Bitcoin: For the People? Democratic?
Much of the rhetoric regarding Bitcoin revolves around it being a money for the people; a democratic money; a money for freedom and liberty. Is that really the case though? Is Bitcoin a form of money that empowers people and the average person? Is Bitcoin democratic? Is Bitcoin the monetary design that will liberate the masses from centralized, abusive powers? To evaluate if Bitcoin is in fact for the people and democratic, we will first briefly revisit what a pure democratic system looks like. After establishing what a true democracy looks like, we will then discuss bitcoin’s creation, its adoption and ownership, and its governance model. During our discussion, we’ll find that bitcoin is far from being a monetary system that is for the people. Worse yet, the narrative around bitcoin is deceptive because contrary to many of the claims around bitcoin, it does not empower the people and is not democratic.
It is important to highlight that this discussion does not intend to argue that democratic governance is the best form of governance and that monetary systems should necessarily be democratic. The discussion is also not intended to point out that bitcoin is “bad” just because it is not democratic. The point of this discussion is to highlight that bitcoin’s narrative around it being for the people and a democratic form of money is deceptive. Additionally, some early adopters and hardcore supporters of bitcoin acknowledge the fact that bitcoin is not democratic but claim that it empowers the people regardless. In any case, the mainstream narrative around bitcoin is not only that it is for the people, but that it is democratic.
Pure Democracy
A pure democracy involves people having a voice in decision making. People in a community get together and cast their votes for a specific decision to be made. If the majority votes for a specific action, then the action will be executed on. If the majority votes against a specific action, then the action won’t be taken. When it comes to designing a specific function or organization via pure democratic means, all stakeholders would have a voice in how that specific function or organization should look like. It would be the people who collectively debate and vote on how, say, a central bank should look and operate. People in a community coming together and collectively forming institutions by debating and voting on what and how a specific institution should look like, how it should be governed, and what functions it should undertake – as well as continuous voting on decision making post the institutions’ establishment – is how a pure democracy would function in shaping organizations. To use the example of the institution of money, a true democratic form of money would involve people discussing what form of money would be best for them and they will then vote or reach consensus on what form of money they want to have and how that money should be governed moving forward. People are directly involved in the decision-making process and have a direct voice.
To be clear, the current institution of money and the decisions made by central banks that impact people’s lives are not democratic since the decision making by monetary authorities are done by the “technocrats” without consultation of the people and without listening to the people’s voices. Monetary policy has technically been out of reach of the people, and is approached, for the most part, in an entirely technocratic method.
It must be noted that what has been described here is a form of “direct” democracy as opposed to a representative democracy in which citizens vote to elect representatives to make decisions on their behalf. A pure democracy typically suggests direct participation by all citizens in all aspects of decision making. Decision making is for the people in a pure democracy. That said, does bitcoin give the people a voice? Does it empower the people? Does it make the institution of money for the people or democratic?
Bitcoin’s Creation
Now that we have covered what a pure democracy is, let’s look at how bitcoin was created.
Bitcoin was designed by an anonymous individual or group, Satoshi Nakamoto, with a specific view of what money ought to be. Satoshi’s view of what money ought to be seems to be extremely influenced by Hard Money (money that is pegged to scarce, precious metals) and to anarcho-capitalist and techno-utopian ideologies of money. With that inspiration, Satoshi leveraged blockchain technology with a goal of designing a form of money that fits in with our contemporary digital world. With this background, it is clear that bitcoin was not developed according to a collective community voting or reaching consensus on what money ought to be, but rather was developed in a centralized fashion by an anonymous group or individual who idealized and envisioned a specific form of money. Most people do not necessarily agree or view money in the same way that Satoshi views it, and people had no say in designing bitcoin. So, our first point here is that bitcoin was not designed by the people in true or pure democratic fashion but was rather designed by a few individuals (or an individual) who wanted to simulate a scarce form of commodity, tech-driven money. This form of money is idealized and believed to be the best form of money by that group or individual who created bitcoin. Of course, a subset of like-minded people agree with Satoshi Nakamoto’s views on money, but people at large had no say and no voice in shaping anything about it. If there was an ongoing debate and platform to voice different views based on a variety of schools of thought on what money is and ought to be and how it ought to be governed, people might opt for a different form of money than what Satoshi Nakamoto put forth. They might have even developed a cryptocurrency with different embedded laws and features in its code. A money that was created by an individual or group without any backing by a broader base of people is not a democratic form of money. It is rather an imposed form of money.
