Softwar or Limpwar: How Likely is it that Nation-States Will Engage in Hash Wars?

Hash Wars

TLDR Jason Lowery’s thesis that nation-states will become engaged in an arms race to mine Bitcoin, is causing quite a stir. He presents his tantalizing thesis in the book Softwar. He is challenged by Micah Warren, who questions the likelihood and desirability of such an outcome. He argues that Lowery’s interpretation of proof of work is flawed and that the current game theoretic equilibrium of corporate miners hashing it out won’t translate to nation-states level competition. 

Major Jason Lowery (member of the US Air Force and MIT Graduate) envisions a path towards hyperbitcoinization. In such a world, where Bitcoin is the world reserve currency, the only logical choice for countries would be to engage in a peaceful arms race, mining as much Bitcoin as they can.

Let’s first have a look at Lowery’s view and then discuss his challenger’s.

Softwar: Bitcoin as a Matter of National Security?

A pillar of Lowery’s thesis Softwar: A Novel Theory on Power Projection and the National Strategic Significance of Bitcoin is that Bitcoin is digital property that will be fought over in an arms race between countries. That’s why in his view mining Bitcoin is a matter of national security. Being a Major in the airforce, he is allegedly in talks with government officials about this topic.

In his view, mining secures blockspace, in the same way that a navy or an air force secure maritime and air thoroughfare. A nation’s ability to protect its access to its money and data will be vital to its autonomy. 

Proof of work protects cyberspace
Jason Lowery’s view summarized in one image

In Lowery’s view, Bitcoin’s use case goes beyond peer-to-peer online cash. Block space can be used to secure all kinds of data (the recent Ordinal NFTs and BRC-20 tokens on Bitcoin are an example of this). Maybe online cash was just the first use case? Lowery argues that many technological inventions, like gunpowder and airplanes, were initially used for different purposes. Gunpowder wasn’t called gunpowder by the Chinese – who invented it for medicinal purposes. That airplanes would have military significance seemed equally unthinkable when the Wright brothers let their rickety plane bounce off some fields.

Only later did armies realize that these inventions had a purpose. Lowery sees the same happening for Bitcoin: it will move from the use case of electronic cash to ‘digital warfare’.

Power Projection in Nature and Proof of Work in Bitcoin

Lowery goes to great lengths explaining how in nature, the use of physical power (‘power projection’), determines who owns what. Animals use physical power to battle over territory. It’s fitting that the ‘(block)chain of ownership’ in cyberspace is also determined by energy.

Softwar critique
The cover of Lowery’s impressive book

According to Lowery, the fact that energy (power) must be used to secure Bitcoin makes the protocol superior to proof-of-stake protocols, which only use abstract power structures (software) to protect the network. According to Lowery, that’s a brittle, ‘logical’ shield that won’t hold when push comes to shove.

Hashing Compared to Deer Fighting with Antlers 

The hash wars are a new form of war: a non-violent battle for territory in cyberspace. Instead of mutually assuring each other’s destruction in a nuclear war, nation-states could compete for ‘online territory’ by building out the largest possible mining facilities. In this sense Bitcoin mining functions like a deer’s antlers: it allows us to physically battle it out without wounding each other. A beautiful analogy.

Reactions to Softwar From the Bitcoin Community

Two months after its launch, the bulky book is an Amazon bestseller in its category. But the reception of Lowery’s ideas has been mixed. While he has been a guest on respected podcasts of Anthony Pompliano and Preston Pysh, he has received fierce pushback from Bitcoin OG’s like Saifedean Ammous and Max Keiser. 

This is ironic, considering this like-minded passage in Ammous’ The Bitcoin Standard:

“Bitcoin is an ingeniously efficient technological workaround for the political conflict that has been the hallmark of fiat. Instead of having the work done on battlefields, Bitcoin front-loads the work… “

The most detailed rebuttal of Lowery’s work I could find comes from mentioned Micah Warren.

