The evolution of the social contract includes the formation of the social system, the contract execution, the execution deviation and the collapse of the four processes. Traditional social contracts are enforced by centralised institutions, where the concentration of power can lead to the abuse of power, and where enforcement deviates from consensus, and eventually the institutions may be overturned.

Corresponding to bitcoin, the social contract is called consensus. Bitcoin is a technology-plus implementation of a better consensus approach, the value of Bitcoin depends entirely on the value of the consensus, but it does not change the consensus. The bifurcation of bitcoin at the technical level corresponds to the fragmentation of the social contract, the authors believe that the fragmentation of the social contract is very rare, and the new bifurcation of bitcoin in theory is worthless, so the bifurcation does not affect the implementation of the consensus of bitcoin.

In fact, the bifurcation is often closely integrated with the economic benefits, and the crypto currency after bifurcation is not worthless. The author is deduce an ultimate form, or the deduction is not reached, this is the paper left us the space of thinking.

Fiat money is a social contract: people give the state control over the supply of money and other important functions.In turn, the state uses this power to manage the economy, redistribute wealth and fight crime. Probably many people do not realize that bitcoin is also implemented through the social contract.

Social Contract Theory

The social contract theory begins with a thought experiment: it assumes an unbearable, violent natural state.Driven by the desire to improve their own conditions, they come together and collectively agree to empower the state to protect them. Everyone gave up some freedoms (like stealing, murder, etc.), while the state was given the power to make laws, enforce laws and protect people from violence.

This theory does not only apply to the relationship between the people and the state.We can apply the same thought experiment to the economic sphere. When enough people are unhappy with the economic model of barter, they can collectively agree to use money, credit, or other things to improve transaction performance.

The process of monetization and credit imperceptibly, this process takes place based on the fact that everyone has a desired outcome, and if most people in a society want the same outcome, we can refer to this outcome as “Schelling point” or the social contract.

Throughout history, governments that control money have abused their power in a variety of ways, such as confiscating accounts, preventing certain people or groups from trading, and ultra-shippable currencies have led to inflation and sometimes to hyperinflation. Whenever the government abuses its power, people reduce their trust in the social contract of money. So they go back to the commodity currency agreement, where people retain most of the benefits, such as having a common medium of exchange, storing value and account units, avoiding the most serious problems, such as government abuse.

The Fiat gives us an important lesson: the bigger the social institution, the more valuable it is, the more people want to control it.

However, the problem with commodity currency covenants is that it is equally unstable.In gold, for example, because of the physical gold is not easy to split, move and store, so people with gold as the anchor invented banknotes. People trade with paper money so that the physical gold does not have to move any more. Since paper money is easy to produce, there must be a trusted central political party to oversee its issuance. From here, the government can separate the value of banknotes from the underlying commodities (such as gold) by just one small step further, and re-establish the fiat money system.

There is a valuable lesson here: people are really in a bad situation and really want to change it, and the resulting social contract implementers can only be as strong as possible. Because without a stable body to enforce it, the pact would collapse without the trust of the people.

Bitcoin: a new social system

At the heart of bitcoin is the social contract and its rules. Social contract theory can be used to answer some basic questions about bitcoin:

Why does bitcoin appear?

Who determines its properties?

Who’s controlling it?

Will a serious protocol loophole destroy Bitcoin?

First we look at the rules of bitcoin. When Satoshi invented bitcoin, he did not invent a new social contract. Satoshi Nakamoto did another thing:he used technology to solve many of the problems of past practice, to run the present social contract in a new and better way.He sets the following rules:

Each cost must be signed by the owner (to prevent forfeiture)

Anyone can trade and store Bitcoins without authorization (boycott censorship)

Bitcoin totaled 21 million, issued on a determined schedule(anti-inflation)

All users can verify the rules of bitcoin (anti-counterfeiting)

The Fiat gives us an important lesson: the bigger the social institution, the more valuable it is, the more people want to control it. This institution therefore needs stability and security, and only countries with strong powers can provide it with protection.Over time, protection will turn into control and then into abuse. When this social institution is no longer beneficial to people, it will be replaced by a new institution, and the cycle will begin again.

Satoshi Nakamoto tries to break this vicious circle in two ways: first, the security of bitcoin does not depend on powerful central political parties (such as the government), which creates a super-competitive market for security protection for itself, transforming security into commodities, and transforming security providers (miners) into producers without power. Second, Satoshi Nakamoto found a way for these competing security providers to reach consensus on who owns what at any given time.

