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Who Controls Bitcoin?

March 9, 2018 Blog

Central banks often control the supply of money, but Bitcoin works differently. Bitcoin is a decentralized currency with no central bank or central authority, but this does not mean that there is no distribution of power or that some within the bitcoin ecosystem don’t have more power than others.

Understanding who controls Bitcoin’s supply and Bitcoin’s price can be complicated, but if you’re a serious Bitcoin investor, it’s worth considering who has the most control over Bitcoin.  A Bitcoin attorney can provide you with insight in understanding how Bitcoin works and can also help you to comply with regulatory and legal issues that could affect your Bitcoin investments so it’s a good idea to get legal help when you make investments.

Do Investors Really Control Bitcoin?

Within the Bitcoin ecosystem, there are a number of different players including miners, exchangers, developers, and holders.  Many people believe that Bitcoin investors who buy and hold Bitcoin are ultimately the ones who are in control.  This theory was put to the test in 2017 as many large companies within the ecosystem combined forces to try to make a switch to a new network. Those large companies with in excess of 90% of the network hashrate wanted the new network to be called Bitcoin, and essentially to become the new Bitcoin, even though it was on a new network.

However, this proposal was abandoned before it even began for many reasons, including the fact that miners were only willing to mine the new, and less valuable chain, for a short time after the new network was activated. Many futures markets had predicted this outcome, in large part because miners have a financial incentive to only mine more profitable blockchains.

Because miners want to maximize their value, they are largely controlled by the behavior of holders. Miners will stay on the chain where there is more activity and where coins have a higher value, and holders are the ones who decide which chains are most in demand and thus more active with higher-valued coins.  Exchanges and bitcoin wallets simply provide access to whichever blockchain technology holders want to make use of.

While the power of holders is not absolute, acknowledging that holders have a great degree of control could impact updates and features added to Bitcoin and could impact the development of the futures market. Some futures markets initially showed more support for the proposal to switch to a new network than actually existed because markets didn’t correctly gauge market sentiment. Changes could occur going forward to recognize the role of holders.

Acknowledging that holders are primarily in control of Bitcoin could also impact the ways in which new features are added to Bitcoin. When features are added or changes are made using soft forks instead of hard forks, the opinions of holders could determine whether those changes are adopted and add value.

Understanding more about the role holders have in shaping the future of Bitcoin could also be beneficial for those interested in Bitcoin investments who want to develop a deeper understanding of how the ecosystem works. A Bitcoin attorney can provide insight and advice into Bitcoin markets, investing, and regulatory issues so contact an attorney for help and advice today.