I should say “probably wrong” because we can’t be certain of anything at all when trying to predict the future. Yet we strive to make the best predictions we can. Predicting is what our brains do. And trying to predict what will happen with bitcoin and the global economy in the coming decades is my current prediction obsession.
I’m a relative noob to bitcoin. I’ve spent almost a year now immersed in learning about it. Figuring out what to think about the Great Bitcoin Scaling Debate took up a lot of that learning time last year (more about the drama of that whole process in another post soon). I sorted through the mess and decided that the Bitcoin Core approach to scaling was the most likely to succeed. And since then it has become clear that the arguments Roger Ver is still making in defense of the Bitcoin ABC fork (an implementation of Bitcoin Cash) of the Bitcoin Core (an implementation of Bitcoin) project are wrong. My hope is that this will help others who still trying to sort out the Bitcoin vs. Bitcoin Cash debate for themselves.
Recently Roger summed up his arguments during a keynote speech he gave at the “Satoshi’s Vision” conference:
In the presentation he lays out his case for Bitcoin Cash. He starts with his overarching goal of increasing economic freedom in order to improve the lives of people on Earth. Roger lays out a case made by Coinbase CEO Brian Armstrong well and sums up his introduction by quoting Brian:
“It will serve as a giant economic stimulus package for the world, accelerate innovation, reduce wars, make the poorest 10% better off, overthrow corrupt governments, and raise happiness.” — Brian Armstrong
This is all well and good and sounds like a summation of the predictions made by Austrian economists about the benefits of sound money on a global scale.
Then Roger launches into his critique of the Bitcoin Core project, an open source client for the Bitcoin payment network which uses bitcoin (BTC) as its currency. Using the following two slides he immediately insinuates that the Bitcoin Core project, along with “a government” and Blockstream (a bitcoin related business based in California) have colluded to keep the Bitcoin block size limited to 1MB as a means of intentionally breaking the network.
When the second slide is revealed there are audible gasps and laughter in the room. In response to the room, he quickly disclaims “I’m not saying that they did this out of malice, maybe it was just ignorance” despite the fact that the words “intentionally create” are right there on his slide.
He then proceeds to argue that a 1MB block size limit has already resulted in and will continue to result in fewer users, fewer nodes, lower adoption, less privacy, lower bitcoin market cap, lower bitcoin market share and less censorship resistance.
Let’s address these arguments.
“Advocate for 1MB Blocks”
First, the Bitcoin Core community consensus was not advocating for 1MB blocks. Nor does Bitcoin currently have a strict 1MB block limit. The community decided to scale in a way that did not require a hard fork of the network and enabled better scaling solutions.
Segwit stands for Segregated Witness. Jimmy Song describes Segwit and block size and weight very well. But to sum up, Segwit is a way to effectively double the block size limit from 1MB to 2MB. This is done by stripping out the signature (witness) data from transactions sent to Legacy nodes and switching to a new measurement called block weight to limit the size of blocks for Segwit-enabled nodes. Bitcoin nodes running the pre-Segwit software receive transactions with the signature data stripped, thus allowing more transactions to fit into the existing 1MB block size limit. This is a way to implement an effective block size increase without a hard fork in the code that would render all Legacy nodes incompatible with the network. The theoretical upper block size limit of Bitcoin with Segwit is 4MB. In the real world, the average block size with Segwit at full adoption can be expected to be around 2MB.
So, you see that the Bitcoin Core community consensus was not advocating for 1MB blocks. Segwit is being adopted and we are seeing blocks over 1MB regularly now (follow @BitcoinConfirms). As Segwit adoption continues to increase over time the average block size will approach the expected 2MB average, with a strict upper limit of 4MB.
It was also known that, after Segwit, there were more block efficiency improvements like MAST and Schnoor signatures (which will use SegWit’s script versioning improvement) on the horizon. And given we could get an effective block size increase, without making it harder or more expensive to run a full node, and benefits like script versioning could enable more efficiency innovation in the future, it made sense to take this more conservative approach in favor of protecting bitcoin’s most important priorities: decentralization and censorship resistance.
The Bitcoin community is a collection of individuals choosing which software to run. It is this fact that imbues Bitcoin with these two properties. The easier it is to run the software, the easier it is for you to have a voice about which software wins and how it evolves. Therefore, we must prioritize the ease and expense of running a full node. Cheap-to-run full nodes are important despite the endless mocking from the likes of Roger and Craig S. Wright (CSW). Full nodes are the means of decentralizing the evolution of bitcoin.
Bitcoinwiki has good documentation on the block size debate, laying out both sides. Click to read through it, but I’m copying the arguments against increasing the block size and the potential damage to decentralization here:
Arguments in opposition to increasing the blocksize
- A hard fork requires waiting for sufficient consensus.
