What Happens to Bitcoin No One Can Access Anymore? Billions of Dollars Are at Stake

Bitcoin has no central bank, no board of directors and no chief executive. Nor is there a company that owns its network and could unilaterally decide which rules will apply from next week. Yet Bitcoin has evolved since its creation, its software receives new features, and from time to time some of the rules governing the network change as well. Which raises a fairly simple question: who decides on these changes?

At first glance, the whole system may look to an ordinary investor much like any other technology project. There is Bitcoin Core, one of the most widely used pieces of software for running a Bitcoin node; there are its developers, miners, large cryptocurrency exchanges and, today, financial institutions managing Bitcoin funds. None of these groups, however, controls Bitcoin on its own. The impossibility of concentrating decision-making power in the hands of a single institution is in fact one of the fundamental principles of the entire network.

Bitcoin has no management that could simply change the rules

Bitcoin operates as a decentralized network of computers that follow shared rules. An important part of this infrastructure are so-called full nodes. These store and verify the blockchain and independently check whether new blocks and transactions comply with the rules recognized by the software in question.

Every full node verifies blocks independently and accepts into its version of the blockchain only those it considers valid. When different nodes use the same rules and accept the same blocks, they are in mutual consensus.

This is a substantial difference compared with a bank or a technology company, for example. If a bank changes the terms of its product or a social network operator releases an application update, an ordinary user has only limited scope to resist the change. With Bitcoin, the node operator must accept the new software version themselves.

Bitcoin Core developers consider this principle so fundamental that the software deliberately does not use automatic updates. In the Bitcoin Core statement, the developers explain that users should be able to decide for themselves which version of the software they run. According to the same document, the developer team does not decide on consensus rules - users participate in the network precisely by choosing for themselves which software they will use.

Developers have influence, but they cannot order anyone to do anything

Developers naturally play a very important role in Bitcoin's further direction. They fix bugs, improve the software's efficiency and come up with new features. Their position is nevertheless different from that of programmers working on a conventional commercial application. They can create a change and offer it to others, but they cannot force the network to start using it.

More significant proposals concerning Bitcoin often go through the Bitcoin Improvement Proposals system, known by the abbreviation BIP. This is essentially a standardized way of publicly describing a proposed change, how it works and what its technical consequences are.

Creating a BIP, however, does not mean anything has been decided. The current process rules for Bitcoin Improvement Proposals explicitly point out that a BIP does not automatically represent the consensus of the Bitcoin community or a recommendation to implement the given change. Some proposals may be adopted, others may remain on paper only. There is no committee or other formal decision-making body with the authority to declare that a particular proposal becomes a mandatory rule for the entire network from a given date.

Developers can therefore say: in our view, this is how Bitcoin could work better. But then they must convince the other participants in the ecosystem that the change is worth adopting.

Miners secure the network, but they do not control it either

Miners also hold a strong position. Their equipment expends computing power in the Proof of Work process, creates new blocks and decides, for instance, which of the pending valid transactions to include in a block. Without miners, Bitcoin in its present form could not function.

That does not mean they can arbitrarily change its rules. Imagine, for example, that a miner created a block and credited themselves with a larger quantity of new bitcoins than they are entitled to under the applicable rules. They can broadcast such a block to the network, but during verification full nodes will mark it invalid and reject it.

Miners therefore create blocks, yet they have no automatic authority to determine what constitutes a valid Bitcoin block. The network derives that from the rules by which individual nodes verify blocks. Likewise, the sheer amount of computing power does not give a miner the ability to unilaterally raise the maximum number of bitcoins or change other fundamental properties of the protocol.

In some cases, miners use the blocks they mine to signal support for proposed upgrades, which can help with their activation. Even this mechanism, however, does not mean that miners function as Bitcoin's parliament and simply vote on its future.

Node operators do not have a simple voting system either

From this it might seem that the real rulers of Bitcoin are full node operators. But it is not that simple either. Bitcoin does not work on the principle of "one node, one vote". If it did, anyone could spin up thousands of new nodes and obtain an apparent majority.

In practice, the broader economic consensus therefore matters more. Alongside node operators, users, miners, exchanges, wallet providers, merchants, payment services and financial institutions all contribute to it indirectly. Should a fundamental disagreement arise and part of the network begin using different rules from the rest, the blockchain may under certain circumstances split.

This is where the terms soft fork and hard fork are commonly used. A soft fork represents a tightening of the rules in a way that can preserve compatibility with older software versions. A hard fork, by contrast, permits blocks or transactions that would not have been considered valid under the previous rules, and may therefore lead to the emergence of two mutually incompatible networks.

