China’s Role In Bitcoin: How Cultural Differences Are Affecting The Technology’s Progress
For the last year, the Bitcoin community has been embroiled in what is, on one level, a technical debate over how to upgrade the network to accommodate growing transaction volume.
The fighting reached a head in mid-January, when a prominent developer declared the currency a failure and left Bitcoin. It promptly lost about 15% of its value and hasn’t recovered.
What has been called “the block size debate” (referring to the megabyte limit for each group of transactions processed) has now grown into a power struggle, with the group of volunteer developers working on the protocol splitting into several camps.
“This is not really about block size,” says core developer Eric Lombrozo. “It’s really about the control of the protocol.”
What seems like a technical debate on the surface is actually deeply informed by human politics and personality differences. But because major players in the Bitcoin ecosystem are based in China, the outcome of this dispute in the Western Bitcoin community is also being influenced by cultural gaps between the West and China of which they may be only vaguely aware.
On Wednesday, one of the new teams, which has christened itself Bitcoin Classic and is supported by Coinbase, one of the most well-funded companies in the space (the original team is called Bitcoin Core), released a new version of the software making another attempt at an upgrade, which Lombrozo called “a tactic to shift power away from the Core devs.”
However, by Thursday morning, two dozen people representing almost 20 Bitcoin companies, many of which would be directly affected by the software change (and accounting for more than half of the network powering Bitcoin) formed a group called the Bitcoin Roundtable and released a statement effectively rejecting the new software, at least for the time being.
In fact, one of the very companies listed on the Bitcoin Classic website as if it were a supporter, HaoBTC, disavowed this new version of the software in an email. Chief strategy officer Eric Mu wrote, “We did use the word 支持 (translated as ‘support’), in both the CEO’s statement and verbally when meeting with Classic lead developer Mr. Jeff Garzik in Beijing. However, that is by no means to say that we will switch our mining power to Classic.”
Mining is the activity that sustains the network — and it distinguishes Bitcoin from previous Internet applications. Bitcoin is often described as a way to transfer money peer-to-peer, without a bank or financial institution acting as a middleman. For this reason, the Bitcoin community likes to describe the currency as “trustless,” meaning that a user does not have to trust a third party such as a bank to ensure the proper processing of a transaction. However, using Bitcoin does in fact require trusting a collective third party: the miners who process the transactions by recording the most recent transactions onto a public ledger containing every Bitcoin transaction in history, copies of which are kept on computers around the world.
As David Evans, a lecturer at University of Chicago Law School wrote in a 2014 paper, “the fact that the public ledger is decentralized — so there is not a bank or a government acting as the intermediary — may have interesting political or social value to some. But from the standpoint of considering economic efficiency there is still an intermediary, just a very different sort of one.” He says Bitcoin is much more complicated than a typical open source project because it involves managing and incentivizing a large network of laborers — the miners — to process the transactions.
This is the problem that competing Bitcoin teams are running up against: no one camp can very easily wrest power away from the other without the support of the miners — and about three-quarters of their current network power is located in China.
But according to those who participate in both the Western and Chinese Bitcoin communities, the way the West has framed the issues over the last year is not the way China has, even as the West has looked to its Eastern counterparts to weigh in.
Bobby Lee, CEO of BTCC, one of the largest Bitcoin exchanges, is one of the few people in the Bitcoin community who witnesses these cultural variations regularly. Lee, who was educated in the United States but is now based in Shanghai, is also one of the rare bilingual English-Chinese Bitcoin entrepreneurs and has interpreted at international Bitcoin conferences. “I’m at the 90-degree angle,” he says. “I see this line, and I see that line. One group thinks one way, the other group thinks another way. They’re orthogonal.”
In the English-speaking Bitcoin world, he says, the debate boils down to two issues. First, how should Bitcoin be governed — by dictators, as a democracy or as a republic? And second, which is more important — keeping Bitcoin decentralized or allowing for more transactions and users? The camp in favor of keeping the block size smaller for as long as possible (currently at 1MB), mostly represented by Bitcoin Core, believes doing so will allow even small-time miners to be included in maintaining the network, keeping it from being controlled by a few large entities that have the computing power to accommodate larger blocks. (Also, many in this group support other solutions, most notably one called Segregated Witness, that will allow more transactions to go through without having to raise the block size right now.) The other side, such as Bitcoin Classic, advocates for increasing the block size sooner, to 2MB, to accommodate for growth and also because smaller blocks may artificially inflate the fees required to get transactions processed in the network, cutting into one of the major advantages that Bitcoin has over other payment systems — the fact that it’s cheaper than payment methods such as credit cards.
But Lee says about these questions of decentralization versus scale, “this kind of stuff, the Chinese people don’t care about. It’s not in the vocabulary. Chinese people don’t grow up thinking about democracy and decentralization and individual freedom and liberty.”
Lee breaks down the Chinese Bitcoin community into five main constituencies: ASIC chip manufacturers (an ASIC is a chip designed for a specific purpose such as mining Bitcoin; these manufacturers are similar to Intel), machine assemblers (similar to Dell), the operators of mining machines (like data centers), mining pool operators who aggregate individual miners to spread the risk and create predictable income for each, and finally the owners of the machines themselves, many of which buy these machines as investment to make a return. He says while the West wrings its hands over how to upgrade the network, the Chinese Bitcoin community’s attitude is, “Don’t bother me, I’m trying to make my money here.”
Referring to how Bitcoin developers have split up into competing teams, Lee says, “Chinese are used to this one power system — one political system, one political power. So, the Core team was the original political party, and now there are people coming up to challenge them, but the Chinese are like, ‘Let’s go with the incumbent. As long as the incumbent delivers something reasonable, we’ll go with it. We’re not going to jump ship and vote and create a new political party for ideological reasons.’” (Lee signed the Bitcoin Roundtable statement released Thursday morning that effectively rejected the Classic proposal.)
