4 Ways Bitcoin’s Takeoff Led the Network to the Verge of Collapse
Bitcoin’s Rapid Rise
There’s an argument to be made that blockchain is the fastest-growing technology in mankind’s history. Think about it: artificial intelligence seems like it’s developing way too fast. But the technology really dates back to the 50s, and Siri isn’t as smart as it seems. VR began in the 60s or 70s, depending on how you look at it. The first IoT machine was devised in ’82. Do you know when the first blockchain — the Bitcoin network — was deployed? 2009. That wasn’t that long ago! Yet, today, even your grandma has heard of Bitcoin.
That growth is a direct result of the community supporting Bitcoin. The most revered are those early adopters who believed in Bitcoin back when the rest of us either didn’t know what it was, or figured it was just a passing fad.
Today, it is the diversity of interests represented on the platform that really pushes the needle forward. Individual investors, startups, corporations, miners and developers all use Bitcoin in different ways, for different reasons. But any software upgrade has to be agreed upon by the majority of the community. So technical and philosophical debates about exactly how things should be never stop. It’s highly productive.
But this is the internet, after all. In some of those online forums where rich technical discussions occur, things can also get nasty and personal. Highly intelligent people regress towards pettiness and childish name-calling. And it’s not trivial, either — people have their money at stake.
These two sides of Bitcoin’s immense growth — the rapid technological achievement, and the dangerous infighting — all came to a head in 2017, a year Bitcoin users will never forget.
2017
The setting was ripe. The price of Bitcoin began to rise faster than ever before. In January, one Bitcoin was worth about $1,000. By June, one Bitcoin was worth about $3,000. By November, one Bitcoin was worth 5 digits. Investments grew exponentially in less than a year’s time.
Suddenly, Bitcoin was a hot item to the public. What was it? How did it work? And how could I become a millionaire off it too? Social media flared, news channels picked up the story, and word spread around the world.
It appeared that a golden age had dawned and everybody was winning. Money, attention, and success poured from every seam.
But just under the surface, the network was teetering on the verge of collapse. The widespread popularity that early Bitcoin advocates had been waiting for had finally come. But with it, came a high cost. Technical problems that were just nuisances when the community was small became obtrusive shortcomings. Debates among tight communities of knowledgeable users and developers ballooned into full-on internet wars. Factions hardened. Heroes of Bitcoin became enemies of the people.
At a time when a few Bitcoin could buy you a new car, the network supporting it was quite literally splitting at the seams.
Pieter Wuille
The defining debate of this period in Bitcoin’s history — the thing which instigated the worst of the rage wars, and revealed the deepest splits in the community — began with perhaps the shyest, most mild-mannered person on the network.
Pieter Wuille is as much of a software engineer as a software engineer can get. He writes code obsessively. In a community where everybody shouts at one another, and people who don’t actually know much pretend they do, Pieter is hardly ever seen or heard in public. When it comes to Bitcoin, he basically does know everything there is to know. As a result, he has achieved a cult leader status. In 2018, the website CoinDesk labeled him “the Zen Master.” An old meme from the Chuck Norris-style website ‘PieterWuillefacts.com’ summed it up best:
Pieter is one of the most prolific contributors to Bitcoin’s codebase in its history, but he’s best known for just one proposal he made in 2015 called Segregated Witness.
The SegWit
Segregated Witness, or SegWit for short, proposed changing the structure of Bitcoin blocks in order to more effectively handle signature data. Every Bitcoin transaction contains a cryptographically-generated digital signature which verifies the sender’s identity, that they own as much or more Bitcoin than they’re sending, and prevents their transactions from being manipulated.
Except there are issues with these signatures. Firstly, they’re vulnerable. In the time before a transaction is confirmed, a malicious actor could, theoretically, alter a signature’s hash without altering the payment information associated with it. The network would still accept the transaction — because the senders and the amount of Bitcoin didn’t change — even though the information describing that data would be different.
Why’s that a problem, if no money is tampered with? For one thing: because it could be used to make subsequent fraudulent purchases. For example, someone could receive a Bitcoin payment, use it to pay somebody else, then manipulate the hash associated with the first payment to retroactively make the second payment invalid.
Throughput
The second problem with signatures is that they make up around two-thirds of the data in a Bitcoin transaction, and Bitcoin has a big problem with storage. The security of the Bitcoin network is directly linked with how fast it can process transactions. The more transactions, the more security risk.
In 2015, when Pieter Wuille proposed SegWit, the maximum size of a Bitcoin block was one megabyte, and blocks posted to the chain every ten minutes. Now, even if you’re not familiar with Bitcoin at all, you can probably tell that this isn’t a lot. One megabyte of data, every ten minutes, to support a worldwide community of investors? Visa processes nearly 2,000 transactions a second so that its users worldwide can make instant payments. Bitcoin’s capacity was only 4 transactions per second.
When the Bitcoin community consisted of only a few users, this wasn’t so much of a problem. But as people’s Bitcoins started doubling, quadrupling, and multiplying in incredible orders of magnitude, the business sector took note. As the 2010s went on, it became more and more profitable to be in Bitcoin. More startup companies began to form as entrepreneurs saw money making opportunities in an investment platform that was increasing in value at a speed unseen in the ordinary business world. In the early 2010s, transaction throughput was an issue largely debated by engineers on a technical level. But by the mid-2010s, it became very important to people with more varied interests.
Incentives
Counterintuitively, it is the very people who make Bitcoin’s network secure that threaten its network security. “Miners” run high-powered computers, which perform the cryptographic puzzle-solving necessary to processing Bitcoin transactions. Bitcoin senders have to pay fees in order to incentivize these miners to perform the calculations and get the transactions approved. The miner who processes the transactions into a block first gets the fee payments.
But as we mentioned, transaction throughput threatens network security. Imagine you’re throwing a house party. You want a big party, where all your friends can come. But you don’t want it to be too big, either. There’s a threshold at which more people makes the party worse. If it gets too crowded you’ll run out of booze, and your nice things might break. If people you don’t know start showing up, they might steal stuff. The optimal solution is to envision how many guests you want, and put somebody at the door to control the influx.
More transactions means more money. But too many transactions opens up all kinds of potential security failures. It would require more and more computing power to be dedicated to the mining process, meaning smaller miners would be shut out. When only powerful, centralized groups of miners have the capacity to manage the security of the network, you no longer have democracy, you have oligarchy.
Trouble
Those weird and crazy people who believed in Bitcoin not just as a money making investment, but as the future of money — they wanted their platform to grow, too, but not if it came at the expense of the spirit with which they created it. The whole point of blockchain and cryptocurrencies was to remove the need for centralized power. To delegate that power back to the majority.
So imagine what loyal, idealistic Bitcoin supporters felt when a group of the most powerful business leaders in Bitcoin got together and came up with a plan to double the block size. Imagine what they thought next when that proposal was put to a vote, and only miners could vote; users could not.
This is how wars start.
This story was originally written by Nathaniel Nelson. Nathaniel is a writer and podcast producer based in New York City. He writes the internationally top-ranked “Malicious Life” podcast on iTunes, hosts programs on SCADA security and blockchain, and contributes to tech websites.