The clever aspect of bitcoin, however, is that while it was centrally designed, it was then let go into the wild to be free of any central authority and to be run by a decentralized body of participants (i.e. miners, developers, and node runners). Given that bitcoin’s designer(s) withdrew from running bitcoin and handed the code and governance to a decentralized body of participants, bitcoin advocates might say:
Sure, bitcoin was designed and developed without a democratic voice in developing it initially, but it represents a money that works best for the people, and people accept it “democratically” by purchasing it and being part of the community. If they don’t agree with what bitcoin is and what it stands for, they are free not to buy it and be part of the community, which is equivalent to not “voting” for it.
Let’s dig into this claim and bitcoin’s adoption.
Bitcoin’s Adoption
In the early days, Bitcoin was a very niche project that appealed to a group of cryptographers, techno-capitalist anarchists, futurists, and right-wing libertarians. Its adoption was confined to those groups and wasn’t very popular with the masses. Its use as money for exchange was in fact limited to illicit activity on the black market and dark web for the most part. Eventually, bitcoin’s narrative around it being a hedge against inflation led to more adoption by people who were unhappy with the direction monetary policy is going. With the price appreciation of bitcoin, more people started purchasing it as a speculative asset for fear of missing out as opposed to their belief in what bitcoin stands for and what it aims to achieve. That said, the buying and trading of bitcoin still revolved around a niche market and a niche group. In fact, contrary to claims by crypto lobbyists that the majority of Americans hold crypto, only 7% of Americans actually hold crypto according to a recent survey by the Federal Reserve. Moreover, the claimed global percentage of crypto ownership is around 4.2% (Crypto Ownership & Interest by Country). The numbers from the Fed survey and the global crypto ownership report include all cryptocurrencies, not only the population holding bitcoin. Also, the ownership numbers obviously include people who hold crypto for speculative reasons as opposed to having a deep belief in it as a better form of a monetary asset/system. For the most part, bitcoin is still confined within its niche group of hardcore supporters and by groups that aim to profit from ancillary services. Also, if more people are acquiring bitcoin, it isn’t because they are familiar or in agreement with the ideology behind it as a better form of money, but rather for speculative reasons as the price of bitcoin goes up – bitcoin in this case is just a speculative asset detached from its ideological foundation and motive. In addition, a large amount of bitcoin is held by whales (individuals who hold and accumulate a significant amount of bitcoin and who were typically early purchasers of bitcoin).
Clearly, bitcoin is not popular among most people. Claiming that bitcoin’s adoption illustrates how it is a money for the people is in fact a weak case, because bitcoin remains adopted by a relatively small group of people. In fact, a significant number of people are skeptical of bitcoin (see Majority of Americans aren’t confident in the safety and reliability of cryptocurrency). Moreover, at the time of writing this article, the majority of bitcoin is in fact held by centralized crypto institutions, corporations, and governments who seized bitcoin from criminal activity (Who Owns the Most Bitcoin and How Their Holdings Impact the Market). It is a very niche group who hold it in support of what it stands for and as a “vote” to how they envision their monetary system or the future of money. The rest hold it for speculative purposes detached from any ideological sentiment as to what money should be. With that, bitcoin has very few “votes” in its favor. Yet, bitcoin evangelists have been putting a lot of resources to push bitcoin’s narrative and have been reverting to immense lobbying power and pressure tactics to legitimize its existence and gain acceptance for validation.
It is clear that the people have not massively adopted bitcoin. Claiming that the adoption of bitcoin acts as a “vote” for bitcoin or shows consensus that people want bitcoin as a form of money or monetary system is a weak case. In fact, it shows that bitcoin is not accepted and desired as a form of money by the majority.