The Bitcoin protocol automates the execution of the social contract, and the rules of bitcoin are determined by the consensus formed by the social contract. They are symbiotic, and the absence of any of them is incomplete. The social contract and its rules are at the heart of bitcoin, and for the first time, the protocol layer allows them to enforce and make the social contract more credible.

There are many advantages to seeing bitcoin as a technology-enabled, automated social contract. It helps us to understand philosophical questions about bitcoin. Like:

Who can change the rules of bitcoin?

At the social contract level, the rules of the contract are constantly being defined and renegotiated. The Bitcoin protocol simply implements the automated execution of them.When many people run the Bitcoin protocol on their computers (it can be understood that they use the same language), bitcoin becomes a network.

Just follow the same rules as everyone else and it stays in the network. If I unilaterally change the rules of bitcoin on the local computer, it will not affect the rest of the network, and I will be left out of the network, because I can not communicate with the network.

The only way to change the rules of bitcoin is to propose a new social contract. Each such proposal must be voluntarily accepted by others in the network, and it becomes the rule only when there are enough people who take the initiative to implement the new proposal. Reaching agreement among millions of people is a very difficult task, and contentious proposals can never gain a broad social consensus, so they are automatically eliminated. That is why the Bitcoin network can be upgraded in a way that reflects the wishes of its members, but at the same time it is elastic when it comes to defending against the wrong direction.

Will software vulnerabilities destroy Bitcoin?

In September 2018, there was a loophole in the most mainstream Bitcoin protocol. The vulnerability could expose the network to two kinds of attacks: an attacker could shut down other people’s bitcoin clients so that they could not continue to run the protocol execution rules, and then a possible double-spend attack.

Bitcoin developers quickly fixed the bug with an upgraded version of the protocol. Although the vulnerability was discovered in time and was not exploited by attackers, it left some wondering: how destructive is the vulnerability?If exploited, whether or not bitcoin will happen with inflation, it will significantly reduce people’s trust in it.

The theory of social contract can be strongly repudiated.Bitcoin’s rules are laid down on the social contract layer, the software just automates IT. When the social contract and the agreement layer are divided, the agreement layer is always the wrong side.The failure of the protocol layer to enforce the contract rules has no permanent effect on the contract itself.

Bitcoin itself has no value, and the value comes entirely from the social contract layer.

By reframing the blockchain to fix a potential loophole to eliminate the damage caused by an attacker, this move will make Bitcoin fork, the two networks after fork one with a loophole, one without a loophole, have their own crypto currency. Bitcoin owners have the same number of cryptocurrencies in both networks, and the value of both cryptocurrencies depends entirely on the market.

Here, the point is to know that bitcoin itself has no value, it is nothing more than a figure in a distributed ledger. Its value comes entirely from the social contract layer. Therefore, to win the consensus of the crypto currency will be more recognised by the market, with greater value. Perhaps even all of the economic value will be transferred to the vulnerability of the new network to be repaired.

When the Bitcoin protocol succeeds in automating social contract rules, the two layers are synchronised. When the software is not synchronised, the social contract directs it. The recent occurrence of this loophole will not be the last, and the theory of the social contract gives us the conviction that the loophole may appear, but does not threaten the social system of bitcoin.

Will the Bitcoin fork endanger the rule of “no inflation”?

Another well-known philosophical problem revolves around the concept of “forking”. The Bitcoin protocol is open source for anyone

You can copy and change the protocol, which is called a “fork”. However, as mentioned earlier, these changes are only for the protocol layer, not the social contract layer. Without first changing the rules of the social contract layer, the only result of the new fork of bitcoin is the expulsion of the network.

If you want to fork bitcoin, and you don’t want the new fork of the network to die immediately, you must first let the social contract fork. You need to convince as many people in the network as you can and have them update the rules with you. Such bifurcations are few and difficult to achieve because they require thousands of people to follow and are somewhat similar to presidential campaigning.

Again, the key is to know that all the value of cryptocurrencies comes from a social consensus that does not have any value in itself. The protocol fork is not equal to the social contract fork, so we default to the new crypto currency is worthless. In a situation where the social contract itself is rarely split (e.g. Bitcoin Cash is separated from bitcoin), you will end up with two weaker

The social contract–compared to the old contract, the two networks have fewer followers after the fork.

Both the generalised currency and bitcoin can be seen as a social contract between people. Bitcoin is not a new contract, it is just a new implementation of the contract, the contract has hundreds of years of history. There is a significant improvement in the way bitcoin is implemented compared to previous attempts, in that it creates a super competitive market for its own security.

The social contract layer and the protocol layer of bitcoin are complementary, and their relationship allows us to slightly understand concepts such as rule changes, forks or protocol loopholes.


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