Bitcoin introspection

Bitcoin scaling, or lack of, is becoming an anchor stopping bitcoin going further.

Bitcoin capacity is currently almost full

This is a very good thing. Obviously it shows bitcoin is growing in usage. It has utility and demand. Notable especially is how it is helping people in countries who are in economic strife or facing oppressive capital controls.

Transaction times are slow

Confirmations are taking hours or even longer. I don’t even know what threshold I set for my fees but they don’t seem excessive and my recent transfers have been acceptably quick to process.

Additionally, Bitpay confirms very quickly. They take the double spend risk and accept payment on zero confirmations though.

There is no doubt however that the slow speed of confirmations is a real issue and causing frustration for a great many users.

The proposed fixes

The proposed fixes boil down to only one of two options:

  1. Onchain scaling
  2. Offchain scaling

To increase the blocksize (onchain scaling) you can look at the likes of Bitcoin Classic and Bitcoin Unlimited who propose simple blocksize increases to increase the capacity of the network.

Alternatively we are offered segwit by the core team, which will enable lightning network, LN. Which is offchain scaling. Although you will hear people try to deny that. It is offchain scaling.

Both of these solutions are appalling as far as I can tell, at least as they are currently presented. But I’ll try to elaborate a bit.

The problem with on-chain scaling

Increasing the blocksize will lead to the blockchain growing at a faster rate, already it is 140G or something like that, its big. It is growing exponentially even without blocksize increase. This doesn’t seem to be a concern but it should be.

We need a way to distribute the blockchain so that individual nodes only contain part of it. Because if that doesn’t happen soon only data centers will be able to keep it going as it grows huge. Yes storage space is cheap but anyone can surely see this isn’t practical in any longer term timescale.

The ever increasing size of the entire blockchain as a whole becoming too big to decentralise is as much or more a real concern than debates about segwit and bitcoin unlimited and yet this issue hasn’t been raised in any meaningful way.

The problem with off-chain scaling

It took me a long time to realise the dangers of segwit. On the surface it seems good, although maybe too good. It is a quick win for improving capacity. Block size will more than double (effectively) by making blocks more efficient and removing ‘witness’ data that presumably isn’t needed, (Or did Satoshi include it there for a reason, maybe someone should check!?). Anyway, up to this point, core software tends to be trusted, the core team to be doing the right things and keeping in the spirit of Satoshi’s original vision? Aren’t they?

The trouble is this isn’t where it ends. This leads us into accepting also lightning network which is off-chain scaling. Off chain scaling means other networks will handle the transactions. Eventually amalgamated data will be recorded on the bitcoin blockchain somewhere along the line (at least you hope so). Third parties (LN nodes) will arise who seem to be bitcoin. But is it really bitcoin anymore?

Off chain transactions will always happen to a certain degree of course. In a crypto exchange when you trade in an out of different currencies they aren’t committing all these transactions onto respective blockchains until you withdraw any funds.

But with Lightning Networks the scale of this would be on a vast new level. This path is leading to a bitcoin which will have huge wealthy interests controlling massive amounts, or the majority of transactions (off chain). No wonder the miners don’t like this. But besides from harming the miners, the whole point of the blockchain would begin to evaporate before our eyes. Replaced with the bankers dream, which is of course to get rid of cash and have a fully electronic form of money in their control.

Fork

The real problem holding bitcoin back is that scaling solutions being offered are no solution. If a fork happens and the free market gets to try both solutions that will be an even bigger nightmare. (You can bet the big money will support segwit and LN though). Even so now there will be 42 million bitcoins. What happened to the 21 million limit?? For reasons I’ve stated both solutions are horrible already and a fork doubly so.

The Solution

While bitcoin is languishing ‘alts’ are rising to the challenge. Bitcoin share of crypto has fallen to 66% (at time of writing) whereas in previous years it was much higher, above 90% usually. Etherium, Dash, Litecoin, and others are all also increasing in value measured against fiat.

As alts rise in value more merchants will accept them as payment, more people will want to use them. Hence they become more useful. Its a virtuous circle. Dash is quietly being accepted by more and more vendors who previously only accepted bitcoin.

Bitcoin will continue as the reserve currency of crypto. And a safe haven for people in countries undergoing economic strife. It will do what it is currently doing well as storage of wealth a bit like gold. It will just not be used in the same way as visa for buying a coffee in starbucks (an unrealistic aim anyway unless you want bitcoin to be centralised via lightning nodes).

In summary the solution is underway, it is the free market. Alts will rise, bitcoin would rise too against fiat. Its is an exciting and thriving ecosystem. What we don’t want is a bitcion fork, or offchain scaling or a blockchain thats too big to be decentralised. Basically the things that are being proposed.

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2 thoughts on “Bitcoin introspection

  1. Hey! nice article, thanks! It gives a good overview of what’s going right now.
    I’m thinking that if a bad solution is chosen at some point, and it turns to be actually a bad solution, it will still be possible to fall back to another solution, not without losses for sure but at least the bitcoin vision won’t die. What do you think?

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