In April 2015, the MIT Media Lab launched the Digital Currency Initiative (DCI), the school's first official foray into the bitcoin and blockchain world. Today, nearly a year later, it's announced a shiny new $900,000 Bitcoin Developer Fund, which aims to support bitcoin protocol development in an open and non-political environment.
The fund is backed by no-strings-attached donations from a slew of bitcoin companies like miner BitFury and individuals like LinkedIn co-founder Reid Hoffman.
While these donors all have their own reasons for funding continued open-source bitcoin development, it's quite clear that the technology itself stands to benefit from improvements and experiments conducted in a more impartial academic setting.
The internet was incubated in academia for over 20 years. By comparison, the bitcoin network has been in use since its invention in 2009
The DCI currently funds salaries and expenses for three developers, who are free to build anything they wish: lead maintainer of Bitcoin Core, Wladimir van der Laan; former lead maintainer of Bitcoin Core, Gavin Andresen; and Bitcoin core developer, Cory Fields. The initiative will also continue to sponsor consensus-building efforts like the Scaling Bitcoin workshops.
"The developers are carrying on developing bitcoin, which is essentially their day job," DCI head Brian Forde told me. But they also have informal access through the lab to consult with a range of economic, privacy, and distributed systems experts. The goal of the new fund is to let them develop the bitcoin protocol without agenda-setting.
So why this is different than the raft of other venture capital and institutional investments we've seen in the bitcoin world lately? The answer lies in a problem: Bitcoin is an imperfect, but working technology, and a lot of different actors are ideologically and/or financially invested. To move forward, it may just need a place to grow without these real-world constraints.
As the DCI's establishing blog post argues, the internet was incubated in academia for over 20 years, gradually becoming ready for prime time. By comparison, almost since its invention in 2009, the bitcoin network has been reliably transferring value between an improbable blend of techies, darknet vendors and customers, ransomware hackers and victims, and remittance senders. It didn't have as much time to get ready for the working world.
As Forde wrote last year, "much work still needs to be done before this technology can become truly safe, secure, and significant."
To someone like me who tends to see the other, darker side of the coin, this is an understatement. Bitcoin has a number of problems to solve; some are by design, some have developed by accident. Briefly, here are a few of the big ones:
Block size battle
The bitcoin network is often filled to the brim with transactions, spam or otherwise. This congestion has caused a civil war of sorts, putting developers, miners, users, and other interested parties at odds over how to fix the problem. Meanwhile, users are sometimes stuck paying unexpectedly large fees to prioritize their transactions, or waiting hours to confirm that their payment went through.
The now MIT-based, former core developer Gavin Andresen had circulated a proposal to expand bitcoin's block size (in lay terms, a measure of transaction capacity) 20-fold, but was rebuffed by proponents of a competing vision who see bitcoin's future as an underlying settlement layer, with small consumer transactions taking place on secondary services.
Encouragingly, the DCI's new Developer Fund is supporting developers with different opinions on the block size debate. Hopefully, they'll be freer to voice their thoughts and propose solutions than they would be if privately funded by a startup or a single donor.
Bitcoin's mysterious creator Satoshi Nakamoto probably didn't expect bitcoin to grow as quickly as it did, and as such coded in some limits to keep things workable at the beginning, including this now-contentious block size limit. Since there's no central authority to decide how to proceed, it's up to the fractured community to decide. But who is the community, exactly?
Ironically, as a decentralized currency, bitcoin has a big centralization problem: Less than a dozen people now lead mining pools that control the majority of the network's mining power. This means that they provide an outsize amount of network security for other participants, but it also means they have an outsize influence in decisions about things like block size. Even though bitcoin users are all over the globe, most of the biggest miners are in China, where their bandwidth is limited by the great firewall. If the block size grows too much, Chinese miners could be functionally cut off from effective mining, sinking huge investments and exposing the network to insecurity and a potentially disruptive slowdown in mining new blocks.
Bitcoin is also inefficient by design—each full participant stores a full ledger of all past and current transactions, and network security is essentially backed by massive, redundant energy expenditure that I believe would only grow with further adoption. To boot, its current network throughput maxes out at a theoretical 7 transactions per second, though this is closer to 3 per second in practical experience. That's very slow for just about any use, from peer-to-peer payments to autonomous 'internet of things' value transfers.
Reputation and crime
Features can be drawbacks, too. The same 'anti-censorship' properties that empower users to donate to Wikileaks are equally empowering to shady hackers holding hospitals' data for ransom. And the same blockchain that hides darknet transactions in plain sight among countless others also helped the Feds bust darknet kingpin Ross Ulbricht. Transactions are also irreversible, which is a feature and a bug, depending on the situation (or your role in it). For what it's worth, cash has many of the same problems, but you can't use it to buy weasel dust online.
Bitcoin is also threatened by sophisticated competition. Big banks have been funding blockchain-based startups like R3CEV, Chain, and more that claim to harness bitcoin's technological building blocks, but without some of the reputational and technical issues. Some popular but as-yet unproven decentralized rivals, especially Ethereum, are now attracting a lot of attention thanks to claims about smart contracts and on-chain programming.
As a decentralized, open-source currency, bitcoin faces unique governance challenges that are just as much about economics and politics as computer science. Some supporters want it to be a global payment system for the unbanked, others a libertarian foil to inflationary fiat currency, and others a disruptive FinTech money-maker. Some just want to pump the short-term price and get rich quick on their speculative investment. Some people want all of the above, or something else. In a world of imperfect solutions, coming to consensus to support all these uses will be an implicitly political process.
Independently supporting three core developers isn't going to be an automatic slam dunk, since users, startups, and miners will still need to more or less agree on what code to run. MIT Media Lab's stated aim for the DCI has been to foster a "diversity of work and thought on cryptocurrencies among students, researchers and open-source developers." While there's no shortage of diverse work and thought in "the bitcoin space," I think it's a helpful goal if that work can lead to free experimentation, and if that thought comes from a more financially disinterested position.
Business as usual is working for now, but with billions of dollars of value tied up in various parts of its ecosystem, I'm skeptical that bitcoin can solve its major problems without hurting any of its diverse interest groups. There's a lot on the line for a lot of people. But taking it off the line and into the academic realm could just be the shot in the arm that bitcoin needs to move forward with new ideas.