The short answer you already know: everyone. But, when broken down into its constituent parts, the answer becomes far more intriguing.
This article is mainly a response to the many television and radio interviews I’ve watched where the host is perplexed that Bitcoin is not controlled by a central authority. Bitcoin may be the first truly democratic currency – one where decisions are made by consensus. When Satoshi Nakamoto open-sourced the bitcoin code so anyone curious enough could learn exactly how the system works, people used to looking to Ben Bernanke or Angela Merkel for guidance on currency were initially disoriented. In this article we’ll address two monetary decisions that are currently being made by the bitcoin community instead of a central authority: creation and transfer.
Traditional Central Banks
The Federal Reserve is the central banking system of the US. Ben Bernanke, Chairman of the Federal Reserve, is the first person people turn to for monetary leadership. Although not part of their original charter, the Fed’s current duties include managing the money supply and overseeing the banking system. Two roles within these are especially relevant to bitcoin:
Deciding how much money is going to be created
Securing inter-bank transfers
Sometimes there is considerable overlap between the central bank’s responsibilities and that of other banking authorities, but for now lets focus on the central bank’s role.
The Consensus Alternative
Bitcoin is open-source software – meaning the source code is freely available for anyone to read. Nakamoto’s decision to publish bitcoin has created an environment that will ensure the future stability of the bitcoin protocol due to the open scrutiny from security experts, and its ability to respond quickly to problems.
There is a detailed description of how bitcoin works on the wiki, and the code itself is currently hosted on github. You can be secure in knowing exactly what bitcoin will do because everything is visible if you’re interested in looking. This has allowed the best security experts and cryptographers in the world to identify and refine any problems. Famous security researches have endorsed bitcoin’s security after trying to hack it, even with all of the code freely available.
The Bitcoin Foundation is chartered with maintaining the main branch. However, if a majority of users disagreed with their changes, the Bitcoin Foundation would have no power to stop people from using a different version of the Bitcoin software. Being open-source, the current version is based on consensus: decisions are made by the software version a majority of users are running. We saw this play out in the March 2013 chain fork. An issue was discovered where older versions of the bitcoin software were incompatible with newer versions, causing two separate block chains. Within the hour, bitcoin miners had reverted back to the older version, negating the problem. A similar situation would occur if malicious code was found – users would convert to a safe version, and life would go on.
Back to the question of who is charge, the answer is everyone. The software that bitcoin users chose to use will affect how the network responds. Lets take a closer look at how this consensus performs the decisions that are usually made by central banks.
In a central bank, the bank’s leadership decides how much money should be printed, and when that printing will occur. Even with the best intentions, monetary systems are highly complex and the implications of decisions are difficult if not impossible to predict.
The generation of bitcoins is highly predictable, with blocks containing 25 new bitcoins being generated every 10 minutes. This completely removes policy decisions from impacting the value of a currency. Blocks are found by bitcoin miners running the bitcoin software. There is no barrier stopping people from running mining software on their own hardware, and contributing to the network’s decision to generate new bitcoins.
The Fed’s responsibilities include facilitating inter-bank transfers, as well as clearing retail and wholesale fund transfers through the automated clearinghouse system. 60% of all ACH transfers go through the Fed’s clearinghouse, the rest go through proprietary commercial systems. These can take several days or more, and frequently are accompanied by $25+ fees.
Bitcoin software has integrated this system into the block chain. We no longer require a trusted 3rd party to confirm that funds are actually sent. The block chain is a ledger containing every bitcoin transaction since the genesis block was created. Since every transaction is visible, it is trivial to audit bitcoin’s ledger and determine how many bitcoins reside at each address. The block chain is transmitted peer-to-peer, meaning that each person hosting a copy of the block chain is directly sharing it with other users. The balance sheet and transfers are verified by consensus of everyone sharing the block chain.
So the next time a friend or angry talk-show host asks who controls bitcoin the answer is obvious: everyone.