Next week in Hong Kong (6-7 December) some of the biggest players involved in Bitcoin will try to reach agreement on how to shape the cryptocurrency to successfully meet mainstream adoption in the future.
A major point of contention is the size of the blocks in which bitcoin transactions are batched, on average every 10 minutes by the network. This is currently limited to 1MB. Put in the simplest terms, increasing blocksize is a necessary part of the scaling up of Bitcoin to become comparable to the sort of transaction capabilities of other payment systems.
The second Scaling Bitcoin workshop hopes to move the debate closer to consensus on how best to increase Bitcoin’s capacity, in particular because most of the Chinese bitcoin mining industry will be represented at the event – a factor missing from the first meet-up which happened earlier this year in Montreal.
IBTimes UK spoke to brothers Bobby and Charlie Lee, an apt pair of ambassadors for the event, and for Bitcoin in general.
Bobby Lee is CEO of BTCC, which could be described as a bitcoin conglomerate in that it combines one of the longest running exchanges with a bitcoin mining operation that accounts for some 14% of total hash power, as well as wallets and payments. Most recently it introduced vertical integration between these services.
Charlie Lee is the inventor of Litecoin, a highly successful cryptocurrency sometimes described as the silver to Bitcoin’s gold. Charlie is also chief engineer at Coinbase, the bitcoin exchange, wallet and payment API giant based in San Francisco.
Bitcoin blocksize debate
Altering the mechanics of Bitcoin involves so many variables, nuances and complete unknowns, that even the brothers don’t entirely agree on the potential effects. Bobby is in favour of Bitcoin Improvement Proposal 100 (BIP100), which advocates a moderate increase in blocksize over time, and allows the miners which create the blocks to vote to increase them on a rolling basis.
Charlie thinks BIP100 is better than BIP101, but thinks it still has some issues. BIP101 pushed a more aggressive increase in blocksize, raising the limit to 8MB, increasing by 40% every two years in tandem with future growth of CPU power, storage and bandwidth. BIP101 was not popular with China’s bitcoin miners because of the county’s limited bandwidth.
Even Bobby and I don’t totally agree on this, right. It’s hard to find consensus on this and that’s why this issue has been going on for so long.
Bobby Lee said: “My company BTCC actually came out publicly to support BIP100. The difference in the two proposals is very technical in nature. It has to do with how often the blocksize gets increased and whether human intervention is involved or whether it goes up automatically.
“I’m not too worried about which one eventually gets implemented. I have a firm belief our community will come together and implement the right solution that will us to grow and for Bitcoin to be more popular.”
Charlie Lee added: “Some people do think that we need to play a lot more conservative. So increasing blocksize could potentially lead to a path of more centralisation and a lot of problems that could hurt the Bitcoin network. So it’s better if you play it safe. So I am kind of in that camp. I think that if you increase the blocksize too much, too quickly, it could potentially destroy Bitcoin, with it becoming too centralised or the security suffering.
“So it’s a contentious question. What’s the right answer? Hopefully at this conference people are coming with proposals, having run some numbers to back up claims about proposals. I’m looking forward to see what people have come up with.”
While both brothers are conservative about blocksize increase, they come at it from slightly different angles. Charlie is more concerned about larger blocksize decreasing security, while Bobby is concerned about blocksize bloat causing individuals to no longer be able to run Bitcoin nodes, which would also decentralise a crucial part of the network.
“Even Bobby and I don’t totally agree on this, right. It’s hard to find consensus on this and that’s why this issue has been going on for so long,” said Charlie.
Bobby added: “I would say it’s a glass half empty/half full. We are not in disagreement. I think it’s very nuanced, very technical in nature – there’s not any significant disagreement. It’s like, do you think the internet should grow faster or do you think it should grow bigger? I think these nuances are very little in the great scheme of things.
“Don’t see this conference as a contentious war or anything. I think the conference is a milestone in the development of Bitcoin. Now that Bitcoin is turning seven it needs new clothing, it needs new tools to help it get to the whole world, and that’s what the Scaling Bitcoin conference is about: extending some of the performance and also removing some of the inherent bottlenecks in the current version as it goes into adolescence and adulthood.
