Some Bitcoin Core devs are already on payrolls of Bitcoin service providers (Blockstream being probably the most well-known example). When we talk about developer influence on the public opinion in the community, then quality -- i.e. that these devs are "respected voices" -- is also more important than quantity.

I don't see it that way. Without real authority over Bitcoin, popular devs are just members of the top influencer club. And their values must align with the values of Bitcoin. Otherwise it would be like running for president of the US while wearing a North Korean flag pin. I think if devs want to stay popular, they do what the community has committed to their values.

As I understand it, the Blockstream conspiracy is about the Bitcoin Cash community being butthurt about the Bilderberg Group aquiring a company (supposedly) soley dedicated to Bitcoin. And they are going completely insane and claiming that Bitcoin is now somehow being taken over because they already had a conspiracy theory about Bilderberg and this new conspiracy theory about BTC, which builds on top of the first conspiracy theory about Bilderberg, somehow proves the first theory and therefore also proves the second one.

There isn't such a "number" or "limit". All decentralized systems can eventually degenerate. Bitcoin has however fortunately a quite good balance between powers, so the probability of a successful attack is much lower than it was in Ethereum where the rollback finally occured quite fastly.

I mean the amount of effort it would take to attack Bitcoin is much different than the amount of effort it would take to attack some random unpopular altcoin (based on a clone btc blockchain). And even then, the damage would be reversible.

The more decentralized something is, the more secure it becomes.

[d5000]

I don't see it that way. Without real authority over Bitcoin, popular devs are just members of the top influencer club. And their values must align with the values of Bitcoin. Otherwise it would be like running for president of the US while wearing a North Korean flag pin. I think if devs want to stay popular, they do what the community has committed to their values.

Agree. For this reason, in my posts before I clarified that there has something more to happen for this attack to succeed: the community becoming indifferent about the "values" of Bitcoin. And then, if the "top influencer club" moves slowly away from Bitcoin's original values it could become an attack vector.

Blockstream conspiracy

Isn't really what I wrote about. I believe the Blockstream-Bitcoin model (paying devs to maintain an open-source software project essential to the company's business model) is similar to the Google-Linux model for example and thus completely legit. I only mentioned it because it shows that a company can definitely afford to pay high-profile Bitcoin devs - the "top influencer club". And I wanted to emphasize that if something similar happens with a company with values not entirely compatible with Bitcoin's, and additionally the community not caring about these values anymore (because all they want is BTC going to moon ...) then it could become dangerous.

With your last sentence I agree though.