What we’re doing with Bitcoin Unlimited, simply
Bitcoin has no center. It has no Board of Directors. It has no CEO, no President, no Chieftain, Sheik or Shah. Bitcoin is a decentralized network made up of voluntary participants — only loosely connected — who come together for their mutual benefit. There are users who transact in bitcoin to take advantage of its privacy and convenience, and investors who hold bitcoin hoping to profit from its price appreciation. There are node operators whose computers validate and relay the transactions made by Bitcoin users, and there are miners — a special type of node operator — whose mining farms append blocks of new transactions to the permanent blockchain ledger, rewarding themselves for this service with 12.5 newly-minted bitcoins.
The fact that Bitcoin has no center— that Bitcoin is decentralized — is the very essence of its nature. It is this lack of a center that helps to ensure the integrity of Bitcoin as money. If Bitcoin had a center, users would have to trust it not to reverse or censor payments for political reasons, or reward itself unfairly with newly-created bitcoins. If Bitcoin had a center, it would be much less useful as peer-to-peer electronic cash.
And there is no doubt: Bitcoin is useful as electronic cash. One measure of its usefulness is the price of a bitcoin, which has increased from $1.08 six years ago, to $993 today.
A second measure of Bitcoin’s usefulness is how often it is used. The total volume of transactions processed by the Bitcoin network has likewise climbed from 1 transaction per minute six years ago to an average just shy of 3 transactions per second today.
A third measure of Bitcoin’s usefulness is the number of people using it. Due to Bitcoin’s pseudonymous nature, user-base estimates are often disputed, today ranging anywhere from hundreds of thousands to tens of millions. But one thing that is not disputed is that the growth of Bitcoin’s user base was a primary driver increasing both the total volume of transactions and the price of a bitcoin.
Bitcoin’s lack of a center comes with a cost too: there is no conductor waving his baton, coordinating the network participants while they play from a curated score. Even changes that are widely perceived as positive are difficult to roll out, as doing so involves communication and cooperation between the loosely-connected participants who make up the Bitcoin network.
The most pertinent example of a need for change is the “1 MB block size limit.” In 2010, Satoshi Nakamoto added a protocol rule that limited the volume of transactions committed to the blockchain to roughly 3 per second (3 transactions per second typically fills blocks up to the 1 MB limit). When the limit was added, it was 800 times greater than the natural transaction volume, and so the limit did not constrain the natural growth of the system (it served only as an anti-spam measure). But today, the network is “maxed out,” regularly hitting this limit, and no longer free to grow how it did during the first 7 years of its history.
How might we increase this limit, if Bitcoin has no center that can do it for us? To answer this question, we must first understand who it is that is enforcing the block size limit.
So who is it? Why can’t Bitcoin users make more than the 3 transactions per second on average today? The reason is related to the fact that when a payment is sent between two users, it doesn’t actually go directly from User A to User B; instead it is relayed to, and approved by, every node on the network. There are approximately 6000 accessible nodes, or assuming bitcoin has 5 million users, about 1 node for every 800 users.
When a miner finds a new block of transactions to add to the blockchain, each node checks the size of that block. If the block is larger than 1 MB (i.e., if it contains more than approximately 3 transactions per second worth of data), 9 out of 10 nodes today would reject that block as being invalid. No miner would risk intentionally producing a block larger than 1 MB because he knows that the network as a whole would reject it and his 12.5 BTC reward would be lost. And so even though miners may want to process more transactions per second, they don’t because effectively they can’t — the other nodes won’t let them.
We see then that to increase the limit — to allow miners to process more than 3 transactions per second —it is the people operating these nodes who must take action. Node operators must convincingly communicate to the miners that they are ready and willing to accept larger blocks. This is especially true for economically-significant nodes such as those running Bitcoin exchanges, payment processors, and web wallets. What Bitcoin Unlimited is doing, is giving node operators a flexible set of tools to allow them to do this.
Very simply:
- Bitcoin Unlimited allows a node operator to quickly and easily change his node’s block size limit.
- Bitcoin Unlimited allows a miner to quickly and easily change the maximum size of blocks his node will produce.
- Bitcoin Unlimited helps node operators and miners signal their block size preferences to the rest of the network.
Today, approximately 1 in every 10 network nodes is running Bitcoin Unlimited, with a median block size limit of 16 MB. As more and more node operators take similar initiatives and raise their node’s block size limits, miners become more and more tempted to produce larger blocks that contain more transactions. At some point — when miners are comfortable that a sizeable majority of the network is ready and willing to accept larger blocks — a miner will produce one, it will be accepted into the permanent blockchain ledger, and Bitcoin will be free to continue growing.
What we’re doing with Bitcoin Unlimited is that simple.
Acknowledgement
The author thanks Andrea Suisani, Peter Tschipper, Jerry Chan, and his mom for their reviews.
