Bitcoin's collective dilemma in reaching a consensus

Collective Dilemma Regarding Cryptocurrency Bitcoin

In the world of Bitcoin, a digital currency that revolutionised financial transactions, there's no central authority to dictate its direction. This unique characteristic sets Bitcoin apart from traditional financial systems and other cryptocurrencies like Ripple and Ethereum.

The closest governing body for Bitcoin is a group of Core developers who maintain Bitcoin Core and decide on software updates. However, even if these developers push for a radical protocol change, node operators can reject the new version and continue running an older, backward-compatible one. This decentralised approach ensures that the future of Bitcoin remains in the hands of its users.

One of the challenges facing Bitcoin is the potential threat posed by quantum computing to its digital signatures. Quantum computing, with its immense processing power, could potentially break Bitcoin's current cryptographic algorithms. To counteract this, proposals for post-quantum signature schemes have been put forward. These schemes include intricate tree-based hash functions, aiming to provide a secure, post-quantum Bitcoin future.

However, the discussion about the best post-quantum signature scheme for Bitcoin is not without its own challenges. If multiple, roughly equal, post-quantum signature proposals exist, it could lead to a collective action problem and potential stalling of adoption. This is a situation where the benefits are shared but the costs are private, a classic example of a collective action problem.

Economist Mark Bagnoli at Purdue wrote a paper on this in the 1990s, outlining that the best approach to address a collective action problem is to introduce a third party who can create contracts that align private costs with social benefits. In the case of Bitcoin, this could mean a clear winner emerging among the post-quantum proposals, allowing for a peaceful upgrade to a secure, post-quantum Bitcoin future.

Despite the potential for major Bitcoin holders to unite and push forward a single standard, the question remains as to why the same cannot be achieved by the Core developers. After all, these developers are scattered around the globe and must respond to social consensus.

The author of a 2015 Management Science paper on the allocation of shared cloud computing resources among individual users is not specified in the information provided. However, the core idea is that users must be overcharged to prevent overconsumption of the shared resource, a concept that could potentially be applied to the selection of the best post-quantum signature scheme for Bitcoin.

In conclusion, Bitcoin's decentralised governance structure, while providing a level of autonomy and control to its users, also presents challenges when it comes to making critical decisions, such as the adoption of post-quantum signature schemes. Addressing these challenges will be key to ensuring Bitcoin's continued success and security in the face of emerging threats like quantum computing.