Why block size limit is dangerous for bitcoin and pro segwit2x

In November 2017, a really important hardfork bitcoin will take place, not a bitcoin cash bitch fork (the whole point of which is not fundamental support for segwit and 8mb limit side), which took place on August 1, the only purpose of which was to distract and community forces from the real problem. The start block number segwit2x became exactly known - it will be block 494 784.

Let me remind you briefly, in February 2016, significant participants, including the bitcoin core, signed the Bitcoin Roundtable Consensus in Hong-Kong agreement , which described in stages the implementation of the new transaction format segregated withness and increasing the block size limit to 2mb but not more than 4mb.

Regardless of who is to blame, I think both sides behaved more than unwisely (I think most of the blame on miners), the conditions of this agreement were not fulfilled in time, and a year later - in May 2017, without the participation of bitcoin representatives core The new agreement was signed - Bitcoin Scaling Agreement in New York , implying virtually the same but in a manner inconsistent with the plan conducted by the bitcoin core team.

In fact, there is an attempt to wean the control and coordinating functions of the bitcoin core team.

Let me remind you that thanks to the decentralized nature of bitcoin, namely, consensus technology, the real reins of government lie not only on the developers / owners of the keys of the corresponding account on github, but also on most of the miners (mining pools). And no matter who is right and who is not, it also does not matter who has more influence - it is important who has more power. Until now, the participants managed to keep up with each other and there were no noticeable conflicts. But now the miners (and in fact these are Chinese pools with a combined capacity of more than 80%) have a desire and an opportunity to do something differently.

The last two years, news sites, forums and discussion platforms, at the interruption, created confusion around the problem of expanding the block size limit, and it all went down to banal censorship. As a result, the community, or rather, the “unreasonable majority” (people who want to use but do not want to understand the subtleties and peculiarities, are not the banks where you can go to the clerk and get everything cleared up and the erroneous transaction is rolled back) That bitcoin development is either a segwit or an increase in the limit. Projects like bitcoin xt, bitcoin unlimited and later bitcoin cash showed this perfectly, and the whole point of creating them seemed to be exactly that - to lay this silly thought in people. But between these technologies there is no inequality sign, they are quite compatible.

Blockchain is too big !?

Why is the limit on block size so important? In fact, this is a limitation of the speed of the blockchain, it determines the requirements for the hardware that supports the network - complete nodes for storing blocks and devices for mining. The greater the limit on the block size, the more transactions can be saved in the blockchain, and the greater the growth rate of the base of the full node, which already takes about 160 gigabytes.

Let me remind you that there are already a lot of solutions that reduce the requirements for the size of the blockchain, which must be stored with end users, and different tools are suitable for different categories of users - miners, payment gateways and users. Even the very first bitcoin-qt wallet has long been configured (-prune key), which allows you to automatically reduce the size of the saved blockchain on the disk, up to 512 MB.

In theory, there is a danger that as the block size increases, traffic between nodes will rise significantly, especially for places and countries with limited connectivity, which is the same as China, with its 'China Firewall', which restricts the channel outside the country to a few hundred. kilobyte But in fact, so far, changes in the limit on the block size do not significantly affect this indicator, the same bitcoin cash has already quietly missed blocks of 6mb in size, and the root of the problem under discussion is an increase in the limit to only 2mb.

Low transaction speed and sidechain - salvation.

One of the most interesting technologies to increase the speed and number of transactions in the bitcoin network and its direct forks is the lightning network technology. In theory, this technology will allow increasing the network bandwidth by several orders of magnitude, transferring and spreading the burden of transaction processing from miners to full nodes of 'regular' network users. The technology is not the silver bullet itself, it has limitations and nuances of use, but it is clear to any sensible person that this technology should be implemented and implemented everywhere. This technology was presented as the main rationale for the introduction of segwit, which in fact will allow you to use contracts and create your tokens in the bitcoin network in general, by analogy as it is done in other altcoins, such as ethereum, for example.

Previously, there have already been successful attempts to implement a token in the bitcoin network, for example, tether.io, a popular one, the USDT ticker, equal to $ 1. Just recently, the bitfury team successfully implemented and tested on the current non-test blockchain bitcoin the work of the lightning network, without using segwit.

Those. segwit is not a panacea, but its implementation is preferable; any fork without this support will sooner or later be doomed to oblivion, because the main volume of developers will be guided by it. Plus, this is a theoretical increase in the number of transactions for the same block limit in the blockchain up to 2.5 times.

Why is the limit on the number of transactions in the blockchain dangerous?

