Mike Hearn: Bitcoin Has Failed

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Mike Hearn giving a talk on Bitcoin in London. Photo: YouTube

The former Bitcoin Core developer was unequivocal in a scathing blog post published earlier today.

But despite knowing that Bitcoin could fail all along, the now inescapable conclusion that it has failed still saddens me greatly. The fundamentals are broken and whatever happens to the price in the short term, the long term trend should probably be downwards. I will no longer be taking part in Bitcoin development and have sold all my coins.

Hearn goes on to make the case that Bitcoin has become all the things it was supposed to fix.

Part of Bitcoin’s unique appeal to certain ideologies is its decentralized nature, the idea that it isn’t controlled by any one person or entity. In practice, that’s not really the case, says Hearn. The majority of the network’s infrastructure used to process transactions is controlled by just a handful of people. And the bulk of that processing power is coming from China.

Bitcoin was also supposed to be fast and free or at least very cheap. But Hearn says that this is also no longer the case. As the Bitcoin network nears the upper limits of its transaction capacity—less than seven transactions per second—fees have risen.

According to Hearn, “it’s now common to be asked to pay more to miners than a credit card would charge.” Hearn points out that transactions are becoming unreliable. A payment could take 15 minutes to confirm or it could take 15 hours. Or it might not go through at all.

The network’s struggle to effectively scale as the number of transactions grows, explains Hearn, is the result of internal squabbles and politics.

One of the reasons Linux has been so successful as an open source project is the stewardship of Linus Torvalds, who describes himself as a “benevolent dictator.” Bitcoin lacks such a figurehead. Despite multiple claims at revealing his identity, Satoshi Nakamoto remains an enigma.

Instead, control of Bitcoin development is shared among five core developers. Though Dutch programmer Wladimir J. van der Laan is technically lead maintainer, he insists that network changes will only be pushed through when the core team reaches consensus—an outcome that appears less likely by the day as infighting grows increasingly contentious.

It’s this group’s inability to reach consensus that holds the Bitcoin network hostage.

“It’s likely that the current developers will get fired, and some other team will replace them because they are not listening to their customers,” long time Bitcoin contributor Gavin Andresen told the NYTimes in an interview with Nathaniel Popper.

According to Popper, Greg Maxwell, who leads the competing faction, perceived Hearn and Andresen as the leaders of a coup. He further insists that the debate is technical in nature.

But as Popper points out in his report, the group’s judgement could be clouded by self interest:

The debate was complicated by the financial interests of the people involved. Mr. Maxwell and several of his supporters were then working for a Bitcoin start-up called Blockstream, with $21 million in funding from venture capitalists. Mr. Maxwell’s start-up was trying to make it possible to break off some transactions from the Bitcoin network, making the number of transactions the network could handle less important.

Whatever the real case may be, such differences appear to have the potential to completely derail Bitcoin development. At the very least, it will be a legitimate test of Bitcoin’s resilience as a reliable financial system.

But does this mean Bitcoin has failed?

Though he makes a lot of great points, it’s also important to take Hearn’s passionate the-sky-is-falling open letter to the community with a grain of salt.

Hearn, for his part, has his own agenda. What we know is that at some point last year, he became disillusioned with the Bitcoin project and hopped on the “Blockchain Without the Bitcoin” bandwagon by teaming up with R3, the New York startup started by Wall Street alum notable for starting a consortium that includes many of the world’s biggest banks.

My take? There’s a lot of ways to define “fail” in this context. A lot of people will tell you that AOL failed. It’s still a multi-billion dollar company.

And Hearn’s also going out of his way to push some buttons and make statement—it certainly makes for an attention grabbing headline. But in truth, he’s really just coming to the realization that much of the media and industry came to in 2015—that Bitcoin is an incredibly compelling innovation and experiment. That doesn’t mean it’s the answer to all of the banking industry’s problems.

But as we’ve already seen, its existence and the ideas behind it continue to catapult the industry into a brand new chapter.

You should make a point to read Mike Hearn’s full post here.