🥊 Follow the feuding devs

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Happy Thursday, readers. Today’s edition of Empire is brought to you by The Breakdown newsletter’s Byron Gilliam, and he’s got some hot takes and flawless analogies to carry you to the weekend. Enjoy!

⛔ Bitcoin isn’t software

Bitcoin developers have been feuding in public this week — a spectacle that must make some newly arrived converts from TradFi uneasy.

The debate over a seemingly esoteric detail — the byte cap on OP_RETURN outputs — has gotten so heated you might think the trustworthiness of the entire Bitcoin network hangs in the balance.

To traditional investors, this must feel like Microsoft programmers openly feuding about whether Windows can be trusted, or JPMorgan engineers questioning whether the bank really knows where its customers’ money is.

Wall Street investors wouldn’t spend time parsing debates like that. They’d just sell.

Should investors be parsing this Bitcoin debate?

It’s not easy to do. 

To a non-expert like myself, both sides seem to make reasonable points. But both sides also think the other side is being completely unreasonable.

Whoever’s in the right, Bitcoin developers bitterly divided about software feels unsettling — likely because we’re constantly being told that Bitcoin is software.

• Forbes: “Bitcoin is software that has only one utility...” 

• Fidelity Digital Assets: “Bitcoin is just code… millions of computers all running this identical Bitcoin software.”

• Coinbase Learn: “Because Bitcoin is just code…” 

• VanEck: “Bitcoin is free, open-source software…”

• The Motley Fool: “At a high level, Bitcoin is just software.”

If Bitcoin is just software, then a feud among the developers who write it would seem like a crack in its foundation.

Fortunately, I’ve decided that Bitcoin is not software.

Hear me out.

Developers are feuding in part over the relative merits of competing software clients (Bitcoin Core vs. Bitcoin Knots), but none of them are arguing about the merits of Bitcoin.

They all remain true believers in Bitcoin itself, which suggests Bitcoin itself is something other than software.

If A is in dispute, but B is not, then A ≠ B. 

Therefore, Bitcoin ≠ software.

Nevertheless, The Motley Fool might still be right that Bitcoin is just software “at a high level.”

At the highest level, though, Bitcoin is a set of rules.

Satoshi’s real innovation was the set of rules he invented to enable the peer-to-peer transfer of value, and the software being debated this week is only the implementation of those rules.

This is the difference between, say, basketball and the NBA.

Basketball is a set of rules first established by James Naismith, and the NBA is one implementation of those rules (enforced by social consensus).

In this flawless analogy, Satoshi is James Naismith (if Naismith had written a white paper), Bitcoin is basketball and Bitcoin Core (and any other client software) is the NBA.

Importantly, you can dislike the NBA and still like basketball. 

You might, for example, enjoy the video game NBA 2K — an alternate implementation of those same rules (but enforced by software).

That might keep you devoted to Naismith’s invention in the same way that feuding Bitcoin developers remain devoted to Satoshi’s.

OK, fine. My analogy might not be completely flawless. 

Among other things, Bitcoin’s rules are enforced both by software and social consensus.

As with basketball, everyone has to agree what Bitcoin rules to play by, or it won’t be much of a game.

But Bitcoin’s rules are not set in stone (also like basketball). 

It only takes a majority of the Bitcoin network to run client software that adheres to a different set of rules to change the rules of Bitcoin.

Still, I think the analogy stands: Developers fighting about the code in NBA 2K wouldn’t discredit the game of basketball, only the game’s developers. 

So developers fighting about the code in Bitcoin client software shouldn’t discredit Bitcoin, either.

Unless, that is, you think Bitcoin is best defined by the software that implements the rules of Bitcoin, in which case it might.

Or if you think Bitcoin is best defined by the social consensus that determines what the canonical set of Bitcoin’s rules is.

Unfortunately, all of these interpretations might be correct because Bitcoin is complicated.

So I can’t blame investors for buying so much gold lately instead.

If you ask a traditional investor what Bitcoin is, they’re at least as likely to say “digital gold” as they are “software.” 

(Alas, probably none will say “a set of rules.”)

But if Bitcoin wants to be the world’s go-to store of value, the world will have to understand it better than that.

This is not unique to Bitcoin.

“You need to tell your customers what goes into making your product,” Sam Insull explained in his recount of how he built Chicago’s first electrical grid.

The merits of electricity seem obvious enough, so you wouldn’t think that would need much selling. 

But it still took a lot of educating for Insull to get people interested in electricity.

“It may be normal to you because it’s your everyday thing, but it’s not normal to them,” Insull added. “If you explain it and educate your customers, they will find it fascinating. And as a result it will make the product and the service you provide more valuable in their eyes.”

Would a better understanding of what goes into Bitcoin’s decentralization and censorship resistance make it more valuable in the eyes of investors?

It’s a fascinating topic, so I think it might.

But all investors seem to learn from Bitcoin educators like Michael Saylor is how Bitcoin works as a monetary asset.

This has won a good number of converts on Wall Street.

But it’s also obscured what Bitcoin fundamentally is: not “just software,” but a set of rules that enable the peer-to-peer exchange of value. 

Many of Bitcoin's newly converted investors won’t care to make that distinction.

Saylor, for example, is ambivalent about self-custody, and if self-custody doesn’t matter to you, you probably won’t bother to learn how it works.

That might be for the best when Bitcoin devs are openly feuding.

But to correctly value the set of rules Satoshi invented, we’ll have to get better educated on them. (Myself included.)

Following the feuding devs is a good place to start.

— Byron Gilliam

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