In 2008, an enigmatic figure by the name of Satoshi Nakamoto devised a blockchain ledger, leading to the creation of what we now call Bitcoin. Satoshi claimed to have developed “an electronic payment system based on cryptographic proof instead of trust”, an alternative that relies on technology, not banks and governance.

It’s hard to emphasize just how influential Bitcoin (and cryptocurrency in general) has grown in the relatively short timespan since 2008 — but can it truly survive in the long term without any governance? Some researchers are starting to doubt it.

Several cryptocurrencies (coins and tokens) have risen and fallen since the launch of Bitcoin. Promising to revolutionize the financial world and usher in a new age in transactions, these cryptocurrencies (crypto meaning “concealed” in Greek) have mushroomed over the years, with Bitcoin towering above them all.

In the past four years alone, the value of one Bitcoin has gone from around $700 up to $14,000, down to $2,700, and as of 2021, well above $55,000. It’s one wild ride, but overall, Bitcoin has surged, making a lot of people rich in the process.

The thesis behind the idea of Bitcoin (and blockchain in general) fits with a decentralized, self-governing system. The decentralization of currency transfer offered by Bitcoin has its theoretical roots in the Austrian school of economics, and was eagerly embraced by the libertarian-heavy ranks of Silicon Valley.

Many in Silicon Valley see Bitcoin (and in the grand scheme of things, cryptocurrency in general) as a way to use computerized solutions to create a functioning society without empowering a centralized authority — the lack of transaction costs is another added benefit. But some also researchers see a surprisingly dangerous chink in Bitcoin’s armor: software updates.

Benjamin Trump (ORISE Fellow, United States Army Corps of Engineers) published a recent study analyzing the challenges of many cryptocurrencies and the challenges that threaten their long-term success. He found that a lack of governance is chief among them.

In the study, Trump looked at 800 publicly acknowledged software updates — or as they’re sometimes called in the cryptocurrency world, “hard forks” — radical changes to a network’s protocol that makes previously invalid blocks and transactions valid, or vice-versa.

These forks can disrupt the Bitcoin system, causing people to lose trust in it, and in the long-term, making it hard to survive for cryptocurrencies.

“Hard forks are a threat to maintaining a stable and predictable operating platform that is essential if cryptocurrencies are to be adopted for daily financial transactions,” says Trump, who sees such increases in hard forks as a hurdle to mainstream adoption of selected cryptocurrencies.

Since the early days of Bitcoin technology, several blockchains have emerged from the initial Bitcoin network. Many didn’t make it past a few months. A few (like Litecoin or more recently Dogecoin) not only survived but are thriving. But if Bitcoin is to maintain a global level of recognition, stability, and reliability, it needs a predictable way to deal with challenges such as hard forks — and the best way to do that would be through good governance.

A subsequent 2019 study comes up with a similar conclusion. The study starts from the world of Nobel-winning economist Elinor Ostrom, which also somewhat addresses what form this governance could take. After all, in addition to the logistics of it (which are bound to be a nightmare), direct governance would go against the very ideals of cryptocurrency. But there may be ways.

In Governing the Commons: the Evolution of Institutions for Collective Action, Ostrom developed a series of empirical studies on groundwater basins. At first glance, groundwater and cryptocurrency have little in common, but the idea is to provide a framework of management of common-pool resources. But according to the 2019 study, such a model wouldn’t be enough for Bitcoin, and external governance (and transparency) would still be required. The author concludes:

“Hashing power is concentrated in mining pools. Providers of processing services are more concentrated and less transparent than the Bitcoin-design suggests. Providers of financial services are subject to several failures. Multifarious users may game cryptocurrency ecosystems to (illegally) reap benefits. Although organizations behind peer-to-peer networks may enforce improvements on incentives and governance, regulation and supervision by external institutions are desired. Without strong external regulation, cryptocurrency may resemble Veblenian (predatory) markets.”

Ultimately, one of the things that sets Bitcoin apart from conventional currencies like the US dollar is precisely that no one manages it. It’s “free”, “transparent”, and “unregulated”, and that’s what makes it cool and desirable to many. That’s also what makes it attractive as a way to reduce corruption.

But at the very least, Bitcoin should somehow address its growing climate impact. Everything from mining Bitcoin to selling it consumes energy, and that energy is already on the scale of a small country, making some critics fear that Bitcoin is actually a climate threat. How Bitcoin could account for its negative externalities without any external regulation is hard to see. But how Bitcoin could survive being managed by external hands is just as questionable.