Are blockchains really censorship resistant?

We live in a world full of censorship designed to prevent undesirable information from spreading among the masses. Through censorship truth is suppressed and the masses are denied the ability to organize. In the absence of truth, lies are propagated and these lies undermine the very basis of critical thinking, facts.

Censorship consists of more than just the right to speak unpopular opinions. It also includes the right to enter currency contracts and publish title transfers. All that is necessary for a free people to secure their property rights is to adopt a public database tracking who owns what. This database can be updated at anytime provided an individual is free to publish a valid signed transfer request. If you are denied the right to publish your transfer request, then you no longer have the ability to transfer your property. This ultimately means you no longer have the means to sell the property and therefore have had your property effectively seized.

Bitcoin is powerful because it prevents the banking system from seizing your account. This is made possible because all transactions are broadcast on a peer-to-peer network and there is no single entity that is able to prevent the transaction from being included in a block. In theory, if you really wanted to transact then you could mine your own block to include your transaction.

Are Transaction Fees a form of Censorship?

The Bitcoin blockchain is currently operating at peak capacity. Due to the law of supply and demand, block producers are now prioritizing transactions that pay the highest fee. As fees increase, those with small account balances are having their property stolen. If it costs more to transfer your Bitcoin than the bitcoin is worth, then you are out of luck.

Obviously no one really considers a $0.05 fee "theft" nor writes home about not being able to spend the $0.02 they earned on Steem due to Bitcoin transaction fees. The fact remains that Bitcoin miners are picking and choosing transactions based upon their own personal profit and that the result is that some users are denied the freedom of speech.

At what point does a transaction fee transition from a legitimate cost of consuming scarce resources to a illegitimate asset forfeiture? What if Bitcoin transactions cost $100 each? What if Bitcoin miners colluded to raise the price? What if the block size debate is a convenient cover for this collusion?

Other Forms of Fee Payment

Bitcoin miners are assumed to be rational economic actors in competition with each other. This means they will maximize their revenue by filling blocks with as many transactions as possible to collect the highest fee. If the fee is paid as a block reward, then all miners compete and the block difficult increases. Miners only really earn the mining profit margin on the transaction fee rather than the full fee.

Smart mining pools can increase their profits by selling transaction services. They can offer to include transactions at half-price if the individual is willing to subscribe to their service and is willing to wait 2 hours for confirmation. A mining pool with just 10% of the hash power could secure 10% of the daily Bitcoin transaction fees without increasing the difficulty. This means their profits will be much higher than other mining pools.

Eventually the major mining pools realize that they can collude to collect fees outside of the block rewards and do so without competing with each other on hash power. If market forces ever push Bitcoin in this direction then this new cartel will be in the same position that the big banks are today: a monopoly on Bitcoin transfers.

Crony Transfers

What if the miners didn't want fees, but instead wanted favors? What if only Bitcoin exchanges and other major players were allowed to transfer? What if people were denied access simply because they were facilitating competition to Bitcoin? The gatekeepers on the transaction ledger become the defacto regulators on what extra-consensus rules apply to transactions.

What happens if a Bitcoin side chain emerges that offers better services than the core blockchain? What happens if the majority of actual Bitcoin usage occurs on the side chain even if it only represents a minority of total bitcoin supply? What if this side chain starts eating into fee revenue of the miners?

Do Bitcoin miners interfere with transfers to and from the side chain? Could a side chain render the original Bitcoin network irrelevant? What would happen if one day people woke up and realized they no longer required the actual Bitcoin network to have decentralized, low cost, transfers secured on a blockchain? Do you see the problem?

Bitcoin miners have different incentives from Bitcoin holders and users. Miners want control over transactions so they can act as gatekeepers and collect rent. Users want cheap, fast, private, secure, stable currency.

The Trojan Horse

Those who operate the Bitcoin infrastructure have financial interest in seeing Bitcoin widely adopted. Until it is widely adopted Bitcoin is vulnerable to competition that offers better service and plays well with others. If Bitcoin maximalists get their way then one day Bitcoin will be as common as the U.S. dollar and have such broad network effect that people are locked in.

All modern currencies had their root in honest money that was held accountable by physical limits on the supply of gold and silver. It was only after they secured control over the transfer of gold and silver that they were able to abuse the privilege.

Back to Censorship Resistance

We have already established that all blockchains have block producers with the power to demand fees and censor transactions for personal profit. For a blockchain to resist censorship the block producers must be subject to popular approval. If the block producers are above popular approval then there is little recourse to their efforts at censorship.

Nothing in life is free, including speech. There is a real and measurable cost associated with publishing information. This cost is magnified when the channel has limited bandwidth and/or barriers to entry.

The question is not whether or not a blockchain is "censoring" transactions today, it is what recourse do the masses have if the block producing gatekeepers start censoring tomorrow. Once a currency has a certain momentum it is not as easy as getting everyone to switch to a new blockchain. Instead, people need a means of reaching consensus on new block producers.

At this point we reach the crux of the matter. Ultimately popular opinion is what will censor us. The people will tend to focus on a few currencies and the only thing preventing the block producing gatekeepers from censoring is the willingness of the people to replace them. This means that gatekeepers can censor as much and as often as they like so long as popular opinion is on their side. There are many cases where the public will back censorship and the gatekeepers will have financial incentive to support them.

Ultimately, censorship resistance is nothing more than making it difficult for private interests to co-opt and operate public blockchain / broadcast infrastructure in a manner contrary to token-holder opinion. Proof of Work systems are designed with a built-in conflict of interest and barrier to entry. Only democratic proof of stake systems, like DPOS, are able to give the token holding public some say over who produces blocks and therefore what is or is not censored. This is the best possible technological solution to censorship protection.

Ultimately, freedom of speech and property rights are subject to our culture and our technology will merely reflect that culture.

© Daniel Larimer