Bitcoin’s Governance
Let’s now turn to bitcoin’s governance model.
The governance of bitcoin is admirable for its decentralized model that has been maintained by its community and has been properly working so far. We will not go deep into how bitcoin works overall, but we will briefly outline the process of how changes or updates are made to bitcoin. It must be highlighted that bitcoin is designed in a way to be difficult to change. The goal is for bitcoin to maintain the embedded laws that are codified in it which make it predictable and “trustless”. Nonetheless, changes are possible and do take place, so it is important to go through the governance structure and how changes to bitcoin are made or could be made.
To start, any participant in the bitcoin community can submit a proposal to what developments they’d like to see in bitcoin. The proposed changes are first discussed between developers in the bitcoin community. If some level of agreement is reached, a formal proposal, known as a BIP (Bitcoin Improvement Proposal) will be written and edited in a specific format. The BIP typically touches on the technical aspect and rational of the proposed update/change. With the formal BIP submitted, the broader bitcoin developer community evaluates the proposal, discusses it, and conducts testing. If a consensus is reached among the developers, the Bitcoin Core team works on implementing the proposed changes. For the changes to take place, however, bitcoin miners will have to signal their acceptance of the proposed changes. Typically, around 95% of miners need to signal support for the update to be activated in the bitcoin code. Finally, if the update has been implemented, users who run nodes (computers that participate in the bitcoin network) decide whether to update to the new version or not – it is up to the node runners to opt-in to the new changes in bitcoin or remain on the unchanged, older code. It must be noted that the process described here is focused on soft forks. Hard forks, on the other hand, “requires all network nodes to upgrade their software to the latest version to keep participating in the network” (How do Hard and Soft Forks work?). Overall, the process of implementing and accepting changes to bitcoin is decentralized and collaborative with checks and balances taking place in the process. While there is no formal voting structure, changes are reached by consensus-signaling and by very meticulous collaboration and oversight by the community. Now that we have outlined the decision-making process for changes or revisions to bitcoin, let’s turn to the question of whether it truly is a monetary system for the people and if it is a democratic process.
Let’s discuss bitcoin miners first. Bitcoin miners are crucial participants in the bitcoin network. In the early days, mining bitcoin was mostly done by individuals running a mining rig in their room via their PC. Today, bitcoin mining has evolved into corporations with vast lands and computational power mining huge amounts of bitcoin every day. In fact, the most powerful bitcoin mining projects are now public companies, and a handful of miners dominate the space. The bitcoin mining industry is concentrated and continues to grow in concentration. With that concentration comes significant power in shaping bitcoin going forward, whether via collusion or monopoly, especially given that miners play a major role in bitcoin’s governance system and have a lot of influence as mentioned above. One might say that while the mining industry is gaining power, the checks and balances imposed by the bitcoin developers and the participants running the nodes impede miners from going rogue and taking over. That is valid, but let’s look at the composition of developers and node runners.
To be part of the bitcoin community proposing changes or participating in discussions around changes, one needs to be highly technical and knowledgeable in the space to participate. While decentralized in the decision-making process, participants running the bitcoin network resemble highly technocratic individuals and groups. Such a highly technical way of approaching decision-making is out of reach of the regular person who is not that deep in the bitcoin community. Even submitting BIPs requires having “the skills and knowledge to suggest something relevant to add to the Bitcoin protocol” (What are Bitcoin improvement proposals (BIPs), and how do they work?). It is also important to highlight that while consensus is needed by the participants in the bitcoin network to make changes, the participants, as mentioned, are a subset of highly technical individuals and groups who more or less share the same views and skills when it comes to monetary application and technology. It is easy for such a group to collaborate on specific changes, just as they might disagree on some issues. The point here is that it is a few highly technical folks who are maintaining the bitcoin network and who are running the show, and participation by most people is not accessible given the technical barriers. Rather than being an accessible monetary system that is for the people and democratic, bitcoin is run, maintained, and overseen by highly technical people – technocrats.
