http://bitcoinstats.com/irc/bitcoin-dev/logs/2013/03/11
http://bitcoinstats.com/irc/bitcoin-dev/logs/2013/03/12

The incident begins at 22:11. If you don't trust my summary of it, and you consider yourself very, very well-briefed on what Bitcoin is doing under the hood and who the players are in the Bitcoin community, just read the next ~12 hours of logs. It's absolutely riveting.

My summary:

The Bitcoin protocol doesn't exist. The only protocol which matters is the actual behavior of the Bitcoin Core client -- the one originally coded by Satoshi, which forms a supermajority of the network. Bitcoin Core released version 0.8 on or about March 11, 2013. This differed from Bitcoin Core 0.7 in at least one respect, which was that 0.7 used Berkeley DB and 0.8 did not.

BDB has a configuration issue, specifying the maximum number of locks it can use at once. If you attempt to use more, it returns an error.

Here's one reason I say the Bitcoin Protocol doesn't exist: No sane person says "An important feature of the Bitcoin Protocol is that conforming clients MUST REJECT any Bitcoin transaction which would exhaust the default number of locks available to the Berkeley DB."

Someone submitted a Bitcoin transaction which did, in fact, exhaust the number of locks available to the Berkeley DB. It was conformant with all the rules that Bitcoiners believe transactions have to be conformant with except that bit about the lock limit in the Berkeley DB. This transaction was accepted by a miner running the 0.8 software.

Let's, for convenience, call the blockchain as it existed prior to that block being mined Blockchain B. The blockchain with that block in it is B'.

Bitcoin Core 0.7 rejected the authenticity of B'. Accordingly, when 0.8 nodes said "I have a new block to publish! It checks out and builds off of the-present-head-of-B'", 0.7 nodes said "I don't know what that nonsense you're spouting is, but it sure isn't Bitcoin." Bitcoin Core 0.7 nodes and miners continued talking amongst themselves and building B up.

Bitcoin Core 0.8 nodes accept the authenticity of B' and all blocks chained on top of it. If you presented them with a block chained off of the head of B, they would say "Oops, sorry, sucks to be you -- someone already has a longer chain. You've created a blockchain, but by the writ of Satoshi, we only do business with the longest compliant blockchain, which is B'."

This is called a network split. And it is, in laymen's terms, utterly cataclysmic.

Here's why: Suppose Mt. Gox runs on 0.7 and Coinbase runs on 0.8. I can create a transaction which spends some output(s) $COIN and have it accepted into a B' block. Perhaps that transaction deposits my $COIN into Coinbase. Since that transaction doesn't exist on B, I can then deposit the same $COIN into Mt. Gox. Both Mt. Gox and Coinbase believe themselves to be in possession of the same Bitcoin.

And both of them are right.

Which is why after that channel figures out what is happening that engineering gets real. After discussions between several core developers they ascertain that the Bitcoin mining cabal behind B' is small enough to get, well, both of them on Skype and convince them to throw away hours of history on B' (which is, again, built off the new-and-improved bug free version of Bitcoin) and instead start building off of B instead. Their history must die so that Bitcoin can live.

This plan is executed. It works.

Read the chat transcript if you don't understand this: Bitcoin was virtually unusable during the interim -- most of the merchants people cared about turned off transactions entirely because they were, sensibly, scared shitless. Several hours of transactional history got wiped out. One security researcher successfully executed a ~$10,000 double spend attack against a merchant -- he gave the money back afterwards.

Now, you tell me: how do you rate my credibility here versus your friend? My assessment of this event is "Bitcoin has an identifiable governance structure. You can fit them into an IRC channel +/- a few Skype sessions. They can independently decide to change the rules of the 'Bitcoin protocol' a) at will b) retroactively. I cannot reconcile this with claims that Bitcoin is 'does not require trust' or is 'decentralized.'"