Everyone in the cryptocurrency space agrees that Bitcoin needs a scaling solution, but Bitcoin has not one but two such solutions, with bitter and often uncivilized fighting between the Chinese miners on the one hand and (most of) the core developers on the other. There has been a failure to reach consensus as to which scaling solution is better. Meanwhile, fees for transactions – once negligible – now cost over $2.50 for a typical simple transaction.
At the annual Consensus Bitcoin conference in New York on May 23, a scaling breakthrough was announced. The so-called New York Agreement called for lowering the threshold for SegWit activation to 80% but committing to doubling the block size to 2MB within six months.
However, the New York Agreement lacked one very important party: the actual Bitcoin-core (i.e. the official, reference client) developers.
In a series of tweets, Blockstream CSO Samson Mow paraphrased the New York agreement in a tongue-in-cheek manner:
Excited to announce a new Mars program to get us there in 6 months. No NASA, SpaceX, or any other engineers were involved. We weren’t able to decide if the rockets should use liquid or solid fuel so we compromised and will use a mixture of both.
Some have told us that the journey alone would take 9 months but we have a lot of money & support from businesses so 6 months is totes fine. The secret is to work in parallel & deploy things simultaneously. We’ve also assembled a new team who are now reading books about rockets.
We have critical mass to make this happen: 56 artists that draw pictures of rockets, 83.28% of titanium & aluminum miners & 20.5 mil screws.
We welcome all companies, miners, developers, and users to join us and help prepare for this exciting journey to Mars. #Bitcoin
Yes, the Chinese miners may control the resources and hash rate, but without developers on their side, can they really move the ecosystem forward? SegWit has been tried and tested extensively on the Bitcoin testnet and is now live on Litecoin without any of the disasters predicted by naysayers. SegWit works and offers up to 70% more capacity without actually increasing the block size.
The BIP-148 proposal
Many of the core developers, most notably Luke-Jr, have adopted a degree of militancy to counter the inability to achieve consensus with the proposal for BIP-148, the user-activated soft fork (UASF). Despite what the Chinese miners would like to think, Bitcoin also depends on nodes to relay transactions across the network (similar to BitTorrent), rather than have all users simply send transactions to a handful of miners. BIP-148 is an optional rule set in the Bitcoin-core nodes that would essentially ignore any non-Segwit ready blocks that are mined.
This means that on August 1, there will likely be a fork of the Bitcoin blockchain. One chain will have SegWit, and the other will still be stuck without a scaling solution. If most miners follow the new BIP-148 rules, then the soft fork will have passed smoothly. However, as Bitmain CEO Jihan Wu has indicated, his miners will not support BIP-148. Bitmain’s Antpool currently controls around 16% of the total Bitcoin network hash rate.
The danger is what might happen if both the BIP-148 chain and the original legacy chain coexist for a time. Nodes that support BIP-148 will of course support it, but nodes which have no preference will simply pick the chain with the greatest hash power or proof-of-work behind it as part of its consensus rules.
This would mean that at any time at a later date, there’s a chance that newly mined non-BIP-148 coins – or any transactions made by non-BIP-148 clients and mined by non-BIP-148 miners – would simply be wiped out from the blockchain transaction ledger.
In other words, anyone supporting the BIP-148 UASF should have nothing to lose. Worst case scenario: nothing will happen and Bitcoin will still not have SegWit. However, for those not supporting BIP-148, it’s possibe their coins and transactions might be forgotten by the Bitcoin network if BIP-148’s hash rate overtakes the legacy chain at any time in the future.
It is very much like watching a game of chess to see how each side plays their next move.
The battle of Bitcoin?
Jihan Wu’s next move – after calling BIP-148 stupid – was an announcement on the Bitmain blog that Bitmain would protect the Bitcoin network by using part of its hashing power to mine blocks to attack the BIP-148 network. By mining a series of empty blocks and then releasing them at a later date, Wu would essentially reverse any BIP-148 transactions that happened after August 1. This is what is called a 51% attack. However, with just 16% of network hashing power, it would cost him a lot to keep the attack up.
Ironically, the Bitmain blogpost has highlighted the choice Bitcoin users now face: a Bitcoin that is controlled by a handful of Chinese miners, or a BIP-148 Bitcoin that is somewhat messy but at least is decentralized. Given that choice, many who were on the fence are now supporting the latter.
It would be interesting to see how markets respond closer to August 1. It is almost guaranteed to be a messy period and with risks, but anyone holding Bitcoin and controlling their own keys on that date would have both new 148-compliant and legacy Bitcoins – and with Wu throwing down the gauntlet, both are at risk of being deleted.
A month ago, one could have said that the scaling battle was one about profits for the miners. Wu has said that SegWit has unfairly cheap fees. SegWit is incompatible with ASICBoost, a mining technique that mines mostly empty blocks in exchange for around 20% extra mining income. What it clear now is that it is not so much about mining profits today, but rather a fight for control over Bitcoin itself. It is a fight that already has cost Bitcoin dearly. Its market dominance has fallen from around 84% in March to under 39% today. Bitcoin is now at risk of being overtaken in terms of market cap by Ethereum. It is a situation where both sides blame the other for damaging Bitcoin by refusing to achieve consensus.