There has been some concern recently that there is no guarantee that miners will store the data uploaded to the BSV blockchain despite the large fees paid to miners. nChain have made it clear that the ‘market’ will solve the problem. This effectively moves the solution for data storage off chain and could lead to not requiring large data to be stored on the chain at all. In this article I explore the implications of a ‘market’-based approach for the three Bitcoins.
BSV is well known for its large data storage and it’s the primary use-case of BSV at the moment. However, there is the issue that even though miners are paid large fees for the data, they provide relatively little value for those fees, because there is no guarantee they will store it. nChain don’t seem to think this is a priority and will be solved by the ‘market’. I’m devising an off chain data storage solution, but one potential implication of such a solution is that there is no requirement to store the data on the chain at all apart from metadata such as a hash.
If data is no longer stored on BSV what impact would that have on BSV? To answer that, let’s have a look at BCH first.
As far as I can tell, BCH is not interested in storing large data on chain. They are interested in big blocks, but those blocks are for storing large numbers of transactions not large data.
BCH is facing a number of problems. Firstly, the number of BCH transactions has halved since May. Secondly, the mining fee revenue for each block is extremely low. If we ignore the 12.5 BCH block reward (which will halve next year), the mining fee for each block at the moment averages around $1. Are mining networks going to be established so that one pool might get $1 per block?
Obviously BCH is relying on transaction volume. Currently the block reward is about $2500/block. For mining fees to equal that, there would need to be an increase in transaction volume of 2500x. However, since May the number of transactions has actually halved not increased.
Data vs Transactions
BCH, which is more established than BSV, has demonstrated that transactions alone are not enough to generate interest in large block sizes.
Conversely, BSV is demonstrating that storing large data on chain is sufficient to generate large block sizes.
Where BCH transactions has halved since May, BSV transactions has increased 10 times. And this is primarily due to on chain storage of data.
I think long term simple transactions could make it economical for miners to operate, but in the short to medium term, it seems as if data is more likely to get us there. For example, 1000 images of 1MB each would cost ~$1000 to upload in mining fees. This would be roughly equivalent to about 1 million payment transactions. Which is more likely to occur in the next 10 minutes, 1000 images being uploaded or a 1 million payments?
I would argue that the data uploads are more likely than the payments, at least in the near term, and this is evidenced by the types of transactions already occurring in BSV blocks. It appears as if data may be what gets Bitcoin to broad scale adoption, at which point simple payments could then be sufficient to making mining profitable.
The problem with BSV though is that the fees people are paying to miners for their data doesn’t actually ensure their data is stored. As more businesses realise this, it could become an issue for BSV, as illustrated below.
BSV and BCH have the issue of potentially not being sustainable from mining fees alone. BTC on the other hand, with all of its limitations, has no issues with mining sustainability. The limited block size ensures a mining fee market. As long as BTC is used and blocks are full, miners will be paid (there’s some counterarguments to this which I won’t go into).
If BSV are pushing for ‘market’ solutions to data storage and the long term effect is that the data is not stored on BSV at all because there is no point paying miners unnecessarily, then why not just use BTC?
If only simple metadata is required to be stored on BTC for an off chain data storage solution then BTC could potentially be used for ‘storing’ large data instead of BSV.
Limitations with BTC include the fixed block size which means that it may be expensive to include the data storage payment transaction in a full BTC block. However, if the solution works, and less data is stored on BSV, then BSV will become unsustainable to mine like BCH will become, if it is relying on payments only.
Here are three ways this could evolve:
- BSV guarantees data storage (e.g. through my block hash suggestion) — In my opinion this is unlikely to happen. Firstly, nChain believe that it should be solved by the market not by BSV. Secondly, it is a fundamental change to how Bitcoin works and is not mentioned in the whitepaper. There would be significant ideological objection to such a change.
- Bitcoin is forked to incorporate the above change — Forks are expensive, require miner support, as well as a team to market the new cryptocurrency, etc. I think this is quite unlikely. However, BSV is demonstrating a market for data and while there is a market opportunity, participants are increasingly likely to fill it.
- An off chain data solution is provided which causes little data to be stored on BSV and BCH and could work with BTC — This is somewhat of a likely solution, in fact nChain are pushing for it. However, for the data storage solution to work effectively, it may require certain transaction functionality that is available in BSV but not in BTC. It could also work on other blockchains as long as they provide the correct transaction functionality, e.g. Ethereum (which incidentally is looking for a data storage solution). The data storage solution could be somewhat blockchain ambivalent and work with multiple chains as longs as they provide a sufficient transaction mechanism.
If neither of these three happen, then the default is that BSV continues to be used in its current form. BSV data usage will most likely continue to grow and even though there is no inherent guarantee of data storage, certain providers will most likely store the entire chain anyway. This is the least pure option, but as BTC has shown, the most pure option isn’t necessarily the most successful!