At such a moment, technology alone is no longer decisive. Economics starts to play an important role as well. Which asset will exchanges label as BTC? Which network will wallets use? Where will the users, capital, developers and miners remain? The mere ability to create a different version of Bitcoin does not mean the market will actually regard it as Bitcoin.

The 2017 dispute showed how difficult consensus is to find

This is clearly illustrated by one of the largest disputes in Bitcoin's history. In 2017, a group of prominent companies and miners supported a plan known as SegWit2x, which was to include an increase in Bitcoin block size via a hard fork. The project had significant backing among some large firms and mining pools, yet part of the developer and user community opposed it.

In the end, the planned hard fork never took place. Its organizers announced a few days before the scheduled change that they were suspending the plan, because sufficiently broad consensus had not been achieved.

This episode neatly demonstrated why it is difficult to identify a single "ruler" of Bitcoin. Even support from a large part of the mining industry and from major companies was not enough on its own to make a controversial change automatically become the new standard.

Could anyone raise the 21 million bitcoin limit?

For an investor, the most interesting question is probably whether one of Bitcoin's most famous properties - the cap on its total supply at roughly 21 million coins - could be changed in the same way.

Purely technically, this parameter can be changed. Bitcoin is software, and a programmer can create a modified version of it allowing the creation of, say, 22, 30 or 100 million bitcoins. That still does not mean they have increased the supply of BTC used by the current network.

Existing nodes would reject blocks creating more bitcoins than their consensus rules allow. For a higher maximum supply to take effect across the network, the change would therefore have to be adopted by a sufficiently significant portion of the Bitcoin ecosystem. If one group insisted on the current rules and another adopted a new monetary policy, the result could be a split of the network into two distinct assets.

And this brings us to perhaps the most important protection of the 21 million bitcoin limit. It is not immutable because the number 21 million cannot be edited in the source code. It is resilient primarily because network participants have a very strong economic motivation to preserve Bitcoin's current scarcity.

A holder who owns BTC partly because of its limited supply may have an interest in maintaining the 21 million cap. If part of the community created a new branch with higher issuance, the original network with the 21 million limit could carry on. The market could then, through the price and usage of both assets, show to some extent which version it values more highly.

Bitcoin is neither a company nor a conventional democracy

Simple analogies therefore fail when explaining how it is governed. Bitcoin is not a company, because it has no chief executive, owner or board. It is not a state, because it has no government or parliament. And it is not a conventional democracy either, in which every BTC holder would receive a number of votes corresponding to the coins in their wallet.

It is more accurate to understand Bitcoin as a network founded on a set of rules voluntarily accepted by a large number of independent participants. Developers can propose and program changes, miners create blocks and secure the blockchain, full nodes check their validity, and the entire economic ecosystem, through its individual decisions, influences which version of the network is actually used and what economic value is assigned to it.

None of these groups holds absolute power. Developers cannot push through their new software without users, miners cannot force nodes to accept invalid blocks, and a node operator alone cannot determine what economic value the network whose rules they have chosen will have.

Why should an investor care?

At first sight, the question of Bitcoin's governance may look like a technical detail, but in reality it relates directly to its investment thesis. A shareholder must reckon with the possibility that company management may issue new shares, change strategy or make a poor acquisition. A holder of a conventional currency, in turn, has no control over how a central bank will set monetary policy in the future.

Bitcoin differs from these models in that changing its most important consensus rules does not depend on a decision by a single management team or authority. It requires substantially broader agreement among various network participants who may not share the same interests.

Nor does this system guarantee, of course, that Bitcoin will never change or that its community will never fall into conflict. On the contrary, past disputes show that reaching consensus can be difficult. What matters for an investor, however, is that there is no single person, miner, developer or company who could decide in the morning that Bitcoin will operate under different rules by the afternoon.

The answer to the question of who runs Bitcoin is therefore unusually complex: no one, and at the same time, to a certain extent, everyone who takes part in its operation. Developers can propose changes, miners can support them, node operators can accept or reject them, and users together with the market ultimately influence which version of the network they assign economic value to.

The absence of a single boss is not a shortcoming of Bitcoin. On the contrary, it is one of its defining characteristics.

The content of this article is for informational purposes only and does not constitute investment advice or a recommendation to purchase any specific asset. Investing in crypto assets carries a high level of risk. The value of crypto assets can fall as well as rise, and you may lose the entire amount you have invested. Crypto assets are not protected by deposit guarantee schemes. Past returns are not a guarantee of future results.