Blockchain governance: Bitcoin vs. Ethereum
The issues of governance have lately been (finally) raised in regards to blockchain governance. Forbes published this article yesterday:
But volatility and hordes of bubble-chasing speculative investors are not Bitcoin's only problem, there are technical shortcomings as well. For this, I recommend reading Eli Dourado. Eli is a phd economist who is an actual expert on the economics of cryptocurrency, and coauthored the cryptocurrency chapter for the New Palgrave Dictionary of Economics. Like myself, Eli is actually an optimist about the potential for cryptocurrencies. However, he argues that when you look at all the important features for a cryptocurrency, Bitcoin is either dominated by Ethereum or soon will be. Given the strength of Ethereum, he argues "I no longer believe there is a stable place for Bitcoin, Ripple, or most other cryptocurrencies that exist today".
I won't give you all of his reasons Ethereum dominates Bitcoin, you should read the whole piece yourself, but here are a few important ones. One issue is transaction fees, which are significantly lower for Ethereum. The high transaction fees are one reason why the Bitcoin conference famously and hilariously had to stop taking Bitcoin payments for ticket.
Another issue Eli says favors Ethereum is governance quality. The leadership, developers, and community matter a lot for a cryptocurrency. Writing his New Palgrave article in 2014, Eli was optimistic about Bitcoin governance quality, but since then, he writes, things have gotten ugly.
Ugly, in my personal opinion, is an understatement, and I couldn't be happier that these issues are finally raised.
The article concludes thus:
One irony of this is how similar this is to the institutional quality problem of central banking. For a central bank to manage a currency well they need to be politically independent and technically capable. Central banks that have failed to follow modern central banking best practices or have been captured by politicians have done poorly throughout history. Despite the much advertised decentralization of cryptocurrencies, these historical central banking issues of institution quality and governance quality seems to matter a lot. And for Bitcoin this seems like bad news.
After all, what drives the utility of a blockchain, apart from it's network effect (which could be approximated using Metcalfe's Law) is its community and culture (and therefrom governance).
Governance however should first be seen as an ongoing gradual process within a structure, i.e. the process structuring the framework, and not vice versa. One must trace the undercurrent of evolutionary necessity there, before going on to proclaim revolutions.
Ethereum puts an important emphasis on appropriately incentivized actors, introducing a much needed degree of sobriety, competence and skin in the game in the governance process (clearly seen in the design rationale of the protocol, and exemplified in practice with the newly introduced MakerDAO platform and the Dai stability engine, which elegantly bridges the gap between real-world events and traditional finance on one hand, and the digital realm of blockchains on the other).
Let's quote a few more excerpts from the above mentioned blog post of Eli Dourado's:
Bitcoin losing its lead makes sense to me. What doesn’t make sense is that Bitcoin still has a lead at all and that it still has so many proponents. In terms of actual utility, Bitcoin is inferior in almost every way to several other cryptocurrencies, most dramatically Ethereum.
Ethereum features a Turing-complete instruction set with several normal-ish, expressive programming languages, while Bitcoin has only limited, gobbledygook op codes. This means that Bitcoin can only represent a ledger or some very basic conditional payments, while Ethereum can represent an entire computer state. I say this is a clear advantage for Ethereum, while some critics try to twist it into a point for Bitcoin.
Bitcoin’s governance quality is abysmal, as discussed above. Meanwhile, the Ethereum community is practical and congenial. Both teams have talented computer scientists, but Ethereum’s culture is infinitely better. I am consistently impressed with Ethereum founder Vitalik Buterin’s maturity, humility, and leadership skills. Sometimes Vitalik is absurdly criticized as a dictator, but this accusation has no basis in reality. He seems to intuitively understand the need to build a broad consensus within the community, and this consensus in fact exists.
Furthermore, I might add (as somebody who had been following the developments in the blockchain realm since the very inception of Bitcoin, but honestly wasn't really impressed until Ethereum arrived on the scene), there has never been a community or a wholesome meaningful strategy behind Bitcoin (apart from some loose connotations with 'anarcho-capitalism' and hardcore libertarianism, in my opinion mostly as an ideological facade for what more and more surfaces as a one giant pump and dump pit), while Ethereum had been designed for business logic as such and with the goal of enabling people around the globe to conduct business even if they don't speak the same language or use the same currency. Lastly, I can see the fruition of Friedrich Hayek's vision of a more rational economic order in the face of Ethereum.
And I will just conclude this with yet another excerpt from Martin Armstrong leaving some more food for thought:
Instead of observing HOW the economy functioned as Adam Smith and David Ricardo set out to do, economics descended into the depths of prejudice as men set out not to discover HOW it operated, but to alter the very way it functioned trying to play God in redesigning human nature.
Unfortunately, economics has been plagued by this prejudice. Far too often economists seek to change "what is" into what they believe "should be", thereby reducing the science of economics to nothing more than a corrupt political social movement.
While Marx was correct in identifying the source of man's booms and busts as human nature, his error was in believing that government officials were somehow so virtuous and competent that they would be the exception to human nature.
I do not subscribe to a form of economic theory that advocates government control as the exception to human nature, but believe firmly that Adam Smith was correct in his observation of the "Invisible Hand", which is really the divine design of how complexity produces a synergy that is greater than the sum of the parts.
Thanks for sharing. I agree - I’m eagerly waiting the time when Ethereum finally overtakes bitcoin and becomes no. 1. It truly is the World super computer and provides so much more value in terms of its abundant array of dapps and sub-networks.
I only fully understood what Ethereum is all about when I got on with trying out Solidity and then had a good look at the Maker/Dai thing and DigixDAO. Bitcoin's limited, rudimentary scripting language is entirely incapable of interfacing with the real world in such elegant and fine tuned manner, and I am seriously beginning to think that there is a reason why they so stubbornly insisted on keeping it that way, while running mostly on aggressive propaganda, spam and advertisements....