Decentralization Trade-offs and the Extremism of Bitcoin Core

Never a dull moment in crypto. This week we saw the launch of Bitcoin Cash, a forked version of Bitcoin, offering 8MB blocks and no SegWit. Although down from peak prices, at the time of this writing it commands a 3.4 billion dollar market cap and is the #4 coin… and mining has not started in earnest because the difficulty is still adjusting.

Meanwhile, Bitcoin is trading at all time highs and touched $3300. Good times!

I think this is great news for everyone. After a 4 year long debate over scaling, the various schools of thought will now be able to compete in the marketplace.

The Debate Has Mostly Been About Decentralization

There are good people on both sides of the debate, and I think that most of them simply support the plan that they believe will keep Bitcoin “decentralized”.

The small-block camp says that if we make blocks too large, then only huge data centers will be able to run nodes, which are then easily coerced and controlled by governments.

The big-block camp says that if we keep blocks small, Bitcoin will become a settlement layer. Ordinary users will be priced out of making direct blockchain transactions, and will be forced to use corporate banking solutions complete with AML/KYC requirements.

Both of these situations would obviously be bad and should be avoided if possible. So how do we do that? How do find the healthy middle ground and avoid the perils of centralization on both ends?

We Need to Look at the Realities of Technology

We cannot philosophize in a vacuum if we want to solve problems in the real world.

So, first let’s ask: what technologies are available to allow affordable on-chain scaling?

Well, we know that storage, Internet bandwidth, and computer processing are the 3 key resources that are required to scale. We know they are getting better all the time.

Even today, gigabit Internet speeds are already available for home users. A byte is 8 bits, so essentially a “gigabit/sec” speed means a gigabyte every 8 seconds.

Remember that 1MB (the current Bitcoin block size) is 1000 times smaller than a gigabyte. And consider that the block interval of 10 minutes (600 seconds) is 75 times longer than this 8 second duration!

Sidechains?

To be fair, we should also consider what technologies can be used to move transactions off the main chain without creating an obstructionist settlement network.

Sidechains/Drivechains seem like a possible way to move transactions off the main blockchain. However, the more transactions you move off of it, the weaker you make the main blockchain, since transaction fees are the source of security funding for the miners.

It might not be a problem to weaken it slightly, but if you want, say, a 10x off-chain scaling solution, that means weakening it 90%.

Healthy vs Unhealthy Approach to Decentralization

We should avoid decentralization at both extreme ends of the spectrum. We don’t want blocks so small that it fosters an era of “Banking 2.0” by moving things off chain before they need to. And we don’t want blocks so large that almost no one can download them.

The problem, as I see it, is that the current “Bitcoin Core” team has not taken a healthy approach, and instead has chosen the lopsided position of keeping 1MB blocks for years. Even the “1.7” SegWit approach is a piddling increase.

At the same time, the “unworkably large” blocks scenario doesn’t seem to be a real problem unless we had MUCH MUCH bigger blocks (again, see above about gigabit Internet).

The pseudo conservatism of the Core mindset (“we want to do everything we can for scaling before we increase the blocks”) is therefore misguided or disingenuous. It actually represents an extremist position.

Let the Market Decide

Now that Bitcoin Cash is available and thankfully is generally perceived as a new valid “version” of Bitcoin rather than “just another altcoin”, I think the Core version of Bitcoin may hopefully get some real competition.

Since I own Bitcoin on both chains, this is a good thing :)

It’s important to keep talking about the issues, though. I am concerned many people do not understand what the implications of Bitcoin becoming a settlement layer really mean.

Even though the “debate” is over, the community should continue to have an open and honest dialogue on forums that allow it.