As my readers are already aware, the reason I became so enamored with Bitcoin is because of its innovative nature and its great potential to change the world. A part of this potential is Bitcoin maturing and adapting with the times by allowing for more users on the network by means of more transactions. This in turn will allow Bitcoin to compete with other networks such as Paypal and maybe even Visa.
For more people to use Bitcoin in an acceptable manner we will need to allow for more transactions to take place and as shown below the total number of transactions being carried out is gradually increasing with time. The problem we face is that these transactions are stored in ‘blocks’ of data and currently those blocks are capped to 1MB in size. This means that only a certain number of transactions can take place in one block and the other transactions fall back in the queue. This can lead to long waiting times for a transaction to take place and could potentially put off new users from using bitcoin as an everyday currency. This ultimately creates a big inconvenience for all users of the network.
The effect of this inconvenience was felt only months ago when a stress test was carried out on the network. Many small transactions clogged up the network and delayed transactions for hours and in some cases even a day or two. For Bitcoin to go mainstream this is not acceptable and will put off many people who are interested in this technology as an everyday payments network. Bitcoin will no longerrun freeand bring innovation to the masses but instead become an expensive network where large fees are paid in order for transactions to be processed in an acceptable manner.
There isanother stress testcurrently planned for September that could potentially backlog the system for 30 days and will be carried out by Coinwallet. This in effect will demonstrate to the developers that the block size needs to be increased from 1MB. This will render some wallet services unusable due to their static fee structure.
What we will hopefully learn is that Bitcoin needs to change and adapt or it will die. Bitcoin was built with the purpose of change in mind and in the past, block sizes were capped at 32MB but later changed by Satoshi himself in 2010 to reduce the threat of spam. Five years on, we are in dire need to address this issue if we want Bitcoin to grow and flourish.
We now need to increase the size again to process the extra transactions that areexpected in the future. Even Satoshi Nakamotoenvisioned such a process. It is projected that we will reach the limit of the current system sometime next year or 2017 if we are lucky. It has been proposed byGavin Andresen and Mike Hearn that we fork the software to allow for growth.
Their proposal ‘BIP 101’ is arguing for bigger blocks that will allow for more transactions to take place. They have made a modified version of the software that is calledBitcoin XTto allow for this. The biggest problem for them to overcome is getting consensus from players on the network. 75% or more of miner support will be needed for a majority change to Bitcoin XT.
Miners are the players who verify the blocks of data that consist of Bitcoin transactions. To secure a block and its admittance on the blockchain a computational puzzle calledproof of workmust be complete. The first miner to win the race of solving the puzzle is rewarded with twenty-five new Bitcoins and then the race continues for the next block.
Another alternative to BIP 101 is ‘BIP 100’ which is another proposal for a block size increase but one that is market driven. This has been devised by Jeff Garzik who is another core developer for Bitcoin. His proposal suggests that instead of using a fixed limit for the block size increase, each block should be dynamic and the size should be dictated by consensus from the mining community. A general round up for the support of BIP 100 and BIP 101 can befound here. So far the mining community is rallying behind BIP 100 whereas the Bitcoin services sector is supporting BIP 101.
On the opposite side of the argument we have those who wish for the block size to stay the same and for the market to decide on transaction fees. This in turn may potentially lead to the use of other solutions such as the use ofsidechainsorLightening Network. It is argued that to mine larger blocks more computational power will be needed. This could conceivably lead to centralisation in the form of large mining farms being responsible for the majority of the network.
Although more computational power will be needed for larger block sizes, it is almost a certainty that the power of computer hardware will increase exponentially over the coming years. Broadband speeds, hard drive capacity, ram size and processor speeds have all increased significantly at a certain price point. We are also on the verge of receiving16TB SSD driveswhilst the price has decreased significantly for older and smaller capacity models. The power of mining hardware has alsodrastically improvedover the last few years with the migration from processors and graphics cards to the current use of ASIC miners.
It can be said that either way, competition is good for Bitcoin and ultimately the market will pick the best solution. Whether that solution is the original 1MB block size or a larger block size is to be seen. It must also be pointed out that the largest proponents of the 1MB block size happen to be Bitcoin Core developers and also co-founders of a startup venture known asBlockstreamthat was capitalised to the tune of twenty-one million dollars. As a result they have received criticism over an apparent conflict of interest where they may possibly wish to cap the block size in order to force Bitcoin users into adopting Blockstream for its sidechain elements. To find out more about Mike Hearn’s argument for the 8MB block size pleasego here. Gavin Andresen’s rebuttal for bigger blocks can also befound here. Finally an open letter from the majority of the Bitcoin Core developers can befound here.
It will take many months or even a year before we find out the prevailing winner of the block size conundrum but I feel that a block size increase will ultimately prevail in order for the network to progress and innovate in the long term. That is not to say that sidechains will not be implemented but will also be used as a second layer on top of the blockchain to allow for nearly instant payments amongst other innovations. What are your thoughts in regards to bigger blocks? Please let us know below.