Furthermore, from the group of people who hold bitcoin, not everyone is deep into its technical operations and absorbed by what it stands for. As mentioned before, most people hold bitcoin for speculative purposes and are not active in the community (i.e. in the maintenance and decision-making process of the bitcoin network). Holding bitcoin does not equate to being an active member in the community and in the decision-making process because the process requires highly technical sophistication. More importantly, purely holding or owning bitcoin does not give one a voice in bitcoin governance and does not not allow access to the community running the show.
Finally, as mentioned earlier, if any changes are implemented to the bitcoin code, the people running the nodes have the power to decide to update to the new code or remain on the old code. With that, the developments implemented to bitcoin need to be adopted by the community running the nodes, and node runners have the power to not update to new versions of the code if they don’t like the changes made. That said, we run into the same issue that was highlighted previously; people running the nodes tend to be highly technical participants who are deep in the bitcoin community. Additionally, many centralized institutions such as crypto exchanges, among others, typically run the nodes. The end user, or the people that bitcoin proclaims to empower, hold the bitcoin offered to them by the exchange and do not have a direct say in which bitcoin version they are holding. Most people holding bitcoin don’t even know or care which version of bitcoin they are holding anyways, because, again, the motivation to hold bitcoin by the average person is for speculative reasons as opposed to holding it in support of the ideologies and monetary-political movement that bitcoin represents. Moreover, there are barriers to entry in running nodes since running a node requires “enough storage space to store and process the entire Bitcoin blockchain, which can include hundreds of gigabytes of data” (What is a Bitcoin Node?).
This high level of technical sophistication needed to participate in the inner workings of the bitcoin network makes bitcoin vulnerable to being dominated by the few who are deep in the community and is contrary to a democratic, monetary system that is for the people. While bitcoin is highly decentralized, it is nonetheless susceptible to being co-opted by a dominant, like-minded group and is in fact run by a few highly technical people. Bitcoin is decentralized amongst the technocratic bitcoin community as opposed to being a decentralized system that includes all people. The fact that a like-minded, technocratic group oversee bitcoin goes against the belief that bitcoin is a better form of money because it is immune to human corruption and infallibility. The bitcoin code at the end of the day is maintained by humans, and while the checks and balances put in place are admirable, the decentralized nature of bitcoin’s governance is situated in the hands of highly technocratic participants and is in no way shape or form by or for the people at large.
Conclusion
As mentioned at the start, the purpose of this article is not to argue that the best form of monetary governance should be democratic, but rather, the aim is to highlight that bitcoin evangelists and the crypto industry push out a false, deceptive narrative of bitcoin being a monetary system that is for the people and democratic. As we’ve shown, the foundation of bitcoin is fixated on one idea of what money ought to be and was designed by a central figure(s). Furthermore, the adoption of bitcoin is lackluster and only gained steam for speculative purposes. While the bitcoin network is decentralized in how it is maintained and how decisions are made, the bitcoin community maintaining the network is a group of technical folks who more or less share the same ideology and motivation. The technical nature of the community is a barrier for the everyday person to participate in bitcoin’s oversight or to even have a say since owning or holding bitcoin does not give any sort of access to the governance process of the protocol. Also, the highly technocratic nature of bitcoin’s governance structure coupled with the growing dominance of bitcoin miners make it susceptible to be co-opted and controlled by like-minded, dominant groups contrary to bitcoin's claimed ethos.
The point of bitcoin is to establish a monetary system that is fixed and governed by hardcoded rules rather than being managed by people – this is the appeal for its niche supporters. This fundamental feature is in fact undemocratic, since it assumes there is only one proper system for how money ought to be, and that this system should be fixed and unchangeable. Nevertheless, there is a process to make changes to bitcoin and changes to the code do occur. Again, the point raised here is not to argue that democracy is the best form of governance or that bitcoin is “bad” because it is not democratic, but that the narrative around bitcoin being for the people and democratic is deceptive. Rather than it being for the people and democratic, bitcoin represents a decentralized, technocratic socio-economic political movement. A movement with tones of financial populism and demagogy aiming to mobilize people via a deceptive narrative of it being for the people and democratic (albeit an unsuccessful mobilization and hence why the focus has turned to lobbying efforts to influence government and institutions for validation and to preserve its existence).
