Bitcoin Scaling: A Lesson In Factionalism

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A little over four years ago, the Bitcoin blockchain became full. By this we mean that literally every block was full of transactions, and there was no room for anymore.

By default, Bitcoin has a 1 megabyte limit for transactions, which in those days translated to about 2,000 transactions maximum.

Today it’s not quite double more thanks to an innovation called SegWit, which is a necessary part of a larger scaling upgrade called the Lightning Network.

Of Second Layers And Business Models

Known as a “second layer” scaling solution, the Lightning Network removes transactions from the Bitcoin network’s blockchain and wraps them into much tighter bundles. To secure the transactions, Lightning node operators lock up funds in excess of the amounts being transferred.

The problem of Bitcoin scaling is not a new one in society by any means. It’s the same problem that’s been faced by civil engineers trying to build roads for years. How do you ensure that everyone has access, while keeping the roads in good repair?

The Bitcoin version of road taxes is transaction fees. In Bitcoin, these fees are a lot higher than they used to be because, again, block space is continually limited.

There you have it, the crux of the issue. A few developers including longtime project leader Gavin Andresen and Bitcoinj (Java) creator Mike Hearn advocated a short-term solution of increasing the block size.

A larger, louder group of developers opposed this idea, saying that increasing the block space would make the network less efficient. Their argument also hinges on the idea that, because of increased bandwidth requirements, the Bitcoin network would become less decentralized as a result of increasing the size of each block.

The problem with both arguments, in those days, was that neither had an opportunity to prove itself.

The Fork Heard Round The World

Over time, a growing chorus of people picked sides in the debates that began to rage as two important things happened. One of these things was a return of strong demand for Bitcoin and the other was the advent of Ethereum, which led to a massive wave of interest from the mainstream through the various ICO offerings (as well as scandals).

In mid-2017, just as Bitcoin was preparing its first historic run past $20,000, long-time Bitcoin investor Roger Ver and self-proclaimed Satoshi Nakamoto Craig Wright launched Bitcoin Cash.

To date, Bitcoin Cash seems no more or less decentralized than Bitcoin, all things considered, and has the added benefit of extremely low transaction fees.

Bitcoin retains its maket dominance.

But a massive negative also came out of the rift, a rift which has never been healed.

Today, the “Bitcoin” community is split along three lines.

“Bitcoin Maximalists” are the camp who believed that blocks should remain small. They count among their members a number of reputable computer scientists and cryptographers including Adam Back, who was cited in Satoshi Nakamoto’s Bitcoin whitepaper.

Bitcoin Cash proponents are the original group who first tried to fork Bitcoin the honest way, creating software like Bitcoin Classic in hopes of attracting popular support, which never materialized from the mining camps at least.

Then there are the Craig Wright supporters, who again forked the Bitcoin blockchain in 2018 to create Bitcoin SV (Satoshi Vision) after a row between Roger Ver, Craig Wright, and Calvin Ayre.

Combined, the groups would be more powerful than they are working in silos.

Factionalism, in this case, has done nothing but slow the progress of Bitcoin as a whole. As I’ve written before, the “real” Bitcoin is far less important than the real mission thereof.