Recently I was confronted with the idea that “Bitcoin infrastructure companies” consist of the following:
- wallet companies (hosted or local apps)
- APIs (block explorers or blockchain analysis)
- payment processors
As Ryan X. Charles reported from Montreal, among this group apparently “everyone wants the block size to increase”.
Merriam-Webster defines infrastructure as follows:
the underlying foundation or basic framework (as of a system or organization)
Apart from “local apps” (wallets, presumably open source), the list above consists entirely of centralized services. These are not Bitcoin infrastructure by any definition. These are peripheral services that use Bitcoin.
Actual Bitcoin infrastructure (validating wallet, node, miner) developers should be extremely wary of pressure coming from this sector. The business model of each of these types of companies requires centralization. Each would prefer a substantial portion of activity relating to Bitcoin pass through their gateways. Ryan described the group as representing a:
large fraction, if not majority, of bitcoins held, bitcoins transacted and bitcoin API calls made
In other words, it may be that this small group of companies is a gateway for the majority of Bitcoin transactions and is acting as a bank for the majority of coins in existence. It may even be that a large portion of these so-called Bitcoin transactions are actually off chain. It may also be that these so-called Bitcoin wallets are actually custodial accounts.
But even the best of these services (i.e. those who claim you control your own keys and that only transact on chain), with the best of intentions, represent a dangerous centralization trend for Bitcoin. These are hardly the voices that Bitcoin developers should heed.
Good intentions won’t stop these types of services from failing their customers when the shit hits the fan. And when Bitcoin starts to significantly challenge seigniorage revenues, the shit will be all over the room.
Many of the good people in these companies naively believe that Bitcoin is a super-efficient system. They see the core value as cheap and rapid transactions for the masses. Some are even interested in the benefits of sound money or even pseudonymity. They are right, these are ultimately the benefits to the user base (all humans).
What they fail to understand is that these benefits are a strictly consequence of the single innovation of Bitcoin – consensus without trust. This innovation allows Bitcoin users to resist censorship. This censorship resistance is only achieved through decentralization. Some may think that only applies to mining, which is not the case. These business models are themselves the primary threat. Each new user of a centralized service expands the attack surface.