Block Size: bitcoin is not scaled

Block Size: bitcoin is not scaled

An official release of fork Bitcoin XT took place last weekend. According to the statements of the authors, a larger block size will increase the network bandwidth, allowing you to do more transactions and contribute to the wider dissemination of cryptocurrency. Why, then, has this decision caused so much controversy? Why Bitcoin Core developers have not yet implemented it? We are all committed to the popularization of Bitcoin, isn’t it? It seems that the developers of Bitcoin XT do not tell the whole truth, and consciously jeopardize bitcoin.

Decentralization and lack of trust: the principles of Bitcoin

Satoshi Nakamoto has built bitcoin on the principles of peer to peer (P2P) architecture. Instead of developing a self-contained application, which would work on the server and would organize the transfer of funds between purses of clients, bitcoin operates in P2P regime: network performance depends on the users themselves, producing validate transactions of each other. There are two reasons why this paradigm has been chosen:

  • make Bitcoin decentralized;
  • give network the opportunity to develop consensus.

The mechanism of consensus is needed to tackle the double spending problem. Full network node verifies each transaction and transmits confirmation of the validity of the transactions and their blocks to other nodes. Therefore, the network has always supported consensus shared by all nodes, reflecting the sequence of valid transactions.

Without trust: resistance to censorship

This consensus allows users make transactions, not trusting each other. No need to start from the assumption that a counterparty will not try to spend a coin twice, or that a malicious third party forged otherwise transactions history, leaving some coins not valid anymore. Bitcoin protocol ensures that the coins can not be spent twice; the history of ever spent coins is stored in a publicly accessible database called blokchain.

The advantage of decentralized nature of Bitcoin is the resistance to censorship. As with any peer to peer network, all the nodes are equal. Therefore, the network has no single point of failure. The network can not be disabled as Napster, when the FBI got a warrant, entered the server and pulled the wire.

Advantages of Bitcoin have their price:

The high cost. Mining is wasteful in terms of resources: it consumes electricity, contributing to carbon emissions, and requires expensive equipment to generate solutions proof-of-work and the inclusion of valid transactions in blokchain.

The unreliability. Dynamic complexity and random factors result in unstable rates of units generation. Sometimes users are waiting for transaction incorporation into unit for five minutes, sometimes for up to an hour. At a time when many transactions require a place in the block, win transaction with high commissions; but you don’t know beforehand if the commission is sufficient and what will happen to the transaction.

Low speed. Transactions should be shared over the network and must be included in the unit, which takes 10 minutes on average. The block, in turn, must also be extended over the network and recognized as valid by other network nodes. It is believed that the transaction is "confirmed" when blokchain is increased by six blocks, considering a block that includes the transaction.

As follows from the work of Satoshi Nakamoto, the benefits of the mechanism of consensus and transactions without trust, achieved through decentralization, outweigh the disadvantages described above. Bitcoin protocol is deliberately excessive, slow and unreliable when compared to centralized alternatives such as Visa and Mastercard.

Satoshi Nakamoto had to sacrifice speed and bandwidth in order to achieve the main objectives. Bitcoin is not a suitable opponent for Visa or PayPal, since it does not scale.

Problems of large blocks

Perhaps, the calls to increase the size of the block have been caused by lack of understanding of the protocol limitations. Perhaps the reason for it was the unwillingness to admit that Bitcoin has some inherent limitations. Maybe, people were just too lazy to think. For example, we often hear that the great blocks will help make more transactions that will lead to a wider expansion of Bitcoin.

Bitcoin transactions can make anyone. While the user generates a valid transaction, you can not censor them. If the block size will be increased and, consequently, the number of transactions with low commissions will grow, what will prevent corporations, banks and governments from using this opportunity to organize a convenient network for their own use? They do not need to fund and develop their own network (although Ecuador did). Most likely, the speed and capacity of the Bitcoin network provides sufficient reliability for tasks of even larger enterprises if it requires transparency in reporting.

These organizations will pay a good commission to miners and will eventually take X megabytes in each block, leaving the rest with the same one megabyte. And what's the benefit? It does not help to the spread of Bitcoin. The discussions on increasing block will start once again among the developers, and everything will repeat again.

The increased size of the block will be used not only by your neighbor or a representative of vulnerable groups deprived of banking services.

World Domination

The existing limit on the size of the block is 1 megabyte and theoretically allows 7 transactions per second at a rate of 250 bytes per transaction. Let's mentally scale Bitcoin to the size of Visa - 22 thousand transactions per second. 10 thousand bitcoin transactions per second require 1.6 GB blocks; blokchain will grow by 87 TB per year, or 1.5 TB per week.

This will lead to the complete centralization of mining - a key mechanism for ensuring network security. Assuming that the protocol can handle such volumes of traffic (in fact, it cannot), let’s ask the question to ourselves: how many of today's miners can afford the equipment necessary for a network of such size? Who but an elite minority can afford to support a full node and contribute to the reliability and security of the network?

The search for consensus is a slow process. Network security is directly dependent on the degree of decentralization. From such fact it follows that neither Bitcoin Core, nor Bitcoin XT will never be able to compete with Visa. But it was not the purpose of Bitcoin. In turn, Visa, despite its thousands of transactions per second, does not provide users with uncensored protocol for programmable payments that do not require trust.

Keepers of Bitcoin

The conservative fraction in the dispute about the size of the block brings its technical arguments. Decentralization of Bitcoin does not provide itself. In the protocol is not implemented "algorithm of decentralization". The degree of decentralization is under the responsibility of the users.

Responsibility for maintaining a high degree of decentralization depends on users and developers.

If the problem is so trivial and bitcoin does not scale, why developers of XT do not take this into account? They have been repeatedly asked the question: "Why do you expose bitcoin to risk of centralization, increasing the size of the block?" Instead of answering this question, they repeat something like that: "but when the network reaches the capacity limit, there will be something awful!" The horrible thing in this case is that market will determine the price of the transaction. And that's all? Yes, all the rest - are groundless fears and speculations: technically, there is no danger.

The question is, why Gavin Andreessen and Mike Hirn subject bitcoin (and other people's money) to the risk of centralization, trying to scale it to the extent to which it simply was not designed from the beginning?

Level 2: an infinite number of transactions

Bitcoin Core Developers prefer a two-tier network architecture: bitcoin itself plays the role of first level (core settlement layer); the second level - the level of micro-transactions - is implemented on top of the first. Developing a Lightning network implies a paradigm in which, in principle, an unlimited number of Instant bitcoin transactions are possible at a very moderate size of the block.

In conclusion let me quote Eric Voskuil, the Bitcoin developer and maintainer of libbitcoin:

"You do not seem to understand why Bitcoin is the best money. Have you ever wondered why bitcoin transactions are relatively inexpensive, although the system is extremely inefficient? These two things are related. Low cost transfer of bitcoins is a direct consequence of the fact that no trust is required. Any compromise [decentralization] would nullify that advantage.

Bitcoin is designed for solving a problem that other systems do not solve. Advantage of Bitcoin is the inability of state control. The related costs are eliminated. As a result, bitcoin gives us an advantage, despite high technical costs".

But only as long as Bitcoin is completely decentralized.


Based on materials: Bitnovosti

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