Understanding the Block Size Debate

A hard fork of Bitcoin took effect on 1 August 2017, and gave birth to Bitcoin Cash.

Forks are evolutions of protocols. They are essentially two types:

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  • Soft forks are not imposed to the community; the old version of the protocol is still available.
  • Hard forks are imposed: every single node of the network must adopt the new version.

Hard forks may be needed, especially when a security issue arises and needs to be resolved quickly. However, they can only be deployed by a consensus mechanism, when a large majority consider that modifications are useful and should be implemented.

If no consensus can be reached, and a part of the community wants to develop the protocol, a division takes place. In this way, a new blockchain arises and survives if the computing power dedicated to secure the chain via the mining system is sufficient to resist attacks.

However, this is not without controversy: the creation of a new Blockchain, a clone of the previous one, causes confusion in people’s mind – which one is the real Bitcoin? It divides the community of developers, miners, and the entire ecosystem into often irreconcilable positions.

There are a growing number of Bitcoin forks, but Bitcoin Cash stands out in terms of popularity and valuation. In fact, it was the very first hard fork that resulted in the creation of a new blockchain. This fork was the result of a protracted and tense debate surrounding the size of Bitcoin’s blocks.

The current maximum block size limit was introduced on July 15, 2010, by Satoshi Nakamoto, more than a year after launching the network. At the time, this setting was not contentious. It had been added in addition to other features. Initially, this limitation was intended to avoid an attack of sending thousands of simultaneous transactions on the Blockchain at the same time.

This change limited the transaction blocks to a maximum size of one megabyte, which is approximately 2000 transactions. Given that a new block is produced on average every ten minutes, there is a maximum limit to the number of transactions of approximately 290,000 per day.

In light of the conversations between Satoshi and other pioneers in the ecosystem, it is obvious the creator didn’t think that increasing the size of the blocks would generate much controversy in the future.

Jeff Garzik (developer) proposed in October 2010 a patch to increase the capacity of the blocks. Satoshi suggested him to do it in an organic way to avoid the risk of hard forks. He simply had to program the modification in the source code, at a given future date, so network nodes have time to prepare.

In 2015, there is a rapid increase in the size of the blocks, which average from 125 kb to 435 kb. The first real attempts to increase the maximum block size were then pushed by Gavin Andresen and Mike Hearn who proposed the move to 20 MB.

That same year, solutions like Sidechains, Segwit, and the Lightning Network are also put forward. A long debate about the different options available to Bitcoin in terms of scalability had just begun.

 

 

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So why has such an intense debate arisen?

Satoshi Nakamoto ceased all public communication in December 2010. The last known private exchanges date from April 2011, leaving the community without a “leader.” This is likely anchored in Bitcoin’s goal of becoming a technology managed and developed entirely by consensus of the community, without the influence of a single leader.

In regards to the block size issue, this has definitely contributed to intensifying the debate. Bitcoin’s ex-leader had anticipated the evolution in block capacity but does not seem to have explored alternative solutions such as the lightning network

In addition, it turned out that Satoshi Nakamoto’s predictions of improved storage techniques and the efficiency of IT equipment were overly optimistic, prompting some users to question his proposal to increase block size on a predefined date.

Now let’s take a look at the arguments in support of each side.

 

The Big Blockers

Big blockers want to increase the block size.  The number one priority is to avoid the congestion periods, which discredit Bitcoin as a mean of global payment. The easiest and fastest way to solve the problem is naturally to increase the size of the blocks or to make it dynamic.

They also think that by solving congestion issues, the adoption of Bitcoin will be faster and unhindered, which will result in more users, and increase the number of nodes in the network, promoting the decentralization of the system. Today, it is estimated that 0.1% of Bitcoin users have a full-node *.

While increasing the size of the blocks increases the storage cost of the blockchain and the increase in the number of transactions per second requires the acquisition of better computer equipment and more efficient networks, the big blockers rest on Moore’s Law, believing that advances in storage techniques and processor power will be faster than the adoption of Bitcoin. Despite the growing demands of the network, the costs would remain more or less the same, and having a full-node would not be reserved for a handful of big players.

Alternative solutions are considered immature, or add too much complexity to the entire system. One of the fundamental arguments against using these technologies is that the fundamental interest of Bitcoin lies in the fact that all transactions are etched forever onto the Blockchain. By using systems such as the Lightning Network, this is no longer the case, and so the security of the entire network would become lessened.

Finally, it is likely that these technological developments will be implemented and will work through well-known companies that have the necessary funds to serve as a “hub”, which will reduce the decentralization aspect of the Bitcoin network.

 

The Small Blockers

For Small Blockers, supporters of preserving the current block size, there is no need to rush things. Bitcoin is still young, it has to prove itself, it’s necessary to adopt a long-term vision for those type of decisions. Choosing the right solution for what Bitcoin will be in the future is more important than choosing the right solution to fix problems as quickly as possible.

It is clear that despite Moore’s law and the evolution of the power of processors the capacity of storage technologies, increasing the capacity of Bitcoin for global adoption by simply increasing the size of the blocks will be complicated.

The Visa network is able to reach 58,000 transactions per second: blocks of 13.4 GB would be needed to reach this figure in the world of Bitcoin. This method is problematic, since the Bitcoin blockchain would increase by 704 TB/year at this rate. The increase in block size is therefore seen as a short-term solution and can be summarized by a short sentence: “The purchase of your morning coffee is not intended to be engraved for eternity on the Blockchain.”

The longer-term approach of small-blockers is to develop Bitcoin protocol optimization solutions and the development of overlay solutions. That means that some Bitcoin traffic would be processed outside of the main blockchain via a network of payment channels, the Lightning Network.

Unlike big blockers, the small blockers believe that increasing the size of blocks is more centralized. They don’t believe that computer technologies can sufficiently evolve so that Bitcoin can both meet a global demand and remain sufficiently economical for an individual willing to download the complete copy of the blockchain. Today, if the blocks had a capacity of 1GB, only servers at the level of data centers could participate in the network.

Since the value proposition of Bitcoin against the current systems is clearly decentralization, it is imperative not to develop solutions that would cause greater levels of centralization.

Second Part: Where are we now?

 

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