I have been observing the debate that has been overwhelming the bitcoin community for months regarding the block size, and decided to adjourn writing a piece about it as much as I can to avoid producing an “emotional” piece, yet after reading the recent Wall Street Journal article, I decided to break out of my silence.
The Block Size Problem and Hard Forking:
Right now, the blockchain limits the block size to 1 MB. In other words, the current blockchain considers any block larger than 1 MB as an invalid one. As the number of bitcoin transactions has enormously increased, raising the block size limit has become indispensable to keep the bitcoin ecosystem functioning conveniently. Since August 2015, most of the miners have been producing blocks of an average size of around 0.7MB and during some instances, especially during the second half of 2015, congestion of transactions led to delay of confirmation of some transactions for hours.
Figure 1: Block Size Chart From Blockchain.info
When Satoshi Nakamoto decided to stop working on bitcoin core, he handed the torch to one of the early adopters and bitcoin core contributors, Gavin Andresen who worked with many other contributors, including Wladimir J. van der Laan, Peter Wuille, Gregory Maxwell and many others, on developing Bitcoin Core.
Figure 2: Bitcoin Core Contributers from Bitcoin.org
A few days ago, Gavin Andresen wrote a blog post throughout which he stated
“I’d still like to focus on protocol-level, cross-implementation issues but lately I’ve been distracted and have generated a lot of controversy (and hurt feelings) by helping out with some other implementations (first XT, lately Bitcoin Classic, maybe Bitcoin Unlimited soon.”
Bitcoin Classic, Bitcoin Unlimited and Bitcoin XT will lead to “hard forking” of the blockchain. A hard fork is a change in the P2P protocol which would lead to splitting of the blockchain unless 100% of the miners upgrade to the new software version that implements the hard forking procedure.
Bitcoin Classic is hard forking the blockchain by increasing the block size to 2MB. Like I mentioned above, if 100% of the miners don’t upgrade to the Bitcoin Classic software, this would lead to creating of a new chain; thus, creating a new altcoin.
Bitcoin XT is also an attempt at hard forking the blockchain via increasing the maximum block size to 8MB. According to the developers, the XT protocol is designed to double the block size every 2 years to a maximum of 8192MB in January 2036. So, miners using Bitcoin XT are now producing a new version of blocks (version 0.11A) which broadcasts to the network that they are already supporting large blocks. The developers are hoping to transform 75% of the blocks to XT blocks, so that a decision would be made to implement building bigger blocks which would still be rejected by operators of Bitcoin Core nodes.
Bitcoin Unlimited permits node operators and miners to increase the block size via the Bitcoin Unlimited client. According to the description on the project’s homepage, Bitcoin Unlimited’s client simplifies the process of increasing the block size via a GUI menu.
The developers of Bitcoin Unlimited claim that their client will move the block size limit from the protocol layer to the node operators and miners (transport layer). Accordingly, a consensus, will arise based on the economics of free market as miners and node operators “converge on consensus focal points”. In other words, it is not a competitive block scaling proposal, like Bitcoin XT; instead, it follows consensus and tracks the blockchain that is followed by the majority of the hashing power.
BIP: 101 was proposed by Gavin Andresen to increase the blocksize to 8MB on January 11, 2016 and then double it every 2 years to a maximum of 8,192 MB by the year 2036.
The Current State of Bitcoin Nodes:
At the time of writing of this article, There are 4 types of bitcoin nodes on the blockchain:
- Bitcoin Core: 5148 nodes
- Bitcoin XT: 514 nodes
- Bitcoin Classic: 1 node
Accordingly, we have now three attempts at hard forking of the blockchain.
Mike Hearn’s Unethical “Ninjutsu” Move:
3 days ago, Mike Hearn’s published a blog post on Medium.com, stating that Bitcoin has failed and that he had already sold all his coins. In my opinion, Mike Hearn gained media attention that was disproportionate to his contributions to the development of Bitcoin Core. According to the “development” page on Bitcoin.org, Mike fixed only 3 Bitcoin Core bugs along the past 5 years, yet he was featured on many mainstream media outlets such as the BBC, Sky News and many others.
Ethically speaking, Mike shouldn’t have sold his coins before publishing his theatrical piece, because if Bitcoin was a company and Mike was on its board, he shouldn’t sell or buy company shares based on unreleased insider’s information.
Mike’s post was biased as he only mentioned the merits of some of the proposed solutions for the block size problems such as Bitcoin XT, without referring to the disadvantages of the proposed hard forking attempts of the blockchain which include:
- To implement a hard fork, we would have to wait for a sufficient consensus.
- There is always a risk for a “catastrophic consensus failure”
- Slower speeds of propagation which would lead to orphan rate amplification, double spends and more reorgs.
- US and European mining pools will be affected more than Chinese mining pools.
- Transaction eviction and other forms of mempool improvements can solve the congestion issues.
- High block propagation rates can lead to centralized controls.
- Larger block sizes will increase the expenses needed to operate a full node.
- Larger block sizes will lead to fewer numbers of full nodes operating with low hash rates which would yield centralized entities having more power over the network.
Why would bitcoin never die:
Despite that all the aforementioned data might seem disappointing for bitcoiners, the reality is that bitcoin will never die, especially that Satoshi Nakamoto has proposed a solution for the block size problem at the end of his paper:
“Nodes can leave and rejoin the network at will, accepting the proof-of-work chain as proof of what happened while they were gone. They vote with their CPU power, expressing their acceptance of valid blocks by working on extending them and rejecting invalid blocks by refusing to work on them. Any needed rules and incentives can be enforced with this consensus mechanism.”
Loyal developers and bitcoin enthusiasts will reach a consensus and will find a simple solution that preserves bitcoin, the most innovative economic creation in the past couple of centuries.
Excuse me, Mike Hearn, bitcoin is no more an experimental currency; it is a currency that has established a new world order, where governments can no more monopolize money via their Central Banks. A couple of years ago, I wrote an article about the jobs bitcoin created ever since the genesis block was mined and here is what I found back then:
These jobs include:
Script and Multisig developers
Java cryptocurrency developers
UX/UI crypto designers of user-only security protocols that represent setups where only the user can access the private keys of his/her wallet.
Bitcoin and cryptocurrency crowdfunding planners and consultants
Cryptocurrency technical analysts
ASIC chip designers
Bitcoin gambling website operators
Mining pool administrators
TOR e-commerce consultants
Cryptocurrency escrow agents
Cryptocurrency Exchange-Traded Fund (ETF) operators
Bitcoin Fraud detection consultants
Cryptocurrency ATM designers
Virtual currency exchange arbitrators
Federated open transactions’ server operators
Today, a couple of years later, I can even add like ten more jobs to that list such as cryptocurrency forex trading consultants, cryptocurrency securities’ trading consultants and many more. Some reports claim that bitcoin created more than 250,000 jobs in the USA in 2014 alone. 2015 was a golden year for bitcoin as we witnessed mass adoption by many merchants. In other words, bitcoin is a currency, so it should be evaluated as the way a currency is evaluated; price, adoption, market capital….etc. In my opinion, a simple software problem won’t simply destroy an enormous economy that is creating jobs and new business opportunities everyday.
Even with 3 or more hard fork attempts, one will prevail and the others will be nothing more than new “altcoins” and bitcoin will live for ever!!