Where Bitcoin Went Wrong

At first, Bitcoin was a combination of interesting tech novelty and tool for buying drugs. Of course, it still is both of those, but since the early days of the original Silk Road and the "cypherpunks" who valued Bitcoin simply for being a step towards a store of value not controlled by the government, there has been much growth but also significant change in the values and objectives of the community.

While I certainly don't consider Satoshi infallible, I still consider his "original vision" generally useful and better than most of the changes that have been made since. A couple examples of quotes from Bitcointalk which I feel no longer represent mainstream Bitcoin opinion:

"We should always allow at least some free transactions." - source

"It would be nice to keep the blk*.dat files small as long as we can.

The eventual solution will be to not care how big it gets." - source

"The current system where every user is a network node is not the intended configuration for large scale. That would be like every Usenet user runs their own NNTP server. The design supports letting users just be users. The more burden it is to run a node, the fewer nodes there will be. Those few nodes will be big server farms. The rest will be client nodes that only do transactions and don't generate." - source

"I believe it'll be possible for a payment processing company to provide as a service the rapid distribution of transactions with good-enough checking in something like 10 seconds or less." - source

"At equilibrium size, many nodes will be server farms with one or two network nodes that feed the rest of the farm over a LAN." - source

"In a few decades when the reward gets too small, the transaction fee will become the main compensation for nodes. I'm sure that in 20 years there will either be very large transaction volume or no volume." - source

So, in summary, the key idea that I see him talking about which has been abandoned is a clear intention to grow capacity on-chain, with a related intention to support for zero fee transactions, only feasible when transaction capacity is not constantly being maxed out, and the idea that the "fee market" would be important mostly in a few decades after the block rewards were no longer significant.

Instead, there has been a civil war in Bitcoin over the question of whether to increase the on-chain capacity. Those who supported it, like Gavin Andresen, who had worked directly with Satoshi and took over leadership of the project when Satoshi left, were vilified and generally left the project. Those who remain have made it clear that they believe that on-chain growth is not worthwhile and mostly irrelevant and that growing transaction costs are "Actually Good for Bitcoin" (™).

Now, certainly, Bitcoin continues to be the leading cryptocurrency. It has a powerful first mover advantage and the brand awareness and network effect are hard to overcome. On the other hand, its share of the overall cryptocurrency market has gone from 100%, when it was the only option, to about 40% currently. Where it was once inconceivable that anything other than Bitcoin would lead cryptocurrencies, Ethereum now stands within easy striking distance of Bitcoin. While I have criticism of Ethereum as well, the point I think is most relevant here is that it is Bitcoin's weakness which has allowed this opportunity for a competitor to gain on it so much.

I think it is obvious that if Bitcoin had grown its capacity, it would have attracted more investment than it has, as well as retaining more technical talent. Instead, its community is fractured and poisoned by heavy-handed moderation, new users face unpleasant surprises in trying to make transactions and the response is typically criticism of anyone who mentions the issues. Bitcoin has crippled itself by adhering pointlessly to a limit which was never intended to be anything other than temporary.

And why? I won't try to divine the actual motivations, but I'll point out that the publicly stated reasons seem rather specious. One of the central ones was that a controversial hard fork can be dangerous. Certainly, but why was it controversial? Instead of seeking to build consensus, the opponents have repeatedly avoided any possible compromise. If it could have been implemented, why shouldn't it have been? Another argument has been, essentially, that if infinite on-chain capacity is not possible, then no on-chain growth is relevant. This seems too laughable to refute, and yet has convinced many.

It was argued that increasing capacity was a dangerous change, and yet is far more technically simple than other changes which have been proposed. It was argued that increasing fees were necessary, but forcing fees while there were still significant block rewards was no part of the original intent. Almost every other coin continues to operate on block rewards instead of transaction fees without an issue.

It is true that failing to grow capacity has not instantly killed Bitcoin, but no one ever argued that it would. What it has done is significantly reduce its lead and first mover advantage. It has transformed its community into a bunch of oblivious naysayers who insist that it is impossible to do what hundreds of others are already doing: operating with significantly more capacity, and in many cases successfully hard forking to improve their coins.

Bitcoin is not dead. It is not even dying. But it is stagnating. Even while it reaches its highest prices and attain other record metrics, it is also slowly losing its significance. While before Bitcoin was seen as the future, it is now the legacy; perhaps Bitcoin's best usecase at this point is as an entry point for buying other cryptocurrencies.

There is no reason technically why it could not grow on-chain, fixing its main current problem and regaining a trajectory for being the dominant coin for decades to come. But the reason the change was never done was political, not technical. And the problem there has only been exacerbated by the brain drain of many talented and dedicated people to other coins and even leaving cryptocurrency.

Bitcoin will have a historical significance as the first of the cryptocurrencies, but if it will not grow, then in another ten years that may be about all it has.

Edit: One of the best quotes, from even earlier, which I'd missed on first pass as I reviewed the BCT comments and whitepaper but not the mailing list:

"Long before the network gets anywhere near as large as that, it would be safe for users to use Simplified Payment Verification (section 8) to check for double spending, which only requires having the chain of block headers, or about 12KB per day. Only people trying to create new coins would need to run network nodes. At first, most users would run network nodes, but as the network grows beyond a certain point, it would be left more and more to specialists with server farms of specialized hardware. A server farm would only need to have one node on the network and the rest of the LAN connects with that one node.

The bandwidth might not be as prohibitive as you think. A typical transaction would be about 400 bytes (ECC is nicely compact). Each transaction has to be broadcast twice, so lets say 1KB per transaction. Visa processed 37 billion transactions in FY2008, or an average of 100 million transactions per day. That many transactions would take 100GB of bandwidth, or the size of 12 DVD or 2 HD quality movies, or about $18 worth of bandwidth at current prices.

If the network were to get that big, it would take several years, and by then, sending 2 HD movies over the Internet would probably not seem like a big deal. "

-source