Balance of Power Fallacy

Power in Bitcoin rests with miners and merchants. Yet these two powers are not "balanced" between each other, as if locked in some sort of checks-and-balances system. Miner power is orthogonal to merchant power. Miners control transaction selection, merchants control validity, and neither can control the other. Not surprisingly, in the original description and implementation these roles were combined.

Power is not the same as influence. Merchants can influence miners by not buying the service. Miners can similarly influence merchants by not producing it. These choices manifest as splits or stalls. However the nature of power is that it can (and often does) ignore influence. The state has power; it can apply coercion and co-option while ignoring influence. Merchants and miners together have the power to defend against these aggressions, but neither can do so without the support of the other.

The balance of power in Bitcoin is between individuals and the state. Even states create systems that attempt to isolate their moneys from political control. Bitcoin is no different in that sense, incorporating the resistance axiom. Individuals can be miners and can be merchants. With broad distribution of these activities it becomes difficult for state actors to censor this market. The idea that miners and merchants are in an adversarial position is a failure to understand the Bitcoin security model.

Merchants purchase a service from miners and as such the two are engaged in trade. Merchants purchase mining services that conform to their rules for a satisfactory fee. They are free to split and miners are free to not mine at all, or to not select particular transactions for whatever reason suits them. Trade is neither adversarial nor asymmetrical, it is voluntary and mutually-beneficial, with all tensions resolved in price.

This failure in understanding leads people to believe that mining can be centrally pooled as long as merchants are not centralized in validation, as the economy can control the behavior of mining, rendering the system secure. This belief is incorrect but unfortunately people are drawing this invalid conclusion from recent events. A closely-related fallacy is the belief that a proof-of-work hard fork by merchants can control miner behavior.