The Blocksize Wars: Bitcoin’s Existential Crisis - Part 1: What Are Bitcoin Blocks?

Miners are having a more difficult time processing transactions, and there is an imminent danger that the Bitcoin network could undergo a hard fork into separate chains unless steps are taken to remedy the situation. While we may be laying on rather thick the sensationalism, urgency, and scale of the situation,  the Bitcoin protocol has undergone this extinction-level alert–more than once–and probably will, at some point, again. The block-size wars were just a few chapters.

Even though many early adopters are well aware of these (ongoing/developing) power challenges at the protocol development level, most people in crypto don’t fully understand what it means for Bitcoin as a project and how it could affect the broader crypto economy going forward. This article aims to explain everything you need to know about what’s become known as ‘the blocksize wars’ and their implications for the future of cryptocurrency writ-large.

In order to get a better understanding of the events, the people involved, and the arguments for and against, let's start with an overview.

Bitcoin was launched on January 3, 2009, when the first block of the Bitcoin blockchain, called the genesis block, was mined by its pseudonymous creator(s) Satoshi Nakamoto, but it wasn't until 2013 that it began to gain adoption. During the early years, there was little growth in the number of transactions.

As Bitcoin started to gain traction between 2013 and 2017, it became clear that the underlying technology wasn’t scalable enough to handle the increased demand–let alone how it was described in its own white paper as “a peer-to-peer electronic cash system”. With blockchain as the underlying technology behind Bitcoin (and many other digital assets), one of the biggest problems is that they have a finite capacity (in Bitcoin’s case, 1MB per block.)

In Bitcoin, blocks are groups of confirmed transactions that are broadcasted to the blockchain, which acts as a public ledger. Not only would all the Bitcoin miners and node operators likely not be able to handle the transaction requirements of a world using Bitcoin* as cash (for buying everyday goods like coffee or groceries) but the average block can only physically contain a certain amount of transaction data (1MB!). (The currency of bitcoin is spelled with a lowercase ‘b’ while Bitcoin the protocol requires a capital ‘B’.)

A Bitcoin block size limit determines the maximum size of Bitcoin blocks and, as a result, limits the number of confirmed transactions. In today's network, approximately 7 transactions can be processed per second. (In contrast, there are thousands of credit and debit card transactions handled across the world every second.)

In 2009, during the early days of the blockchain, Satoshi implemented a hardcoded block size limit of 1MB. It is believed that Satoshi Nakamoto (Bitcoin’s pseudonymous inventor) capped the block size to prevent malicious actors from spamming the network with massive blocks filled with fictitious transactions.

Jeff Garzik proposed to lift the limit in 2010, claiming it was a "marketing issue". According to Satoshi, it wasn’t the time to increase, but people could upgrade by hard-coding the new timestamp or block height retroactively at some later time.

From 2010 to 2014, there were many discussions on the block size limit. Having to store gigabytes of gambling spam forever was a hassle for some people. As a result, the concepts of "soft fork" and "hard fork" were introduced.

When Bitcoin started to gain serious traction, it became clear that the network couldn’t keep processing all the transactions on the blockchain. If the block size remained at 1MB, the network would be unable to handle all the transactions and there would be serious congestion. The debate over how to solve this dilemma began in 2015 when the Bitcoin community first got a chance to give their input on the idea of increasing the block size. This is when Bitcoin Improvement Proposals (BIPs) were introduced.

Here’s what the BIPs looked like

• BIP 100
  If the block size is to be changed, do it based on miner votes, but don't leave the range (1MB, 32MB) without a hard fork or soft fork.
• Bitcoin XT
  As an alternative client, Bitcoin XT became notorious for adopting BIP 101, which allowed the size of the block to double every two years with the size increasing linearly within those two-year intervals after January 11, 2016. 75% of miners had approved it, but the hard fork couldn’t be activated due to a lack of support from the community, which led to Mike Hearn’s resignation (which we’ll discuss later).
• BIP 102
  November 11, 2015, 2 MB increase.
• BIP 103
  Annual increase of 17.7% until 2063.
• Bitcoin Classic
  2016 hard fork to 2 MB following the adoption of BIP 109.
• Segregated Witness (SegWit)
  Eventually, ‘Segwit’ was deployed, increasing the block size limit from 2-4 MB without requiring a hard fork.

Tune in for Part 2 next week to find out how it all unraveled/came together..

Disclaimer: This article is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.