Bitcoin Consensus

These notes try to draw connections between blockchain activities and conventional familiar situations.

I find the enthusiasm for Bitcoin a little bit surprising. The enthusiasts by my sampling, are mainly libertarians and those who fear government control of money supply. (There is much historical reason to fear this.) They are attracted to a governance mode, however, which is not much different from democracy. Bitcoin monetary policy attracts those who like the gold standard, unless they hold gold. Bitcoin is governed by consensus. This is somewhat like democracy but with a less well defined set of contributors.

Humans are rather social animals and this explains much. The bias toward this sort of consensus may be unjustified, however. Some imagine that the consensus is between coalition members; and this may indeed occur. However coalitions sometimes dissolve as interests diverge. Just now many Bitcoin miners resist increasing the size of the transaction-block, I suppose because transaction fees (much of their income) would shrink, at least in the short term.

Coalition incentives must be included in the design of crypto currencies. Von Neumann and Morgenstern”s “Game Theory” considered how coalitions split.

An advantage of the coalition pattern is that anti social use of such facilities may be difficult when it requires coalition support. Then there is the mafia.

Bitcoin claims to avoid all reliance on actions of “third parties” except as can be verified by anyone who can run a computer and believes the math. I think that the notion is that when each honest member of the coalition agrees on the truth they will collectively enforce the truth and that they are in a position to do so. In other words “democracy is the judge”. Today it helps that the members of this coalition are under various political auspices and their authority does not stem from their nationalities. They may still be subject to political duress.

For what it is worth my perspective comes from having been closely connected with one of the more successful time sharing companies, one of many sorts of institution who must closely guard their reputation for delivering digital secrecy and integrity, and further having a manifest and plausible business plan for doing so. The notion there is that there are trustworthy third parties. Bitcoin addresses issues of “where the money is” and must achieve the same sort of trust as central banks need today.

At a FRIAM gathering Mark Miller said that an unstated axiom was that each person trusts the machine over which he has control, but no other machines. Trusting your own machine is wishful thinking for most people today. “Untrusted third parties” is an overworked term in this context, again with a psychological tinge. One of the justifications is that governments can coerce such a party to violate what he has agreed to do.
I see “Do your own diligence to ensure who you get help from is ethical, reputable and qualified to assist you.” here. Good advice and psychology clue. I take it to be written by a pragmatist who realizes that “full-nodes” in this case are seldom operated by someone who has read and checked all the code. There is a role for ordinary trust. What the blockchain provides, I suppose, is a widely heard alarm that signals any change in the rules and thus helps prevent either fraud or gradual drift (boiled frog syndrome).
Scenario: Two parties write a secret contract. Things go bad and one of them want to back out. What does it mean to enforce the contract? Conventionally the contract goes before a judge who may then disseminate it further. This is a foreseen danger seen originally by both parties and in light of which the contract was written.
Two cartoons: Challenge: How do you do a blockchain version of this?
An elementary problem that Gravity proposes to solve is two people wanting to exchange bitcoins for Ether.