Softwar Critique by Micah Warren: Bitcoin is Not Digital Warfare

Micah Warren, who is sometimes publishing (and ‘shitposting’) under the pseudonym Achim Warner, is an associate professor at the University of Oregon. He has written more than one publication about Bitcoin. His previous publication is Bitcoin: A Game-Theoretic Analysis.

He wrote a short book (or long essay) teasingly called Limpwar (free pdf, or buy here for 3 bucks on Amazon). He doesn’t believe Bitcoin mining will be a non-violent proxy for war. Even though he doesn’t mention Lowery and doesn’t present his book as a Softwar critique, he is clearly referencing Lowery’s understanding of proof of work. Warren can see no game theoretic path to countries opting into Bitcoin en masse. His conclusion is that Bitcoin functions well as an alternative to monopolized money, but won’t function as well as the reserve currency. The game theory of an arms race, leading to a stable stand-off, won’t apply.

Softwar critique: Limpwar
Micah Warren’s critical essay is thoroughly written but has a deliberately (?) crappy cover. On the back cover is a photo of his dog.

Warren: “Leaders have ample tools at their disposal. Bitcoin is for those who are neither leaders nor followers. […] Bitcoin is designed for those who may not have better options for transacting or storing value or doing finance, not as a weapon of domination.”

Softwar Critique #1: Game Theory Between Nations Plays Out Differently

According to Warren, nations aren’t forced to opt-in participating in Bitcoin mining. Unlike an arms race over the control of a country, an arms race over blockspace gives players the choice of not playing the game or playing a different game.

These options are not available in wars over land. To put it bluntly: you can’t fork off land in ‘meat space’.You will have to fight over it or die. But you can fork off a new blockchain if you don’t like your odds in the hash wars.

According to Warner, the current dynamic between corporate miners – competing but with aligned interests – is an equilibrium we won’t see when nation-states would become miners. He gives a few scenarios which would lead to a ‘permissioned’ form of Bitcoin. In which a certain group fences off its miners and deems these miners the only valid producers of blocks.

Scenario 1: 51% Attack and Fork

The first scenario is where nation A is 51% attacked by nation B, a nation that formerly hadn’t adopted Bitcoin (to be honest, Warner makes this hypothetical attack come across as more feasible than it would be in practice. It would be a huge operation). If the threat is real, Nation A could fork a version of Bitcoin which invalidates blocks that are mined by nation B. This harms Bitcoin as a permissionless global monetary system.

“What would happen if China monopolized the Bitcoin blockchain? US users could abandon Bitcoin, could continue to use it, or could develop an alternative that doesn’t 100% rely on pure proof of work. […] The miners come to an arms agreement about hashrate reduction, slowly winding costs down so that costs become minimal and profits are huge.”

This threat isn’t as real with corporate miners. They all have a shared business model and after their primary interest of keeping their business afloat, number 2 priority is to keep Bitcoin intact. Nation-states, on the other hand, have different starting points. For example, nation A is mining, nation B not (yet). This creates a disequilibrium that is not as stable as the current corporate mining situation.

Scenario 2: WEF Approves Only Certain Miners

Let’s look at another scenario in which the system is not as stable. Imagine a ‘hyper-bitcoinized’ world where Lowery’s vision has played out. Every country is happily mining, people use Bitcoin all the time. The security budget burned by miners is 300 billion dollars per year.

“Now suppose in this super bullish scenario, in the following year, at Davos, the bankers get together and say “look, there’s $300 billion of fat we can trim, this is money we’re paying to settle transactions with each other, but we all know each other. We’re financial disruptors, we can solve this.” They also own stock in all the mining corporations, or are the mining corporations themselves. They then issue a statement that as of next November 1, Bitcoin will be only mined by a list of permissioned miners, chosen by the good folks at Davos.”