Citing Chinese proverbs that encourage people to “bend with the grass,” Lee says, “in Chinese culture, if you stick out, you’re the one that gets run over. You don’t want to be the one that speaks up. You want to be in the crowd, anonymous.”
The opinion of Jack Liao, CEO of Bitexchange and LightningASIC, two China-based Bitcoin companies, illustrates this partiality toward the incumbent: “I prefer to stay with 1 MB,” he says. “I choose Segregated Witness” — the Core team’s proposed solution — “because the Core developer team for the past two years did a great job and I trust them more than the Classic team. The Classic team was made up very quickly in a few months, [but after the 2MB upgrade] they don’t have a plan.”
Bitmain, a Chinese mining hardware producer and pool operator, also favors the Core team, although the company made clear its desire to increase the block size. “Increasing the 1MB block size limit is a necessary step towards keeping bitcoin a global system that is both low-cost and directly accessible to all users,” Jacob Smith, a company spokesman, wrote in an email. He also referred to a tweet by the CEO that stated Core was the best team to lead, but that also expressed frustration that it had not yet committed to increasing the block size. “All else being equal, if the current version of Bitcoin Core included a similar 2MB block size increase in their code, we would certainly support them and all the developer talent they have behind them,” Smith concluded.
Another Chinese and English bilingual Bitcoin community member, Johnson Lau, who lives in Hong Kong, volunteer translates and interprets Bitcoin papers and at conferences and who helped author the Segregated Witness proposal, had similar assessments to Lee’s. “People in China are not very interested in this decentralization thing,” he says. “In Western culture, people tend not to trust authority … but in China they tend to trust.”
In a follow-up email, he wrote, “they are educated to trust centralized power,” and said a view expressed in an article about Chinese stock market investors was representative: It quoted a Chinese stock market investor who said, “I bought in because I could see that the government wanted the market to go up and if the government wanted it to happen, well then it would happen.”
One of the big drivers behind Bitcoin’s early popularity in the United States was its appeal to libertarians, who were drawn to the fact that it is not a state-sponsored currency. However, Lee says the concept of libertarianism doesn’t translate. “Chinese people are very practical, very pragmatic, and the notion of multiple political parties, people who want freedom and anonymity — that’s weird to Chinese people. Some of them want quick profit. They want to gamble and make a return on their investment — and that goes over the head of Westerners. I grew up and went to school in California. When people come home from work or home or school, they’re not thinking, ‘How am I going to day trade my stocks and try to make a quick buck?’ That’s just not in American culture,” whereas it’s a Chinese social norm, he says.
Lau agrees China’s interest in Bitcoin has more to do with the culture’s interest in any hot investment. Noting that the country has seen bubbles in a number of investments ranging from the stock market to postage stamps to agarwood to tea, he says some in the Chinese Bitcoin community are rich people not interested in the concept behind Bitcoin but “are just printing money…. Some people who control a lot of hashing power” — such as 2-3% of the network — “don’t really understand the protocol at all. They don’t really think about what is the reason of mining or why Bitcoin is interesting.”
Over the last year, many have suggested that the miners have much of the power to decide how to resolve the block size question. In fact, Bitcoin Classic proposes an “election,” in which miners “vote” for the version of Bitcoin that they prefer, and once 751 out of 1,000 consecutive blocks are mined indicating support for Classic, it would trigger a 28-day grace period for computers in the Bitcoin network to upgrade to Classic before their software would no longer be compatible with the rest of the network.
But Lee says, in China, the word “vote” is taboo. “No one votes in China,” he says. “You’ve never grown up or lived in a Communist country, but voting is just — we don’t vote. We let the leaders decide. So the Chinese community, is like, ‘Hey, we’re not going to vote. We let the Core team decide.’
“That’s why there are criticisms, like, ‘Hey, Chinese people, why are you not voting? Why are you being derelict in your responsibilities?’ But the Chinese people, like, ‘What are you talking about? I never knew I had the responsibility to vote. All I cared about was trying to make my money.’”
Because their main concern is that the core developers not do anything that could harm the price, the Chinese have largely displayed a conservative attitude toward changes.
Adam Back, a developer and cryptographer who has regular contact with the Core developer team and who cofounded Blockstream, a company that also employs a few Core developers, says Bitcoin is supposed to be governed by consensus, which requires that almost everyone must agree. That means changes need to be noncontroversial actions desired by everyone, so the software isn’t split in two, which would likely sink Bitcoin’s value. For that reason, he says the Chinese conservativism works well for Bitcoin.
“We already have political money. That’s where we get quantitative easing and inflation. Bitcoin is supposed to prevent that kind of thing. It’s supposed to be like gold, and it’s supposed to have rules enforced by mathematics. Bitcoin is designed explicitly to prevent political voting to change the currency,” he says.
For Bitcoin to become a viable alternative to fiat currency, he says it must keep its gold-like properties. “We have U.S. dollars and euros where politicians, in a pinch, might start to pack on hundreds of billions of dollars of inflation. One of the things that attracts people to Bitcoin is that, like gold, it doesn’t have that property. It’s impossible to suddenly create more money or adapt the supply or the properties of the system to political pressures.”
Saying Bitcoin is governed “by a consensus process, where conservative behavior wants to see confidence preserved, to not make dramatic political groups and not make changes unless there’s unanimous approval… If people get dramatic like a U.S. election process, that would actually be quite dangerous for Bitcoin in terms of introducing politics and and seeing the gold-like properties being lost in the mix.”
It’s ironic then that the Western Bitcoin community, in its quest to advance the currency, has split into competing factions. But, as Backs says, the Chinese viewpoint is “very compatible with Bitcoin.”