In his To take As of Wednesday, Shinobi argued that the wave of institutional bitcoin adoption will lead to premature ossification of the Bitcoin protocol. While I share this concern to some extent, I am less convinced that this is necessarily true.
Bitcoin is inherently a permissionless system. Specific to protocol changes, it “only” requires users to upgrade their software. And when it comes to deploying soft forks, it really only takes a majority of miners to upgrade. (While this is a simplification for the sake of brevity, I’d say it’s still “true enough” to say it this way.)
For the most part, miners will follow economic incentives. If a protocol upgrade makes Bitcoin (say) more scalable or more private, there’s actually good reason to think it would make Bitcoin more valuable, which in turn means there’s good reason to think miners will trigger the upgrade .
Even in an extreme scenario where a soft fork occurs via a user-activated soft fork (UASF) that splits the blockchain, and even if in this scenario the institutions prefer the older version of the chain (this is the scenario that Shinobi ultimately envisions), it’s not clear to me that the non-upgraded chain would “win”.
Just owning a lot of bitcoin doesn’t give you a “say” on which side of a chain split is more valuable. Initially, everyone on both sides receives coins. Only If you are willing to buy or sell these coins (for example, “dumping coins” on one side of the split to get more coins on the other side), then your economic weight matters. But this means you have to take a risk: skin in the game.
Would major institutions really be willing to bet everything they own on the version of the protocol without the upgrade? That’s a big assumption.
This article is a To take. The opinions expressed are solely those of the author and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.