These two scenarios point out that there are continuous pressures on Bitcoin to be forked to a permissioned system. Either because of competition or because of collusion. Such a fork would break the ‘softwar’ equilibrium of everyone jointly mining in a happy competitive spirit.

“Disputes happen, wars happen, tension elevates. But this would not escalate in the sense that world powers would be increasing their hashrate to show force, they would be using traditional diplomacy, shoring up alliances, shaking hands, marrying princes to princesses, etc. It’s a political war just like it’s always been, but now any colluding interest with enough hashrate can shut down the blockchain at will.”

The current use case for Bitcoin is its alternative to the fiat system. It’s ‘outside money’. When the fiat overlords would move to a Bitcoin standard, it would put pressure on Bitcoin to become a permissioned system just like the current fiat system. It will become ‘inside money’. I think this is a fair thought by Warren, even though the game theoretic landscape is a difficult one to think through. The powers that be won’t move to Bitcoin unless they can wrest control over it.

Softwar Critique #2: Proof of Work is Not Needed for Permissioned Systems

Warner wonders if Lowery shares the same vision of proof of work as him. Lowery presents proof of work as the protective fence around software and this is a tantalizing thought: this is how Bitcoin is anchored to the real world. After reading his chapter Power Projection Tactics in Cyberspace you would almost conclude that cyber security is extremely brittle without proof of work: ‘Not being able to physically restrain computers is a major systemic security vulnerability.

But Micah Warren reminds us that the cryptography aspect in crypto (duh) is crucial here. No miner or mining pool can steal my BTC, no matter how much hashforce they deploy. Proof of work is only a mechanism to settle disputes in case of a double spend. It doesn’t determine the validity of a transaction. It doesn’t safeguard anyone’s private keys. 

Warner: ‘The main security mechanism at play in software is cryptography. Cryptography does not rely on proof of work. Proof of work is no more than an arbitration mechanism to determine an absolute order of transactions. It is not something that can create or revoke valid cryptographic signatures.’

Indeed, as Warren points out, the Bitcoin-inspired social network protocol Nostr doesn’t use proof of work. It does use cryptography though, which ensures that you own your own content (‘notes’).

It is good to remind ourselves why proof of work was thrown into Bitcoin’s protocol. Prior to Bitcoin, proof of work functioned as an anti-spam measure. For example, an early proposal to discourage spam mail involved proof of work. If sending an e-mail comes with a (tiny) cost – let’s say one cent – ordinary users will be fine with this but senders of spam mail in bulk won’t be profitable anymore and simply not participate.

So, proof of work can have a function in permissionless (or: un-permissioned) systems, as it has in Bitcoin. If makes it possible to allow anonymous users to a network. 

But nation-states can safeguard their money and information without proof of work, argues Warner. In a permissioned database, where it is clear who is allowed and who is not to get access, proof of work makes not a lot of sense.

Conclusion

Lowery’s thesis is tantalizing, and his analogy comparing mining to antlers as tools for fighting without bloodshed is clever. But maybe his analogies are a bit… stretched? Sure, it is an exciting thought to equate the power needed for physical warfare to the power needed to fight over property in cyberspace. But does his portrayal of proof of work as a security fence around Bitcoin hold up to scrutiny? And will the current corporate hash wars move in a straight line to nation-states hash wars? Possibly. But I’m less inclined to think so, after reading Warren’s work. 

Also, reading the Softwar critique by Warren for me was a nice reminder of why we’re into Bitcoin. Sure, we love it if number go up because more people start using it as an alternative to the problematic fiat system. But would we want Bitcoin’s price to go up because of the fiat system adopting it? That could be a pyrrhic victory that ends up morphing Bitcoin into something we don’t want it to be. Maybe we would be better off – with plenty of room for number to go up – if Bitcoin doesn’t become digital warfare but stays a peer-to-peer electronic cash system.

Softwar or Limpwar: How Likely is it that Nation-States Will Engage in Hash Wars? - - 2024

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