- Risk of catastrophic consensus failure (because it requires a hard fork)
- An emergency hard fork that can achieve consensus can be deployed on a short time period if needed.
- Orphan rate amplification, more reorgs and double-spends due to slower propagation speeds.
- European/American pools at more of a disadvantage compared to the Chinese pools[why?]
- "Congestion" concerns can be solved with mempool improvements including transaction eviction.
- No amount of max block size would support all the world's future transactions on the main blockchain (various types of off-chain transactions are the only long-term solution)
- Fast block propagation is either not clearly viable, or (eg, IBLT) creates centralised controls.
Damage to decentralization
- Larger blocks make full nodes more expensive to operate.
- Therefore, larger blocks lead to less hashers running full nodes, which leads to centralized entities having more power, which makes Bitcoin require more trust, which weakens Bitcoins value proposition.
- Bitcoin is only useful if it is decentralized because centralization requires trust. Bitcoins value proposition is trustlessness.
- The larger the hash-rate a single miner controls, the more centralized Bitcoin becomes and the more trust using Bitcoin requires.
- Running your own full node while mining rather than giving another entity the right to your hash-power decreases the hash-rate of large miners. Those who have hash-power are able to control their own hash power if and only if they run a full node.
- Less individuals who control hash-power will run full nodes if running one becomes more expensive
“High Fees, Less Privacy, Slow Confirmations, Unreliable Transactions”
If you take time to understand the scaling plan arrived at via consensus through the Bitcoin Core community it is hard to believe you could conclude that the plan was to “intentionally create” this list of outcomes.
In addition to an effective block size increase, the Bitcoin Core community chose to pursue a second layer scaling solution called Lightning Network. Segwit also makes Lightning Network significantly easier to implement. Bitcoin’s Lightning Network is a protocol for the instant, very low fee transfer of bitcoin from one person to another. While the peer-to-peer protocol of the main Bitcoin blockchain is a broadcast protocol — data is broadcast to all other nodes on the network — the Lightning Network uses a unicast protocol — data is transferred only to the one other node necessary to complete the transaction.
This is much more efficient for everyday payments to merchants, vendors, friends and family. Currently every single bitcoin blockchain transaction made in the world is broadcast to every node on the network. When thinking about scaling, it makes no sense to broadcast every grocery and gas purchase to every node on the network and expend the mining energy to have it included in the blockchain. Not to mention privacy. As bitcoin adoption increases you can see that, logically, this practice is unsustainable if the end goal is to be able to support billions of daily global economic transactions.
So, bitcoin has done both: increased the block size limit and deployed a second layer scaling solution that makes much more sense to support the everyday transactions of the entire planet.
It is true that the Bitcoin network did experience high fees and slow confirmation times toward the mania peak of the 2016–2017 bull run. But “advocating for 1MB blocks” was not the reason, let alone a conspiratorial “intention” to break bitcoin. It was a massive increase in bitcoin buying during the rally combined with inefficient USD to BTC services. Coinbase, one of the most popular USD to BTC ramps, (finally) optimized their Bitcoin transactions earlier this year by supporting Segwit and implementing efficiency best practices like transaction batching. You can see the effects of transaction batching in a consolidating UTXO set.
It is also true that bitcoin has lost market share over the past year. But that is not due to “full blocks” as Roger claims. It is because thousands of altcoins launched in the past two years and have been riding the coattails of the bitcoin bull rally fueled by speculative investments. The bitcoin market share is back on the rise now — back up to 45% of the total cryptoasset market at time of publication. And, market share is not a great metric of adoption, anyway.
Now that Segwit is being more widely supported, other transaction efficiency improvements are rolling out to the system, and bitcoin is in a going-on three month bear market so trading volume is down, we’re seeing extremely low main chain fees and free, instant mainnet Lightning transactions. Bitcoin is scaling. And it’s scaling in a way that prioritizes decentralization and censorship resistance to preserve individual sovereignty over one’s money.
All the while CSW is being exposed as less than trustworthy and Roger hides behind a righteous claim to the “bitcoin” brand to excuse a seemingly intentional marketing campaign of misinformation: “Bitcoin Cash is Bitcoin.” The two of them are harming the reputation of the Bitcoin Cash scaling experiment. If I were seriously committed to the Bitcoin Cash approach to scaling I’d be begging them to leave the project alone.
This is my understanding of how things stand. One of the strengths of the broader Bitcoin community is its diversity of opinions and predictions. By all means shitpost away. But I also welcome and celebrate reasoned discourse. Thanks for reading.
—Brady Swenson @bswen