Here’s my personal take on the SegWit (fixed, small block size) vs. Bitcoin Unlimited (dynamically determined block size) war of attrition that keeps raging on within the Bitcoin community:
- SegWit => Steers Bitcoin off of the “electronic cash” path Satoshi Nakamoto originally started it on, and towards an “electronic gold” niche that hard-limits the number of people that can use Bitcoin gainfully.
- Bitcoin Unlimited => Keeps Bitcoin on the “electronic cash” path, providing 2 billion “unbanked” people with the opportunity to bootstrap themselves out of poverty, participate in commerce, and boost the global economy.
The bitcoin core development team chose to implement the top option. The bitcoin XT, Classic, and Unlimited development teams chose to implement the middle option. Sadly, no team chose to implement the bottom option.
Two years ago, the XT, Classic, and BU camp(s) saw the high Tx fees and long confirmation times we have in place today – it was clear as day. But rather than paying attention to their concerns and incorporating a max block size increase into their SegWit design, the majority of the Core team and their backers chose to ignore, censor, and ostracize anyone who didn’t agree with their chosen path. As a result, we now have an existential crisis going on within the bitcoin community which may lead to the total collapse of the ground-breaking cryptocurrency. Bummer.
Remember this guy?
Well, Roger Ver (a.k.a Bitcoin Jesus) has a similar beef:
I’ve been a fan of Roger Ver ever since I got sucked down into the Bitcoin rabbit hole well over a year ago. His passionate, pro-Bitcoin words and startup investments have helped Bitcoin grow to where it is today. Roger has also been the most vocal Bitcoin celebrity to rage against the Bitcoin Core development team’s refusal to raise the maximum block size above 1MB.
Hard-limiting the maximum block size to 1MB causes more competition among users to get their transactions into a block – which causes the average per-block user fee to rise – which causes fewer people worldwide to use Bitcoin as “money” – which stunts the global growth of Bitcoin. In the worst case, fees may get so high so that we only see wealthy people using Bitcoin in the future.
As Roger has said, the more expensive it is to use a thing, the fewer the people are who will use the thing. Economics 101.
To support Roger’s claim, I submit a relatively recent tweet of his for your perusal:
And, if you navigate to the Bitcoin transaction that Roger links to in the tweet, you’ll see this:
At the time of the tweet, the BTC price was hovering around $1000 USD. Thus, the fee of 72 millibits that his company, Bitcoin.com, paid, translated to around $70+ USD. However, at 89KB in size, it sure is a big ass transaction to stuff into a block. 🙂
I just finished reading James Rickards’ “The Road To Ruin“. It was an interesting read in that he used: past events (1998 LTCM meltdown, 2008 crash), complexity and chaos theory, “fat tailed” power law distributions, and Bayesian statistics logic to build a fairly compelling case for the next impending global financial meltdown to be catalyzed by global elites. In his view, the US dollar will collapse and be replaced as the world’s reserve currency by the International Monetary Fund’s Special Drawing Rights (SDR) notes.
The fact that Mr. Rickards worked for the LTCM hedge fund when it imploded in 1998 makes him a complicit elite in my eyes. It makes me wonder if he was an unwitting co-architect of that disaster.
After building his case that the mother of all financial collapses is on our doorstep, Mr. Rickards states that there are three ways to to financially survive the debacle: buy fine art, land, and gold before your dollars become worthless. What a letdown. Buying art, land, and (less so) gold is not much of an option for the average Joe Schmoe with a modest amount of savings. It’s simply advice from an elite for elites to avoid being ripped off by other elites.
Strangely, Mr. Rickards doesn’t ever mention buying cryptocurrencies like Bitcoin as an option to ride out the next collapse – which shows me that he’s a dinosaur who needs to move into the 21st century. Cryptocurrencies are a viable hedge against financial calamity for the average Joe like you and me. Maybe Mr. Rickards will do his research and discover this fact before he pens his next doom-and-gloom book…..
Tatiana Moroz is a “Bitcoin singer”. As you can see in the photo below, she is curiously sporting a Bitcoin QR code sticker right on her guitar.
In appreciation of Tatiana’s singing a sweet Bitcoin jingle, I decided to tip her $1.00 worth of Bitcoin. To do so, I launched my iphone Coinbase wallet app, selected the “send bitcoin” feature, and focused the phone camera on the QR code in the picture. The wallet app then translated the QR code into the bitcoin address it represents and setup the transaction for me:
I then clicked send, and voila, she received the BTC tip from me!
Assuming I wanted to tip Tatiana, and Bitcoin didn’t exist, how convenient would the other currently available dinosaur payment options be to me?
More and more of the world’s population is becoming aware of Bitcoin’s blockbuster potential to liberate them from those fiat currencies that are being manipulated and debased by governments and central banks. As a result, more and more people have been entering the Bitcoin ecosystem to employ the virtual currency for any or all of the following use cases:
- Use as a domestic commerce payment tool
- Use as an international remittance tool
- Use as a temporary store of value
The rise in Bitcoin popularity has caused the per-block transaction occupancy to increase and bump up against the 1 MB ceiling arbitrarily burned into the protocol by Satoshi Nakamoto since its inception in 2009…
As more and more transactions contend for entry into each block, the minimum transaction fee that miners will accept for block admittance is increasing….
Assuming an average cost of 50 cents per transaction, then buying a cup of coffee for $2.50 would result in a 20% Bitcoin network tax!
As fees keep rising due to the constrained maximum transaction block size, the case for using Bitcoin as a domestic commerce tool is becoming more and more uneconomical. In the worst case, bitcoin growth can come to a screeching halt and usage can get stuck in use cases 2) and 3) as listed above.
The dynamic system diagram below models the negative feedback loop that is currently in operation in the Bitcoin ecosystem. Working around the loop clockwise, here is what happens:
- As more people use bitcoin, the blocks become more saturated (+).
- As the blocks become more saturated, the transaction fees rise (+).
- As the transaction fees rise, the transaction confirmation times rise from low proposed-fee transactions being rejected by the miners or from transactions being admitted to blocks long after they’ve been initially submitted by the user. (+)
- As the fees and transaction times rise, the number of people using Bitcoin decrease. (-)(-)
The good thing about negative feedback loop systems is that they tend toward stability. A second time around the loop shows the flip in signs:
- As fewer people use bitcoin, the blocks become less saturated (-).
- As the blocks become less saturated, the transaction fees decrease (-).
- As the transaction fees decrease, the transaction confirmation times decrease from all transactions immediately being included by the miners in the very next block to be mined. (-)
- As the fees and transaction times decrease, the number of people using Bitcoin increase. (+)(+)
The key to stable Bitcoin system growth is to untether the maximum block size and allow it to grow in step with the growth in the user community so that the strength of the two negating influences in the model (fee size and confirmation time) do not drive the new number of users down to zero. The capped 1 MB maximum block size is currently stunting Bitcoin’s growth.