> Hearn seems to be saying that Bitcoin right now is not really decentralized - aka the Chinese firewall problem and so much power already centralized in a few peoples hands.

This is true, and people are working to fix it on many levels. For example, separating the transaction selection from coinbase reward (what p2pool does, but with better scaling properties). Also, large chip manufacturers like BitFury selling all-in-one mining setups rather than running the miners themselves--they are presently doing mostly in-house mining, but are moving in the right direction. Also, smart property miners so that it doesn't matter if the hardware centralizes to where power is cheapest. There are also protocol-level changes along the lines of Bitcoin-NG, or non-outsourceable puzzles which remove a good deal of the mining centralization pressures.

So what you might not have gotten from the Hearn article is that this is a known problem and while scarily bad, work is progressing on this front.

> He also seems to be saying that the motivations for Bitcoin Core developers are not based on good faith technical disagreements, but more about bad faith political disagreements.

I don't know what to say to that. We had two open workshops last year for discussing the scaling problem, which Hearn did not participate in. We have a plan for increasing the capacity of the system which also references what we do genuinely believe to be the technical hurdles to scaling. I charitably hope that Hearn is simply ignorant on this matter.

> I assume you also believe that Hearn's qualms about the current centralization are wrong in some way.

No, the present state of mining centralization is concerning. But I'm not willing to throw in the towel on that just yet.

> Can you tell me why the decentralized ledger can't just be made more granular so that increasing the block size might make kick out current under-powered nodes, but those nodes could be turned into virtual nodes where under-powered machines could pool resources to establish a virtual node and thus maintain decentralization?

Decentralization in Bitcoin is about mining decentralization. Everything else barely matters. A cabal of miners can censor transactions costlessly. A cabal of miners can require extra-protocol information to de-anonymize bitcoin holders. A cabal of miners can keep anyone else from mining bitcoin, thereby closing off competitors. The threat to Bitcoin's decentralization is centralization of control over the mining hashpower -- whether from the form of pools, or external coercion on pools, or companies having exclusive or back-door access to mining hardware (e.g. 21co).

Outside of the back-doors, what causes mining centralization is a combination of validation cost, latency, and external factors like electrical power subsidies.

But, having said that, what you propose is known in the community as 'probabilistic validation' -- only checking part of the contents of a block and being able to relay small fraud proofs when such validation fails. This requires the ability to create such fraud proofs, which we will get with segregated witness (being worked on by Bitcoin Core right now), and with a lot work will eventually get us to the point where validation cost is not concern so long as there is a large, healthy network of probabilistically validating full nodes.

But we'd still have latency and real world power economies to worry about.