The ‘Crypto Cold War’: Bitcoin’s Politics Of Scalability


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David Floyd // Twitter

Writing on Nasdaq.com, bitcoin observer David Floyd claims the quest to increase the size of the bitcoin block is a critical issue for establishing bitcoin as a major currency. The quest, however, has no ready solution, Floyd notes in his essay, titled, “The Crypto-Cold War: Bitcoin’s Politics of Scalability.”

Floyd, who writes about investing, energy and politics, says at present, bitcoin’s processing capability dwarfs in comparison to Visa, which can process 56,000 payments per second.

Increase The Block Size?

Increasing the bitcoin block size could solve the issue, he writes, but this presents drawbacks. Floyd compares the debate over increasing the block size to the Cold War, in which one false move could “nuke the whole project.”

With the existing system for creating blocks, anyone can pop into the open source file, tweak one line of code and “save the nerd money.”

“But what if everyone doesn’t want your new-fangled Bitcoin? What if they like their Oldcoin? You’ve generated a fork, rendering Bitcoin a monstrous, two-headed thing and guaranteeing that, when it is all over, the people on the wrong chain have lost their money,” he writes.

March 2013: Historical Precedent

Floyd points out that this situation occurred in March 2013 when clients running version 0.8 of bitcoin’s software generated a block that version 0.7 users rejected. This action caused two chains to diverge and compete for the status of the accepted chain.

“Bitcoin bigwigs like Gavin Andresen stepped in to get v0.8 miners to stop and allow the v0.7 chain to take over.”

Floyd said the solution to this scenario owed a lot to “de facto” centralization. If transaction volume increases, the block chain will exclude smaller transactions because it will not be economical for miners to process them. For the average person to be able to do one transaction per year, users would be capped at 64 million, which Floyd says represents an illiquid long-term investment.

Raising the block chain transfers the risk of centralization to a different part of the system. Transaction fees remain low, but the cost of powering servers to solve more difficult problems would bankrupt most miners. Raising the block chain would reduce the system to a few large entities.

Proponents argue that small block sizes prevent centralization.

Floyd notes that DeathAndTaxes.com summarizes the arguments for the block size battle.

Also read: Bitcoin Block Chain Forking

Can There Be A Compromise?

A compromise is needed, Floyd writes. He noted that “side chains” could offer a solution. These are mini block chains featuring smaller transactions that create one sizeable transaction. Side chains would require trust in a party to manage the side chains.

So we find ourselves in the Bitcoin “missile crisis,” and uncomfortable ironies abound. The decentralized currency is beset by centralizing pressures if it changes or if it doesn’t. The apolitical currency is being rent by a deeply political rift between camps, each of which purports to be the trusted authority over the trustless, anti-authoritarian currency.

“The blockchain may be a once-in-a-generation breakthrough, but for now Bitcoin is hostage to a design flaw and the online demagogues who love it. Caveat cryptor.”