“It equates to the early days of the internet when all the countries got together and said, now that we are going to extend the internet to every country, how do we go about the assignment of domain names, IP addresses and so on?”
In addition to the immediate fate of blocksize, other important issues to be talked over include payment layers on the Bitcoin network; a way to relieve the main chain of smaller transactions – the example often given is payment for a cup of coffee.
Charlie said: “I think something like the Lightening Network could play a big role in the future. It will take more technical development to fully flesh out the concept and implement it. For the layperson, basically it’s a network that’s on top of Bitcoin that allows for instantaneous transactions and allows for more transactions than the bitcoin network can provide.
“If you compared the internet to the Bitcoin network, the Lightening Network would be maybe like a local Wi-Fi network. You can have computers on the Wi-Fi network and it doesn’t matter that your internet bandwidth might be really like a modem speed, you can still communicate with each other on the Wi-Fi network really quickly.
“It’s kind of like that. It’s not fully analogous. But it’s something built on top of the Bitcoin network so you can communicate between yourselves really quickly. Today, at this stage the Wi-Fi network has not been fully developed yet, so people are saying let’s just make the internet bigger and faster. But there are downsides to that, so some people are pushing for the Wi-Fi network that can handle more transactions and more instant transactions and leave the internet, or the bitcoin network, as it is.”
BTCC recently announced vertical integration between its vast mining operation and other services to prioritise its customers’ transactions. BTCC said BlockPriority will save its customers having to wait for their transactions to be processed. As such, BlockPriority is also a means of “mitigating potential impact to BTCC customers from the lack of progress on blocksize increases”.
Bobby said of the new service: “Essentially it’s the next level of blockchain services, in the sense that we have an asset which is a mining pool, and by having a mining pool we are able to confirm many of the blocks in each day. Each day there’s roughly 144 block confirmations per day and with the BlockPriority service we are able to offer customers an advantage in confirming their transactions for a lower fee or for no fee.
“This is one of the value-added services we offer our customers. I mean it is what it is. I don’t think anyone complained about it. If anything this is very innovative, people are applauding us for this innovation.”
On the topic of creeping centralisation of mining pools possibly weakening the integrity of Bitcoin, Bobby said: “People ask, if miners get together aren’t they essentially centralising Bitcoin? My opinion is that’s actually a false worry.
“Even if there are, let’s say, three or four cartels of large miners such that they control a large portion of the hashing power of the Bitcoin network – that is actually not centralisation. True centralisation is basically the ‘old boys club’, where no one else can go in and participate.
“For example, the production of oil – that is centralised in the sense that Opec, Saudi Arabia and those countries produce the majority of the oil and they control the prices. Whereas with Bitcoin, even if there is, let’s say, an Opec – a large portion of a group of miners that have a large hash rate – the reality is that anyone is free to invest money to develop chips and computers to create the hashing power to join the mining race.
“In that sense it’s never beyond anyone to do it, because Bitcoin is open in that sense. In other words you do not need a licence or pre-approval from any authority or existing incumbent to participate in Bitcoin mining. Anyone can come in at any time. The more horse-power, the more capital you bring, naturally the larger the reward and percentage of the hashing power you have.
“Say you approach 49% and people fear a 51% attack. At that point anyone else who is concerned can add more horse power and more computing power to increase that mining share, reducing your 49% back down to a lower level.”
BIP100, which finds favour from the mining community, was proposed by core bitcoin developer and CEO of Bloq Jeff Garzik. He told IBTimes UK: “On BIP100, it seems to fall on familiar lines. Miners in particular like BIP100, which is unsurprising. BIP100 can be summarized as ‘miner voting with training wheels, one vote every 10 minutes for three months’. Miners vote where they would prefer the blocksize to be.
“Some of the objections are largely that BIP100 puts too much control in the hands of miners. That’s understandable, but misguided: one, because miners are paid in bitcoin, which aligns them with users’ interests; and, two, there are 1MB and 32MB min and max limits remaining. Users must vote – hard fork – to go beyond 32MB.”