The limit of the number of transactions directly determines their value. This is what we have been seeing for the last three years in the bitcoin network, when, thanks to the growth of the course and almost constantly filled with a pool of transactions waiting for confirmation, reaching up to 200 thousand (now, for example, 60 thousand), the cost of a typical transaction easily reaches $ 7, and this price does not depend from the amount transferred. Users of some wallets can independently set up a commission, and with the right approach, you can pick it up such that its value decreases several times, due to an increase in the time it passes.

Transactions can go up to 3 days, later, an unconfirmed transaction is almostIt is always removed from the pool and can be re-sent. Also, for two years now the technology has been in effect in the network, which prohibits ordinary users to use double waste directly, but it is possible to pre-mark their transfer as replaceble, and after sending the transaction to its location in the block again send with another commission. The decision is controversial, it does not always work (in the sense that double waste is possible without this option), but the confusion and incomplete support in wallets greatly interferes with ordinary network users to optimize their operations at least a little.

For example, a classic example is that a miner received hundreds of money transfers to his wallet, more than $ 400 in dust, but when he tried to make a transfer, he received a $ 500 commission request. With a self-contained and erroneous commission set (blockchain.info wallet is terrible in this respect, compared to the same electrum), the user received a dangling transaction for a week and could not do anything, even in other wallets it appeared, the situation was resolved by a typical double card transaction using one of the inputs with a significantly higher cost of commission per byte, such a transaction became a priority and hung in the unit, which in turn removed the first one, as a result the transaction cost $ 20.

And here we come to the main problem of the bitcoin network - the number of transactions will only increase, with increasing popularity, namely, with an increase in the number of users.

Even technologies of the lightning network type can not cope if the limit on the block size is maintained at the current 1mb.

The reason lies in the features of this technology itself. To connect your wallet to the LN network you need at least two blockchain transactions - opening blocking means and closing funds that can be delayed in time almost indefinitely, plus clearing transactions that equalize balances on users' wallets necessary when the user has significant changes in the account, higher than the amount of blocked funds at the time of connecting to the network.

What is most dangerous is that the increase in the cost of blockchain transactions will be avalanche-like (now we see only short-term peaks in the number of transactions, the network is unloaded at the moments of recession, with an increase in the popularity of this luxury, it may not be) be after allUntil now, an adequate technology for increasing the limit on the block size has not been proposed , bitcoin unlimited offers have been rejected, which means any increase in the limit is hard fork .

In the current example, we see that organizational fussing with a hard fork over the limit on the block size can take years.

Why is the high cost of blockchain transactions dangerous? I'm not talking about a few dollars for a transfer, but tens and hundreds of thousands of times more expensive, when only large lightning network nodes serving a large number of users can pay for such a transaction. The danger is in the difficulty of connecting new users to the network, namely in the first blocking transaction that opens a connection. To connect to the LN network, the user must already have a certain amount on the address in the blockchain (already a transaction) and must block this amount (another transaction).

The same feature of the LN network is that it will not be possible to open a payment channel with anyone, since each connection between the nodes requires blocking the same funds from both sides. This is especially true for large nodes, with a large number of connections, they must be financially interested in order to block such large funds.

All this means that if users cannot do something on their own, centralized services will do this for them, of course not for free, but most importantly, users will not have adequate ways to maintain a purse that is independent of anyone.

First of all, LN nodes will become exchange of cryptocurrency, online wallets and mining pools.

And if mining pools traditionally work outside the sphere of state regulation, then stock exchanges and online wallets (future banks) are forced to work within the legal regulation of the countries issuing fiat currency they work with.

Cryptocurrencies have already shown themselves to be a financial tool that poses a danger to financial regulators in different countries, which means that they will fight against freedom and independence, and the first successful tool of this fight will be to take control of large LN nodes.

Each LN node completely controls and determines which transactions it will skip at what price, and if the financial controller requires the exchange to skip transactions only from users of the same BitLicense, it will turn the entire network into another regulated banking, the flaws of which are visible to anyone to the naked eye. And it would not be so scary if ordinary transactions were available to everyone, and blocking such a network with LN would require the user to just wait longer, but the limit on the block size would make this alternative inaccessible, or rather very expensive.

Summary - yes, the current situation with the block size limit and segwit implementation looks like a normal weaning of control mechanisms of one group from another, in any case, transactions will go, and financial interest will not allow one of them to do anything stupid. But the danger of losing bitcoin as an instrument independent of third parties and in particular from the financial regulators of the countries is not illusory.

Think about it when you choose your wallet and standard.

I remind you, although the bitcoin core did not directly declare that they were going to keep the block limit of 1mb, but repeatedly stated that the blockchain should be used mainly for clearing LN transactions at the limit of its capabilities, which is actually the same thing.

ps recommend reading my next post.