Mike Hearn is a former Google engineer who now works on a variety of Bitcoin-related projects, including the Java implementation of the protocol that serves as a foundation for wallet applications. He is one of just 10-15 people who handle writing the core Bitcoin code before it can be approved by miners on the network, and his opinion about the cryptocurrency ecosystem is certainly worth hearing.
The following quotes are from Hearn’s recent presentation at the Bitcoin 2014 conference in Amsterdam, and they outline some of the greatest challenges that currently face the young digital currency:
1. Overzealous Venture Capitalism
There’s been a rash of what you might call Bitcoin 2.0 projects lately which have received large sums of money and a lot of them -- there isn’t really a whole lot to them, I feel. Some of them are kind of sketchy.
Hearn didn't specify which startups he thinks are "sketchy," but venture funding has certainly ramped up in the past few months. For example, Palo Alto-based Vaurum recently secured $4 million in seed money for its software that will let financial institutions host their own Bitcoin exchanges.
2. Unreliable Third-Party Storage
There are still lots of Bitcoin users in the world who -- are not actually Bitcoin users, are they? They deposit their Bitcoins with a third party and what they get in return are promises that they’ll get it back. That’s not really what Satoshi intended when he built a system that wasn’t supposed to have any middlemen.
This is the age-old debate that has been raging in the Bitcoin community for years -- storing coins in an online wallet means handing over control to a third party who isn't always trustworthy. In order to prevent another Mt. Gox from happening, Hearn strongly encourages Bitcoin users to control their own private keys whenever possible.
3. Volunteer-Based Infrastructure
This is not sustainable, right? You can’t have a large, world-spanning financial infrastructure which is held together by chewing gum and sticky tape, and people who kind of work on it when they have time because they feel like it.
Because Bitcoin is an open-source project that isn't owned by any particular person or group, it doesn't have a mechanism for compensating the people who work on its code. Hearn envisions a new system where users pay for advanced features and directly support the developers.
Scaling is gonna be huge work, assuming it’s successful. At the moment we don’t have a scaling problem because Bitcoin is not really growing, but if [scalability]gets fixed, that’s gonna be a ton of work. That’s like the next ten years of work.
Bitcoin essentially has a limit on the amount of transactions that can occur in a certain timeframe, in order to prevent the blockchain size from spiraling out of control. The network has never hit this limit before, but it will happen eventually if Bitcoin becomes a mainstream form of payment. It's very telling that Hearn thinks it could take ten years to fix Bitcoin's scalability problem.
A lot of people mistakenly believe Bitcoin is an encrypted system, but nothing in Bitcoin is encrypted. So what this means is that if I was working at the NSA or GCHQ and they gave me a team of five people, and they said ‘work on this for six months,’ I’d probably be able to de-anonymize 70, 80, 90 percent of the Bitcoin system. So I would not expect Bitcoin to keep you private from the NSA.
While this isn't necessarily a problem in Hearn's mind -- he only said this in response to an audience question -- it strikes at the heart of a fundamental weakness of the blockchain. Every transaction that ever occurred is available for public scrutiny and analysis. It should be very disconcerting for privacy advocates that given the right resources, a guy like Hearn can tie real-world identities to the vast majority of Bitcoin users. Fortunately, projects like DarkWallet recognize this issue and are trying to address it.
For the rest of Mike Hearn's sobering perspective on Bitcoin, check out his presentation below: