An Open Letter to Bitcoin Miners
Dear Bitcoin Miner,
My name is Jonald, and I am a Bitcoin investor.
I bought my first Bitcoins in 2013 and have been active on the Bitcointalk forum since March, 2014. I’m also a small business owner that actually uses Bitcoin for remittance payments, and I hold a degree in Computer Science.
Since Bitcoin investors and miners need each other to succeed, I wanted to take a minute to reach out to you, and send a sincere message from a “real Bitcoiner”.
I’ll cut right to the chase:
I’m concerned. I believe we urgently need to find a scaling solution, and I believe the best solution is to increase the blocksize.
At least, hear me out.
Why Should You Listen to Me?
There’s a huge amount of misinformation, dishonesty, and political agendas attached to the Great Scaling Debate. The situation is serious and there’s a lot at stake here.
I am not beholden to any special interests. No one is paying me to write this. I am not a contributor to any Bitcoin projects, but I am quite familiar with the scaling topic because I’ve been following it for some time now, and I am knowledgeable enough to clearly understand the technical details.
I’ve heard all the arguments from every side of the debate, and I want to give you my honest, unbiased, unfiltered understanding of the situation.
Let’s Start At the Beginning
In 2008, Satoshi Nakamoto published a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. Everybody knows this, but the exact title needs to be repeated because today, even the most basic facets of Bitcoin are being challenged. Should Bitcoin really be “cash” or instead “digital gold”? And if we follow Satoshi’s plan, is it really peer to peer?
These questions come not so much from open-minded inquiry, but rather from a biased agenda. This would have been inconceivable a few years ago, but now things have become so political, that certain people even want to re-write the Bitcoin whitepaper.
(Attempting to re-write history has always been a favorite tactic of tyrannical elites.)
Satoshi’s Vision to Scale Bitcoin
Regardless of “which side” of the scaling debate you are on, it should not be contested that Satoshi always planned for and advocated for simple, on-chain scaling.
When asked how Bitcoin would scale to Visa-like levels, he said:
Long before the network gets anywhere near as large as that, it would be safe
for users to use Simplified Payment Verification (section 8) to check for
double spending, which only requires having the chain of block headers, or
about 12KB per day. Only people trying to create new coins would need to run network nodes. At first, most users would run network nodes, but as the
network grows beyond a certain point, it would be left more and more to
specialists with server farms of specialized hardware. A server farm would
only need to have one node on the network and the rest of the LAN connects with that one node.The bandwidth might not be as prohibitive as you think. A typical transaction
would be about 400 bytes (ECC is nicely compact). Each transaction has to be
broadcast twice, so lets say 1KB per transaction. Visa processed 37 billion
transactions in FY2008, or an average of 100 million transactions per day.
That many transactions would take 100GB of bandwidth, or the size of 12 DVD or 2 HD quality movies, or about $18 worth of bandwidth at current prices.If the network were to get that big, it would take several years, and by then,
sending 2 HD movies over the Internet would probably not seem like a big deal.Satoshi Nakamoto
Disturbingly, this simple quote from Satoshi was moderated (deleted) from the r/bitcoin reddit page. I’ll revisit the censorship issue in a moment.
Another important fact is that the current blocksize limit of 1mb was intended to be a temporary measure. This was something ‘everyone’ knew before the debate became politicized.
Satoshi also provided the means to raise the limit with his famous quote:
It can be phased in, like:
if (blocknumber > 115000)
maxblocksize = largerlimit
Here is one more explanation from Satoshi, in an email to Mike Hearn, about why Bitcoin never hits a scaling ceiling.
Sure, Satoshi isn’t God. The point isn’t to appeal to his authority, but simply to remember that Bitcoin always had a scaling plan in place from the beginning.
…But the “Core Devs” Had Other Ideas.
Explanations have been given for the unproductive scaling conferences, the broken Hong Kong agreements, and so on, but it should be extremely clear to everyone, based on years of their behavior (and even their own words), that the Core group does not want to scale Bitcoin with a simple blocksize increase.
In fact, they (and their supporters) have done everything in their power to prevent this, including engaging in massive censorship.
Their primary arguments are as follows:
- It is problematic to raise the limit because it requires a hard fork, which is difficult to coordinate.
- Bitcoin nodes should be as inexpensive to run as possible, otherwise the decentralization of Bitcoin will be threatened.
- Without a constraint on the blocksize, Bitcoin won’t be secure once subsidies (block rewards) decline.
None of These Arguments Have Sufficient Merit to Forestall a Blocksize Increase
I am not saying the arguments are entirely without merit. Few things in life are ever 100% black-and-white. But we have to weigh the merits of these positions against the alternatives, and against other factors in the Bitcoin ecosystem.
Let’s take one at a time:
The “Hard Forks Are Dangerous” Myth
This was a prominent talking point in 2014–2015. However, the truth is that hard forks (HF) are not necessarily dangerous, especially if they occur with a clear majority of hashing power supporting the upgraded consensus rules.
The previous group of developers, including Gavin Andresen, Jeff Garzik, and Mike Hearn, all supported upgrading Bitcoin with hard forks.
Initially, the discussion was whether the new maximum blocksize would be 2MB, 4MB, or 8MB. What begin as a minor difference of opinions between the miners somehow snowballed into a potent meme that consensus over scaling was going to be difficult.
The developers starting adding their own opinions about hard forks, creating additional friction. Yes, it is easy to claim there is contention when you are among those being contentious!
Core has no official leadership positions or governance structure. Because of this, it has been easy to justify inaction by simply concluding that “there’s no consensus”. And since they control the reference code repository, their refusal to raise the limit effects everyone else.
In practice, Core does have leaders. How else can it be explained that segwit was merged into the code (even if not activated) with practically no public debate whatsoever?
On a side note, prominent Core developers have denied that Core decides what code is published, and have denied there is any leadership. This is an example of the kind of constant misinformation that is being generated on a daily basis.
Back to the HF issue:
Many altcoins like Monero have regular hard forks. Coordination between major players in an ecosystem is not a big challenge if everyone is on the same page.
So far, I have not heard of a single problem that an altcoin had in performing a network upgrade via hard fork. So, there is evidence that they can be done safely.
In addition, if Core admits in their roadmap that eventually the blocksize will need to be increased, then why not do it now when it is badly needed? There is no logical reason why it would be more risky now rather than later.
Decentralization Myths
There are actually several myths surrounding the issue of decentralization. Let’s address the obvious ones:
The most ludicrous is the “all users should be running full nodes” idea.
As others have explained, there is no security provided to the network by non-mining ‘full nodes’. Only mining nodes secure and extend Bitcon’s distributed ledger.
The white paper explains why most users do not need to run full nodes:
It is possible to verify payments without running a full network node. A user only needs to keep a copy of the block headers of the longest proof-of-work chain, which he can get by querying network nodes until he’s convinced he has the longest chain, and obtain the Merkle branch linking the transaction to the block it’s timestamped in. He can’t check the transaction for himself, but by linking it to a place in the chain, he can see that a network node has accepted it, and blocks added after it further confirm the network has accepted it… …Businesses that receive frequent payments will probably still want to run their own nodes for more independent security and quicker verification.
The idea that a lot of non-mining full nodes will make the network more decentralized (because they can make sure the miners are behaving) is erroneous, because an SPV client can already query the network’s nodes. Generally, there would only be a problem if a majority mining of nodes were colluding dishonestly, in which case Bitcoin would be already broken.
A more valid concern is that as nodes become more expensive, eventually only large corporations will run nodes. It is true that node costs will increase over time as the network grows. However, storage, bandwidth, and processing capabilities are also constantly increasing.
Just as important: By the time that capacity increases — lets say from 3 TPS (transactions per second) to 30 TPS — the network will be so large that it likely won’t be any less decentralized, even if it costs more to run a node.
At 3000 TPS, Bitcoin would be highly dominant globally, and making use of the millions of datacenters and servers available worldwide. This was always the plan.
The Alternative Vision of Bitcoin Holds Decentralization Risks That Are Worse
Many users are not aware of the decentralization risks that come with the small-node/small-block vision of Bitcoin. Core’s vision for Bitcoin is to transform the peer-to-peer cash system into some kind of settlement network.
While this would be a way to keep node costs minimal, most users would be economically forced off the main chain because they cannot compete with institutions for fees. They would then need to get permission from trusted third parties to transact.
In my opinion, this represents a much more dangerous form of centralization than bigger blocks and expensive nodes.
The Fee-Market Failure Myth
The third primary argument of the small-block philosophy is that eventually, block rewards will run out, and mining fees will be the sole source of funding security. They then claim that without limiting the supply of transaction space, miners will be hopelessly caught in a tragedy-of-the-commons price war, with the users paying rock bottom fees, leading to a collapse of commercial mining.
There’s a few problems with this argument.
First of all, there is a natural market for every good and service in the world. There have been many price wars, but nothing with high demand ever stops being produced.
The concern that the network hashrate will become too low is based on several assumptions and variables, including the number of daily transactions, the willingness of the users to wait for confirmations, the willingness of the users to pay small amounts, the behavior of the miners, the fee policies set by various wallets, the emergent consensus on acceptable fees by the mining community, and other factors, including what actually is “too low” of a network hashrate in the first place.
The hypothetical failure of the natural fee market depends on all these assumptions combining into an unfavorable outcome, as well as the inability of the system to adjust itself favorably using any of these factors.
But, by far the biggest reason that this argument is bunk, is that it will be decades before the majority of the subsidies actually disappear.
Pure Foolishness: Overplanning the Future While Ignoring Urgent Issues Today
Why implement a plan that might help Bitcoin in 20–30 years, if it requires you to damage the user experience and erode the adoption and network effect of Bitcoin, today?
In the case of Bitcoin, it’s completely unnecessary to plan ahead that far, and the destructive consequences are already being seen.
This is the biggest reason why Core’s position should be considered indefensible. Even if their arguments have merit, it is more important to keep Bitcoin healthy right now, stay competitive, and keep the user base growing than to prevent the problems that may or may not happen later.
Even worse, those prevention plans work in direct opposition to the short term goals!
It is no less insane than demanding a bedridden hospital patient, badly in need of rest, to immediately go outside and start running laps because “exercise will help you live longer”.
What About Segwit?
It is my understanding that at “the Hong Kong meeting”, the miners agreed to Segwit PLUS a hardfork blocksize increase because they didn’t trust the Core team enough to offer satisfactory scaling in a timely manner.
I think their decision was smart. Core cannot be trusted. However, if Core changed their mind today, and agreed to the 2MB+Segwit, I would support that as a compromise to break the impasse.
They seem to be unwilling to do this.
Since miners are unwilling to accept segwit on its own, and since Core will not compromise, the only logical alternative is bigger blocks, which is the best option regardless.
What Core Wants
You may be wondering: How is it possible for people as intelligent as the Bitcoin Core developers to fail to see the obvious mistakes in their thinking?
American author Upton Sinclair’s famous quote comes to mind:
It is difficult to get a man to understand something, when his salary depends upon his not understanding it!
The Core team and their supporters want to change Bitcoin into a settlement network. They will deny this, but in my opinion, all of their actions point to this logical conclusion.
This is why they are against on chain scaling, and why segwit offers as little of it as possible while supporting their “HF are bad” narrative.
Additionally, I believe they also want to control public opinion by employing key individuals, by their associates and moderation policies on various platforms, and with an army of trolls.
They also intimidate and punish businesses that don’t fall in line. For example, coinbase.com was delisted from bitcoin.org for supporting Bitcoin XT instead of the Core client.
Despite these shenanigans, companies do support bigger blocks and on-chain scaling.
Most importantly, they want to scare you, the miner, into believing that the community doesn’t really want big blocks and if that if you mine big blocks, you’ll be forked off to a worthless coin and left with worthless ASICs.
Do not let them intimidate you.
What the Users Want
Most users just want a Bitcoin that works. They do not want slow confirmation and high fees. Most Bitcoiners that use bitcoin frequently understand the issues and support bigger blocks.
Despite all the trolling and propaganda, users controlling actual coins vote overwhelmingly in favor of Satoshi’s scaling plan.
The “Healthy Fee Market” is Already Unhealthy
Even IF a centrally planned fee market was a good idea right now, it is being managed poorly. A “healthy” fee market should strive to provide adequate fee revenue while at the same time provide a good user experience and promote growth of the network and user base.
While miner revenue is certainly adequate, the user experience is severely degraded because of slow confirmations and high fees, and this is definitely not attractive or conducive to growing the user base.
If keeping the blocksize at 1mb was an experiment to see how the fee market would develop, it has already played out its usefulness. To keep fees at a level competitive with other coins, supply must catch up with demand (we must raise the blocksize) . But these developers seem to have no interest in doing so. They would rather carry on with their agenda than serve the users.
What About Bitcoin As a Store-of-Value or as “Digital Gold”?
The great thing about Bitcoin is that it can be both a cash-like payment system and a gold-like store of value. These two aspects enhance each other.
Exposed to the propaganda that Bitcoin can’t scale as electronic cash, some users have said “that’s ok. I’m fine with Bitcoin being digital gold only”. The problem with this thinking is that Bitcoin has competition.
If another coin is useful to store value AND to transact cheaply with, it severely undermines Bitcon’s appeal to investors. At the same time, it greatly dampens demand for actual usage.
Sure, its possible that Bitcoin could survive in some form as digital gold, but it would be at a huge disadvantage.
Small Blocks Destroy Miner Revenue
At first glance, the idea that smaller blocks are bad for mining revenue may appear incorrect, since fee rates have recently exploded based on the demand of Bitcoin transactions outpacing the supply of space in the blocks.
However, this trend cannot continue for long, since users will only pay so much. At the same time, new users and new demand are being shut out from the ecosystem.
To use an analogy: Who makes more money — the farmer in town “A” selling milk from one cow? Or the farmer in town “B” selling milk from 8 cows? Townspeople in “A” might pay more per bottle, but they’ll only pay so much for it. They will start drinking something else, drink milk less often, or import their milk from another town.
Bitcoin miners simply cannot meet the demands of users at fees they are willing to reasonably pay if blocks are restricted to 1mb… and users will find satisfactory alternatives which are quickly becoming abundant.
The situation will become even worse in the long run if Core is allowed to create “second layer solutions”, because those solutions will probably not be free, and they will further absorb the money that users are willing to spend in order to transact.
This will be bad for miners, and bad for network security. It will make bitcoin even less competitive, and money will leave the ecosystem.
Price Always Lags Behind Fundamentals
It is easy to look at a high Bitcoin price and think that everything is fine. If things were going so badly, why isn’t the price dropping?
But, price doesn’t always reflect the underlying fundamentals of a market in the short term.
In the long run, fundamentals always dictate the direction of the market. Daytraders are flat at the end of the day. Speculators come and go. In the end, it’s only the long term investors and the non-speculative demand that determines the price.
The fundamental value of Bitcoin primarily comes from its usefulness as a payment system. If that system ceases to be useful, Bitcoin will cease to be valuable.
Time To Act. Let’s Help Bitcoin Grow Again.
It’s always better to fix a problem BEFORE it gets too big. As they say, “an ounce of prevention is worth a pound of cure”.
If we wait until the Bitcoin price crashes because Bitcoin is unusable as a currency, it will be too late. We would have already lost serious momentum, marketshare, users, reputation, and merchants.
This is already happening, but there is still time to act.
I urge you: don’t be complacent.
You are the miner. You have the power. Start signaling for bigger blocks today, and let’s make sure Bitcoin stays #1.
Help Spread the Word
If you’re not a miner, but a concerned investor like myself, then please spread this message far and wide, and ask the miners and pools that you know for bigger blocks.
Addendum
Based on independent research from Dr. Craig S. Wright, and Bitcrust, and Dr. Peter Rizun, I no longer believe SegWit is an acceptable compromise.
This article is available in several foreign language formats:
