A New Separation of Powers

People are fallible. We make mistakes. Sometimes, for personal gain, we also deceive. For these reasons, if anyone has too much power over the lives of others they could do a lot of harm.

America’s founders knew this. And for these reasons they did everything in their power at the time of its founding to prevent any one person, group, or institution from having too much power. They clearly separated the power to write laws, legislative power, from the power to pass laws, executive power, from the power to interpret and enforce laws, judiciary power. They called each of these compartments separate branches of government.

If you think about it, that branching was an attempt at decentralization. It was an attempt at eliminating a single, central point of failure should any of these branches err, become deceitful, or be corrupted. No one of these institutions sits atop the other two. Each operates independently. This design was chosen to prevent corruption through having each branch serve as a check and balance on the others. This, coupled with the principles of individual rights spelled out in the Bill of Rights, led to the United States of America achieving unprecedented success, abundance, and stability. The idea of separation of powers was widely imitated throughout the free world, albeit with many variations and compromises.

Does this separation of powers still protect us in the way it was meant to? We now have a very big government — much bigger and much more powerful than at the outset of the nation. At the federal level alone, government spends and collects trillions of dollars a year, with hundreds of billions of dollars of difference between what it spends and what it collects.

The legislation we see put forward includes “omnibus bills” which are typically over 1,000 pages long and nearly impossible to be read in full by any member of either the legislature or the executive branches. These are often drafted hurriedly, under the auspices of an urgent need to get the legislation passed. The checks and balances get compromised.

We see executive orders, which are not technically legislation, yet nevertheless, they do order individuals and the federal government to obey and enforce those orders. It was, after all, executive orders alone which confiscated gold in 1933 and closed the gold window in 1971.

We see very powerful government agencies employ former executives from the industries they are meant to have oversight upon. And we also see the reverse — former regulators receiving powerful positions at these companies. This casts doubt on the incentives and goals of these individuals. Are they watching out for your interests, or theirs and the corporations they work for?

We see politicians enter public service and become incredibly wealthy right after leaving office, or sometimes even while still serving. Again, doubts are cast about who they serve.

We see campaign contributions in the tens of millions of dollars, and even higher total campaign donations for the most powerful positions in the land. Are we to believe that there are no strings attached to these donations?

We see billions of dollars spent on lobbying politicians to craft and pass legislation.

And we see many other questionable practices and outcomes that cause many of us to doubt if the systems meant to protect us from corruption are working as well as intended, or even at all.

For many of us who are educating ourselves about the idea of sound money and the benefits and protections it brings, we see lots of other problems too, like the Cantillon effect, inflation, the Triffin dilemma, and more.

All of the above problems have emerged over time despite the protections of the separation of powers and the Bill of Rights. It’s hard to say if these are getting worse, or if we are merely repeating cycles where they worsen and later improve. This is partly because the scale of government is now so large. At present, the situation is not good. Will it self-correct, or are we past a point of no return? Only time will tell.

Bitcoin isn’t trying to do everything a government does. However, in one sense, it is trying to prevent anyone from doing some of the things governments now do but perhaps ought not to do. Back when the nation was founded, the idea that the government itself (or some organization granted monopoly power by the government to do so) should be in control of the supply and price of money would have flown directly in the face of the idea of having checks and balances on power. Nonetheless, in 1913, by an act of legislation, The Federal Reserve System, America’s central bank, was founded.

Only sixteen years later, in 1929, and lasting for a decade, America experienced an event known as the Great Depression. This was an event that saw total output drop by 30% and unemployment rise to 25%.

Unsurprisingly, historians disagree about the role government and the Federal Reserve had in the creation, duration, severity, and length of the great depression. (This article will not attempt to settle that debate.)

Bitcoin’s greatest innovation may ultimately be seen to be a political one. The approach of the architects of our government was to limit and separate the power individuals could be granted. Unlike that approach, Bitcoin does not grant different powers to different individuals. Bitcoin is a system in which no person has any power over anyone else. The only powers Bitcoin grants to anyone, it grants to everyone. It distributes power equally, over everyone.

What a strange form of governance. There is no leader. There is no governing body. Let us explore how Bitcoin’s governance model maps on to the familiar one of three branches — legislative, executive, and judicial.

