Bitcoin: Does the Bitcoin Cash announce the end of the "Bitcoin"?

The crypto-coin bitcoin has a new competitor, the Bitcoin Cash! The creation of an alternative version, a classic phenomenon of "open source", illustrates problems of scalability and governance. By Jean-Philippe Rennard, Grenoble School of Management (GEM)

On August 1, a new "cryptomonnaie" was born: the Bitcoin Cash (BCH). Knowing that there are now several hundred of them, some of which are born and die like ephemera, the news might seem anecdotal if it were not the famous bitcoins.

Celebrated by some as an instrument of liberation from the "yoke" of the financial system; Despised by others as a whitening and trafficking tool, the bitcoins leave no one indifferent. Let us quickly recall what it is.

• Bitcoins, a recent success

Bitcoins (and cryptomonas in general) are units of account, managed in a decentralized way through a peer-to-peer network. That is to say, a network where each of the stakeholders is both a user and a producer, both a client and a server.

Unlike traditional currencies, where a central bank plays the role of regulator and controller, it is an algorithm that, through the decentralized work of the members of the network, ensures control and regulation.

Bitcoins were proposed in 2009 by the mysterious Satoshi Nakamoto. Their capitalization now exceeds $ 45 billion and thousands of businesses around the world accept them. Zealots have even managed to show that one can live by using the only bitcoins as a means of payment.

It is no longer possible to see in it an epiphenomenon which would have its origin in the excesses of ultraliberative "geeks". Cryptomonas, and bitcoins in particular, are integral parts of the global digital ecosystem. Faced with such a success, why then set up the Bitcoin Cash?

• The Bitcoin Cash

Bitcoin Cash has been proposed to address the recurring problem of the system's ability to absorb growth. The Bitcoin network can handle only about ten operations per second. Compared to the many thousands of operations per second that Visa-based networks can manage, this is a fundamental and structural limit.

This weakness stems in particular from the fact that a block (a set of transactions that forms the fundamental unit of the system) is limited to a size of 1 megabyte (MB). Knowing that the network is designed to validate a block every 10 minutes, it is clear that if the block size is reduced, it can contain only a limited number of these transactions, which are only valid every 600 seconds .

The Bitcoin community has been thinking for a long time about the potential solutions to this scalability problem. Two approaches are preferred. The first is to lighten the blocks by managing some information differently. This is the case of the Segregated Witness mechanism (SegWit) proposed by Pieter Wuille, which, while remaining compatible with the current system, manages some of the data outside the blocks.

The second, the most obvious, is simply to increase the size of the blocks. If 2 MB blocks are accepted instead of 1 MB, the network will be (roughly) able to process twice as many operations per unit of time. But if the debate has been raging for several years within the community Bitcoin, the arrival of Bitcoin Cash marks the failure.

• The governance of the Bitcoin network

The Bitcoin network is based on open source software and its governance takes place at three levels:

Developers, in particular the team in charge of Bitcoin Core, the customer of reference, direct descendant of the one developed by Nakamoto;

The miners, who are responsible for validating the transactions and the blocks at the cost of a large calculation effort and, consequently, a heavy electricity consumption. At present, given the necessary investments, mining is largely dominated by professional structures (farms);

• The users.

For a change to take place within the system, it must be implemented by developers and adopted by minors and users. If a significant minority of participants do not adhere to the proposed changes, they will remain a dead letter. It is both a guarantee of security and a guarantee of democracy. But this ideal is theoretical and the arrival of Bitcoin Cash clearly demonstrates the failure.

Unable to resolve the debate on scalability, the Bitcoin network has come to know a classic phenomenon of open source: the creation of a fork (branch). Fork is the development of an alternative version of a software. The example of LibreOffice is famous. Following Oracle's acquisition of OpenOffice Open Source Suite, the open source community created a LibreOffice (fork) to ensure independent development of the new owner's business pressures.

Bitcoin Cash is thus nothing more than a new branch of the Bitcoin network, which, even if it integrates the whole history of the classic bitcoins, is non-backward compatible. It deals with the problem of scalability by passing the size of the blocks to 8 MB. From there, we go to the existence of two different currencies: the classic bitcoin (which will use SegWit) and the Bitcoin Cash with its Blocks.

• Cryptomonacies, between leadership and decentralized decisions

If, in general, the emergence of a fork within an open source project can be a simple sign of vitality, it is quite different for cryptomonies. Creating a non-retrocompatible fork simply amounts to creating, potentially, an alternative currency.

So how to build the confidence needed to adopt a new unit of account? Should we trust the Bitcoin Cash or, on the contrary, continue to rely on the classic bitcoins? And what about other currencies, also susceptible of schismatic temptations? The management of forks and the prevention of the emergence of independent forks is a vital imperative for cryptomonas.

The governance of open source projects has been the subject of numerous studies and, to quote Robert Viseur: "In practice, no governance logic seems likely to eliminate the risk of fork for the organization. "

The solution may be on the side of massive decentralization. Networks such as Steem or Tezos want to integrate the governance system into their protocols. By construction, users will have a "native" right to vote, enabling them to decide on proposed changes.

By integrating governance into the protocol, it is hoped that the temptation of the forks will be significantly reduced. Unless it is on the side of centralization. The interest in open source projects of the "benevolent dictator" is often emphasized. The Linux project, with Linus Torvald, is the ultimate illustration. The creation of Bitcoin Cash, which is a failure for the Bitcoin community, unable to manage itself, will revive these debates and is not the least of its merits.

At a time when the press and the media are multiplying the Blockchain, and where governments and financial institutions are questioning the use and contributions of cryptomonies, this "failure" of the Bitcoin must challenge us. It shows that the governance models of cryptomonies remain to be conceived and validated. Until this is done, mistrust will persist.

If Nakamoto was a genius when he designed his algorithm, he obviously underestimated the governance issues. We are witnessing a Bitcoin youth crisis and solutions will be found. Future debates will necessarily focus on the balance between peer-to-peer democracy and the effectiveness of governance. The future of cryptomonas is based on their ability to respond to this new challenge.