Tragedy of the Bitcoin Commons

People are worried about bitcoin centralizing because of larger block sizes creating a barrier to entry.

Although this seems unlikely in the near future it may be a persistent problem over time and eventually it needs to be solved.

Solution 1 of course is to improve the code with larger blocks including algorithmically larger blocks. But block size is actually only one type of problem. There are many things that could go wrong with bitcoin over time and discourage mining.

So Bitcoin ends up looking like a public or common stock good. It’s a lake everyone wants to fish but relatively few people want to take care of.

How do we fix this? The same way we fix public and common stock goods in general. Clubify them. Make it a club good.

This is a long term solution, not something for right now. In particular, I see this as a solution to the weak incentives for miners to keep mining after the last block is mined. This could be developed external to the source code and in fact there could be many competing clubs.

The notion would be simple: bitcoin users pay a fee to a club organization that funds miners. Clubs may find it a good idea to internalize and scope out other services as well such as helping business owners integrate BTC or helping miner hardware R&D, etc, but the key feature would be an organization that incentivizes mining in a voluntary, competitive way.

It almost begins to look like a decentralized legal structure in some ways. Thoughts?

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  1. […] Please RT: #bitcoin and #crypto people, what are your thoughts about a bitcoin club to solve incentive issues? afterecon.com/economics-and-… […]

  2. […] Read more about the problem itself here in my recent past article. The solution is to clubify bitcoin, but this can be done in multiple ways. That is where this article picks up. The two fundamental solutions are internal and external solutions. […]

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