What are Bitcoin’s laws? You’ve likely heard the expression “code is law.” Bitcoin obeys the code that its programming executes.

So who can propose new laws? That is, who can propose new code? It turns out the answer is anyone. You can. I can. People who have very deeply studied Bitcoin, cryptography, economics, and the history of money can. Bitcoin’s enemies can too. It’s important to be very vigilant.

We’ve all heard that Bitcoin is very hard to change, but that’s not because it’s hard to propose changes. In fact, the opposite is true: Nobody can be prevented from proposing changes to Bitcoin. We are all granted that power.

As Bitcoin is “free open source software, ” anyone can propose, test, try, and explain any proposed change. But proposing something is very different than implementing it.

Most people won’t bother proposing changes because they don’t have changes to propose. They’ve come in to Bitcoin because they like it as it is, including liking how hard it is to change. But for those who do propose changes, they quickly learn, if they didn’t already know it, that getting past the “executive” branch of Bitcoin is no simple task. It may in fact be one of the hardest tasks in the world.

If code is law, then it is running code that enacts that law, giving it executive approval. You’re literally having your computer “execute” code.

Take a few seconds to think about that. You are executing code the entire time you run Bitcoin. You are passing the laws of Bitcoin through your node the whole time, just as others are executing the exact same laws, or code, as well.

And who can execute code? Once again, it’s anyone (with a computer at least). You can run a node, and so can I, and so can everyone else listed in the example in the section above. And the same goes for running a wallet, or a miner, or even Lightning Network nodes and wallets.

Any changes to Bitcoin’s foundational laws — known as its “consensus algorithm” — are changes that the entire network must agree on entirely. That’s what consensus means after all: “Acceptance By All.” That’s a very tall order — much taller than a majority. Not only that. If a change is to be made to the consensus algorithm, it must be activated simultaneously, by everyone, everywhere, all at once. It is for this reason that Bitcoin sees very little change.

Only two of these consensus changes have happened since 2017.

The first of these, known as SegWit (short for segregated witness) took years to agree on, and almost did not activate. Its activation — its execution — became a battle for consensus that wasn’t resolved until significant debate, negotiation, and finally, ultimatums took place. In Bitcoin’s history, the activation of SegWit is the most important event in what is known as “The Blocksize War.” An entire book has been dedicated to this event. I also wrote a personal, dramatized memoir of this event on its fifth anniversary for Bitcoin Magazine.

The “executive branch” of governing Bitcoin is one where it is exceptionally hard to make any controversial change that will affect the network — and just about any change is likely to be viewed as controversial. This is because anyone executing a change for themselves that is not also executed by all the others will find themselves running something that others do not call Bitcoin. (Indeed, one result of the above-mentioned “blocksize war” was that something different forked off from Bitcoin. It was called “Bitcoin Cash” by those who endorsed it, and “BCash” by those who didn’t. But by any name, it was not Bitcoin, and where one of its coins was once worth as much as 23% of a bitcoin, they are now worth around 0.6% of a bitcoin — a loss of 97.4% of its value since those controversial times.)

Let us now compare this approach to executive power with that of a nation such as the United States. Here in Bitcoin, we are each our own executive branch. We each can execute whichever code we choose. There is no one single president to whom we have all delegated executive power. Instead, if we choose to execute different laws, we live in a different system altogether. If that happens, it is like an alternate universe is created, with different laws of physics introduced at the time someone began executing the new laws — a universe completely and forever cut off from the one in which the original code is executed. Consider if you were in a chess tournament, and someone suddenly moved a pawn diagonally across the entire board knocking over all the opponents pieces and declaring victory while saying “This is the real chess!” They could try it, but hardly anyone would be calling it chess even if this person held tournaments. They simply would not be in consensus with what everyone else agrees to be the rules of chess. And they couldn’t come back later claiming to have been the world chess champion.

This is why we haven’t had thousands of versions of Bitcoin fork off without anyone knowing which the real one is. There is a very fundamental consequence for executing different rules. That consequence is no longer being part of the system that others do execute and value. We’re either all running the same rules, and all in it together, or we’re not all executing the same rules. Those executing different rules are part of a different system. This has been tried, of course, as in the case of Bitcoin Cash, and it keeps on failing to hold any lasting value, so it does not get tried much any more.

