Bitcoin emerged as a beacon of promise to decentralize money for the first time. But as developers explored the potential of this technology, the network experienced its first identity crisis, sparking a problem that would persist for fifteen years.
This is the story of Bitcoin’s “original sin,” and what triggered the divide between the factions that we call “Bitcoin” and “crypto” today.
Defining Bitcoin
According to the whitepaper, Bitcoin’s mission statement is fairly straightforward: “a peer-to-peer electronic cash system” designed to remove the trust in sending transactions that once left us at the mercy of financial institutions.
Yet even in the earliest implementations of Bitcoin’s code, Satoshi had experimented with the possibility that it could be more.
Bitcoin version 0.1.0 included scraps of an online poker game and an IRC client to bootstrap messaging easily. Developer Mike Hearn has also claimed Satoshi wanted to integrate a peer-to-peer market place within the protocol, but the code was never finished.
Within the whitepaper itself, Satoshi compared the resources spent to mine Bitcoin to those required to mine gold. Not long after, the community recognized BTC for its fixed supply and lack of centralized control akin to ‘digital gold’ that would forever retain its purchasing power against dilutive, centrally issued currencies.
With Bitcoin’s role as non-inflationary, P2P money seemingly carved out, Satoshi made early adjustments to the protocol to optimize for this purpose. This included removing the old Bitcoin opcode “‘OP_CAT” for fears it could introduce security vulnerabilities to Bitcoin (something many Bitcoiners now want to bring back for added functionality).
Today there are countless books that promote and explain Bitcoin through this monetary lens. Big billionaires from Michael Saylor to Larry Fink are in agreement: BTC – the asset – is the core innovation, and the Bitcoin network’s purpose is to uphold BTC as a borderless store of value.
Disgruntled Builders
But in the years after Satoshi’s departure, as more potential ways to use the blockchain became apparent, Bitcoin’s evolutionary direction became less clear.
For example, as early as May 2013, Bitcoin developers began using OP_Return to store arbitrary, non-financial data in the blockchain. In the very first case, somebody embedded the lyrics of Rick Astley’s “Never Gonna Give You Up” into a transaction.
Taking advantage of the OP_Return field, the Counterparty protocol launched a year later – a layer 2 protocol for introducing tradeable, non-BTC tokens to Bitcoin. Counterparty invited notable experimentation, innovation, and excitement among developers, and had gained the lead over the rival platform Mastercoin at the time.
However, Counterparty was quick to stir controversy among Bitcoin Core developers, including names like Jeff Garzik and Luke Dashjr. The men argued that using Bitcoin to store arbitrary data could cause “unintended consequences,” and that Counterparty users were forcing Bitcoin nodes to store unexpected data against their will.
Dashjr in particular even began censoring all Counterparty-related transactions from his mining pool, and encouraging others to do the same. This act triggered a hostile reaction from the Counterparty community, whose next challenge would strike at the heart of years of tension to come.
“You have a much narrower view of the possible use cases for Bitcoin than do others,” said Counterparty co-founder PhantomPhreak in response.
Authors at BitMEX Research suggest that this was a pivotal moment for the Counterparty and Mastercoin protocols. Though both protocols could technically continue to operate, researchers suggested that the hostility they experienced at the time encouraged developers of alternative blockchain applications to move away from Bitcoin, leaving them searching for a home.
The Blocksize War: Sealing Bitcoin’s Fate
Bitcoiners were steadily narrowing their view of what Bitcoin was, and what it was not. However, even purely as a form of money, the existing Bitcoin protocol still wasn’t fit for purpose.
Transactional privacy was terrible. Transactions were slow to settle and expensive when in high demand, making Bitcoin unequipped for mass adoption. Although such problems have been recognized since Bitcoin’s earliest years, layered solutions to these problems (ex. sidechains) couldn’t quite measure up technically.
Hence, from 2015 through 2017, the “Blocksize War” ensued – a community battle over whether Bitcoin should lift its 1-megabyte blocksize limit to better scale the network in the future.
On the surface, the Blocksize War was a debate about the tradeoffs between decentralization and scalability; the importance of being able to run a Bitcoin node versus sending affordable transactions.
However, at the heart of the conflict was the question of how Bitcoin should evolve and whether it was wise to go about changing the protocol via backward-incompatible hard forks to its code. When a hard fork is executed, a new version of the Bitcoin blockchain emerges, a new coin is created, and new investors must use their money to decide what the “true” Bitcoin is.
Despite efforts to encourage a hard fork from major industry players including Bitmain, Coinbase, and BitPay, Bitcoin users successfully resisted the pressure to increase Bitcoin’s blocksize, instead opting to merely lower Bitcoin transaction sizes through SegWit – a backward-compatible soft fork.
While numerous independent hard forks to Bitcoin’s code that increased its block size were launched in the aftermath, none could maintain the substantial popularity with investors that Bitcoin had accrued.
At this point, the verdict was in: hard forking Bitcoin was off the table, and radical changes to the base layer protocol would be rejected henceforth.
Bitcoin’s Sin Of Stagnancy
Bitcoin has long been recognized as more than just a technological marvel. It’s a movement, a community, and a network on a mission to revolutionize money, struggling against world giants of finance without a centralized leader to coordinate it.
To that end, Bitcoiners have deemed it a top priority to optimize the network for stability and purity. That includes rejecting large-scale alternative uses of the Bitcoin blockchain that could harm its use case as money, and rejecting hard fork code changes that could break Bitcoin’s network effects or introduce unintended bugs.
With this, Bitcoin had become the world’s first “permaware” – an unchanging software foundation that would actually last forever. Yet the community’s choice also permanently stained the network with stagnancy, with seemingly no avenues left for improving on its original use case, or introducing new ones.
With those applications still in demand, and developers hungry for experimentation, they resorted to their last remaining option: launching altcoins – the other half of the world of crypto.
