About six weeks ago I mentioned a dollar figure during a panel at the Consensus event in NYC: $6 million. Six million USD is a loose estimate — for illustrative purposes — of the amount of engineering time representing thousands of man hours over the past 7-9 months that has gone into a productivity black hole surrounding the Bitcoin block size debate.
A little recent history
While there had been some low intensity discussions surrounding block size(s) over the past several years, most of that simmered in the background until the beginning of 2015.
About four months later, beginning on May 4, Gavin posted a series of blog articles that kicked things up a notch and spurred enormous amounts of activity on social media, IRC, web forums, listservs, podcasts and conferences.
The crescendo of public opinion built up over the summer and reached a new peak on August 15th with a post from Mike Hearn, that Bitcoin would fork into two by the beginning of next year.
The passionate enthusiasts on all sides of the spectrum took to social media once again to voice their concerns. During the final two weeks of August, the debate became particularly boisterous as several moderators on reddit began to ban discussions surrounding Bitcoin XT (among other forks and proposals). There was even an academic paper published that looked at the sock puppets involved in this period: Author Attribution in the Bitcoin Blocksize Debate on Reddit by Andre Haynes.
Ignoring the future evolution of block size(s), with respect to the opportunity costs of the debate itself: investors and consumers have unintentionally funded what has turned out to be a battle between at least two special interest groups. 1
So where does the $6 million figure come from?
Of the roughly $900 million of VC funding related to Bitcoin itself that has been announced over the past 3 years, about half has been fully spent and went towards legal fees, domain names, office rent, conference sponsorship’s, buying cryptocurrencies for internal inventory and about a dozen other areas.2
At the current burn rate, Bitcoin companies collectively spend about $8-$10 million a month, perhaps more. And since the debate is not isolated to development teams, because upper management at these companies are involved in letter writing campaigns (and likely part of the sock puppet campaigns), then it could be the case that 5-10% of on-the-clock time at certain companies was spent on this issue.
Consequently, this translates into about $400,000 to $1 million each month which has been redirected and spent funding tweets, reddit posts, blog posts, conferences, research papers and industry conferences.3
What about specific numbers?
For instance, with around 150-200 attendees the Montreal scalability conference likely absorbed $250,000 from everyone involved (via travel, lodging, food, etc.). Similarly, one independent estimate that Greg Maxwell mentioned at the same Consensus event was his back-of-the-envelope projection of the opportunity costs: a few hundred thousand USD in the first couple weeks of May alone as engineers were distracted with block sizes instead of shipping code.
While a more precise number (+/-) could probably be arrived at if someone were to link individual developer activity on the dev mailing list/reddit/twitter with their estimated salaries on Glassdoor — since this past spring roughly $6 million or so has probably gone towards what has amounted to basically two diametrically opposed political campaigns.
And the issue is still far from resolved as there are more planned scalability conferences, including one in Hong Kong in early December.
Why is it a black hole though? Surely there is utility from the papers and projects like Lightning, right?
It’s a money pit because it doesn’t and cannot resolve the coordination problem that decentralized governance creates. I have an upcoming paper that briefly touches on this issue (in Appendix A): the key point is that any time decision making is decentralized then specific trade-offs occur.
In this case, due to an intentional power vacuum in which there is no “leader,” special interest groups lobby one another for the de facto right to make decisions. Some decisions, like raising the minimum transaction relay fees involve less tweets and downvotes and are for various reasons considered less important as others. Yet ultimately, de jure decision making remains out of reach.
Not the first time to a rodeo
Because decentralized governance (and external social consensus) was/is a key feature for many cryptocurrencies, this type of political activity could happen again with say, increasing the money supply from 21 million or if KYC becomes mandatory for all on-chain interactions.
Again, this was bound to happen because of the tragedy of the commons: because the Bitcoin network is a public good that lacks an explicit governance structure. Anytime you have a lack of formal governance you often end up with an informal power structure that makes it difficult to filter marketing fluff from sock puppets like Cypherdoc (aka Marc Lowe) from actual fact-filled research.
And this subsequently impacts any project that relies on the Bitcoin network as its security mechanism. Why? According to anecdotes, projects from new organizations and enterprises have reconsidered using public blockchains due to the aforementioned inherent governance hurdles alone.
After all, who do they call when the next Mexican standoff, block reorg or mutually assured destruction situation arises? There is no TOS, EULA or service-level agreement and as a result they look at other options and platforms.4
- It is probably too simplistic to say that, with $6 million in funding, these same developers could have simply created a new system, like Ethereum, from scratch that factors in scalability challenges from day one. It is unlikely that these same developers would have come to agreement on what to spend those funds on as well. [↩]
- See What impact have various investment pools had on Bitcoinland? and Flow of investments funds in Bitcoinland [↩]
- The academic term for this is single-issue politics. [↩]
- For instance, Tezos was designed specifically with a self-amending chain in mind due to this issue. [↩]