This tradeoff of being allowed to execute whatever you want for yourself, but being able to impose it on nobody else is a very different one than abiding by the results of intermittent democratic elections. The incentive to agree to the same rules in Bitcoin is massive. And the ability to change the rules requires consensus, not a simple majority.

Also consider that every minute of every day starts with the rules that everyone agreed to the minute before, and to change the rules you need everyone’s computers to make the same rule changes at the exact same time. So again, it’s very hard to change the rules. Not impossible. But it is very, very hard.

If we pause to think about it, perhaps one of the biggest problems with our current system of government is that it is in fact too easy to change the rules. Perhaps that’s what politicians do way too much of. It isn’t hard to make this case. Whereas very few proposals to amend Bitcoin come forward, at the time of writing, Congress put forth a 4,100-page long “omnibus” bill, with hundreds of new rules, costing $1.7 trillion dollars. And the president (the executive), said he would sign this bill into law the moment it hit his desk. Now that sounds like a much easier process to get executive approval than in Bitcoin — perhaps one that’s far too easy and doesn’t achieve what the separation of powers was meant to.

In government, laws must be both enforced and interpreted. We tend to separate these two powers as well. The police attempt to enforce the laws. If they see someone doing something they interpret as breaking the law, they lay charges and make arrests. Later, in a court, with legal representation in an adversarial system of prosecution and defence, a judge (or judges) rule on whether or not a law was violated and what the consequences of violating that law should be.

However, whereas government-passed laws can be broken, the rules of Bitcoin cannot be violated. The execution of Bitcoin’s code — its rules — simply rejects any action which violates those rules. Running the rules on a computer prevents those rules from being broken. Put another way, executing code enforces the rules inviolably.

Bitcoin is an extremely strict system. There is no looseness, no ambiguity, and no “room for interpretation” in its rules. You either obey them, in which case the system accepts your actions, or you fail to obey them, and the system ignores your actions.

For example, if you want to transact bitcoin, your transaction must spend only unspent money; it cannot spend more than that unspent amount; it must spend to valid destinations; and, hardest of all, it must contain an unforgeable, cryptographically provable, digital signature (or something similar for other types of valid transactions).

Similarly, if you are trying to add a block of transactions to Bitcoin’s records, then every one of the transactions in that block must adhere to the same rules above. Every block must contain, among a few other things, a header that contains the prior block’s fingerprint (its ‘hash’) and corresponds to Bitcoin’s proof of work threshold at the time it is submitted (i.e. that this new block’s hash is below a target value, which itself is determined by data in the prior blocks, so everyone arrives always at the same threshold).

(If you want to learn more about these topics, there are lots of resources, and I’d recommend Yan Pritzker’s book, Inventing Bitcoin, which you can get for free from Swan’s website.)

Every piece of information that attempts to enter Bitcoin is first screened — i.e. judged — for 100% complete compliance with these rules by 100% of the nodes running Bitcoin. This is enforcement through careful judgment before any act is permitted to be “committed.” We, therefore, do not need large police forces in Bitcoin to “walk the beat” looking for rule-breakers. We don’t need jails, we don’t need courts, and we don’t need human judges. The “code is law” principle means we can delegate the enforcement of these inviolable laws to computers.

This brings me to my final point: The judicial branch of Bitcoin is not a human branch. It is based entirely on mathematical laws that can be judged quickly, strictly, and flawlessly by computers. And, let’s also recall the executive branch is a delegation to computers as well. The computers are executing the code that we have decided to let them execute.

The executive and judicial branches are inseparable in Bitcoin. So, has it failed to separate powers then, making the system more corruptible? No. In fact, what we must realize is that the crafters of government separated powers in the first place because it was people who we couldn’t trust. But in Bitcoin, we have separated power altogether from people!

We do not need to trust people who might breach that trust, and so we do not need to create separations to serve as checks and balances.

And, although Bitcoin has achieved this incorruptibility only in the domain of money, that is still a monumental achievement because of the importance and size of money.

As I wrote in another article, The Legendary Treasure of Satoshi Nakamoto: