The most important socioeconomic work of this century is the Sci-Fi show Battlestar Galactica (the reboot). The premise of the show is that a small fleet consisting of spaceships, representing the last batch of humanity, is on the run from evil robots. One episode revolves around the fleets black market, after its inner workings has led to the death of a high ranking military officer. The president of the colonies, reactionary as political leadership naturally is, demands the black market to be stomped out, so she sends her military confidant Captain Adama to investigate and enforce her new “zero-tolerance” trade policy. Captain Adama quickly discovers, unsurprisingly, that soldiers and government officials are depending on the black market for basic necessities: fruits, booze and of course medicine, which puts him in a bit of a pickle: on the one hand, he has to stomp the black market out, on the other hand, the black market serves a crucial role within the fleet. At the end of the episode, Adama confronts the ringleader of the black market in an epic showdown. Fisk, the ringleader – personified black marketn–, explains to Adama that without him, the fleet would simply collapse. Black markets, he elaborates, are a pressure valve; distribution of scarce goods to those who are in need and are willing to pay the price (often beyond a monetary one). Adama carefully listens to Fisk's economic rationale, and then he shoots Fisk in the head. Womp womp. But why? Why was Adama not convinced by free market economics I hear you ask? Was he a communist? The black market overstepped. It sold certain “goods” which society deems to be highly immoral and, in relation to this episode, rightfully so.

Bitcoin isn’t nearly as rebellious as many like to think. It generally only upsets the most ambitious despots and is within the bounds of what states, the democratic ones at least, would deem a tolerable grey area, because even the state might grow accustomed to it as a necessity: pay off a spy in a cigar-smoke filled room, rent servers anonymously or infiltrate darknet markets.. you get the idea. It's not a question of economics nor a question of property rights but a question of what the state deems to be in good and bad taste. It’s a question of morality. Anyways, back to spaceships. When Adama reports back to the President with news that the black market will continue to exist, she is furious that her policy is not imposed. Adama explains to the President that he now knows names and made boundaries clear, since he imposed the new ringleaders himself. Get it?

Many bitcoiners and critics alike think that the state and bitcoin are in stark opposition to each other and one must give way to the other, therefore, the state will crush bitcoin and vice versa. But a smart government, the Captain Adama of governments, would allow it to exist under its control. We know of one such controlled black market already: Ethereum. All it took was, exactly like in Battlestar Galactica, one bullet (figuratively) and the black market conceded into a permissioned existence, in which the ringleaders adhere to the what the state deems to be in good and bad taste — North Korea laundering money clearly being on the “bad taste” side of things. The reason to why bitcoin has not yet went down this path is most likely twofold: a) it's a bit more costly; one press release by a three letter agency and one arrest wont do, and b) bitcoin is highly transparent already and serves the state as an effective surveillance machine, insofar that even three letter agencies advocate for it not to be outlawed.

Bitcoins “incentive model”

Public discourse around Bitcoins decentralisation almost exclusively is about its “security”. What is meant by security is that the transactions are not to be tempered with, meaning the blocks have integrity in that there is no funny business going on. Security is, in a sense, backward looking and breached once something is settled which shouldn't have been. It is also binary: either bitcoin is secure or it’s not. On the other hand, censorship is forward looking, meaning that it’s a preventive act. This is a statement of fact: a transaction 10 blocks ago can not be censored. Censorship however is not binary and comes in different flavours.

General consensus around this topic dictates that for-profit incentives, often disguised as “bitcoins incentive model”, are a core mechanism for both security and censorship resistance, therefore, this is a non-issue; the distinction unimportant, and or if either becomes an issue, the free market will naturally work it out, turning it once again into a non-issue. We see how quickly one has left the room of computery-sciency-security-models and finds oneself accompanied by economic and political beliefs. While the argument makes sense on paper, that miners naturally have no incentive to censor the blockchain due to their profit-seeking behaviour, there could be absolutely no state intervention on bitcoins for-profit incentives or any such intervention would effectively be an attack on the networks incentives, since its permissionlessness is purely based on profit-seeking and economically rational behaviour. Further, it seems to me, obviously so, that the energy market is one of the most heavily tinkered with markets we know of; an afterthought of geopolitics and state policy left for a select few to “trade freely” with each other while under constant threat of nationalisation in times of crisis. No, saying the words “jurisdictional arbitrage” does not get you out of this pickle, sorry!

Bitmex Research tested the economic incentive of censored blocks and found that uncensored blocks yield a higher “fee-return” for miners (naturally). So, if a state coughs up the spread between censored and uncensored blocks, or even pays a premium to within-jurisdiction-miners, is a profit oriented company to decline this handout and effectively deny profits? What if this offer is made to a mining pool, will miners flock away from these higher profit margins? Would that not be what profit-seeking behaviour demands, for blocks to be censored if doing so is more profitable? Does it matter if the incentive is “on-chain” or “off-chain”? And if there would be a premium sourced via public money, must then not all miners flock to this single jurisdiction by their inherent profit seeking need? Arguing that bitcoin can only exist within a certain set of economic principles, or even worse, depends on them, is a highly bearish proposition. It is unfortunately favourable to this nonsensical proposition insofar that bitcoin has only been brushed off by jurisdictions, rather than pulled in. Fleeing a jurisdiction, however, because one is no longer allowed to legally exist is hardly considered profit-seeking behaviour – please, listen to yourselves. Even more absurd was one attempt by a public company to censor blocks on their own dime. Surprisingly, this irritatingly pointless attempt is what many see as a proof of their belief that indeed profit-seeking behaviour is a fail-safe mechanism. Rational thought dictates that for-profit behaviour can lead to censorship, therefore, it makes no sense to propose that it is the sole means through which bitcoin can stay permissionless.

Bitcoins decentralisation is of purely abstract nature, not proof of rightness of free market incentives in contemporary capitalism, which more than ever is dictated by ever growing regulation and incentive-tempering. To argue that within such an economic system, bitcoin's only chance of survival is to stay pure of poisonous but lucrative state-handouts and beg in front of supreme courts means to have conceded on bitcoins core ethos in favour of mainstream political ideology.

Businessmen, they drink my wine Plowmen dig my earth None of them along the line Know what any of it is worth