Why the Bitcoin Block Size Debate Matters

Anyone who has been paying attention to what’s going on with Bitcoin at all, over the past year, should be at least somewhat aware of the block size debate. This particular debate is part of the larger issue of figuring out how to scale Bitcoin to many new users over the coming years. Some believe that capacity should be increased as soon as possible, while others have taken a more conservative approach to the situation.

Anyone interested in Bitcoin or blockchain technology in general should pay attention to this debate as it has been one of the first real-world examples of how these sorts of decisions will be made in a decentralized manner.

Some Background on the Block Size Limit

There is currently a limit on how many transactions can be processed by the Bitcoin network. In practice, this limit amounts to roughly three transactions per second. Some Bitcoin users would like to see that limit increased.

Bitcoin transactions are collected in blocks and processed by bitcoin miners. The data related to each transaction takes up space in a block and the current limit for data in a block is 1 megabyte. Over the past year or so, there have been proposals to increase that limit to as high as 20 megabytes. Others have even suggested that the limit should be removed entirely.

Although there are also other options on the table, an increase in the Bitcoin block size limit would require a hard fork of the network. This means that every user would have to update their software by a certain date in order to make sure that they are able to stay in consensus with the rest of the network.

An increase in the block size limit would also likely mean that the requirements for full participation on the Bitcoin network would increase. With more transactions taking place on the network, the system requirements for operating a full node will also increase. If those requirements are increased too much, Bitcoin would become more centralized and look more like PayPal than the decentralized, censorship-resistant network that everyone has come to know.

What are the Proposed Solutions?

As mentioned in the opening section of this piece, the block size limit debate is part of the more general discussion around how Bitcoin will scale to more users. In reality, there are many other factors to look at than just the block size limit.

A new technical improvement, Segregated Witness , was recently merged into Bitcoin Core , which is the reference implementation of the Bitcoin protocol. This improvement uses a bit of trickery to effectively increase the block size limit via a soft fork instead of a hard fork. Schnorr signatures are another improvement that should be able to decrease the overall size of transactions, meaning more of them can be stuffed into each block. Many of the most experienced contributors to the project have signaled their support for these improvements by signing a development roadmap .

In addition to the effective increase in the block size limit, Segregated Witness is also the last improvement needed before the Lightning Network , currently believed by many to be Bitcoin’s most practical option in the quest for scalability, can be implemented on the Bitcoin blockchain.

The above-mentioned enhancements appear to be the plan for scaling Bitcoin over the short term, as the alternative solutions involving hard-forking changes to the block size limit have been mostly rejected by miners (although they technically don’t have the last say on these sorts of matters). Bitcoin Classic, the most recent attempt to hard fork Bitcoin to a higher block size limit of 2 megabytes, has had roughly 5 percent support among the network hashrate since March of this year.

Long term, it’s possible that an adaptive block size limit solution could be merged into the Bitcoin protocol. This would allow the network to essentially manage the block size limit on its own, without the need for more hard-coded changes in this area.

It’s Really About Governance

The main reason that the Bitcoin block size debate is important has to do with governance. Bitcoin is often-touted as a decentralized system. For that to be true, it must be able to avoid controversial changes from individuals, organizations, and mob rule.

Although there is definitely a large amount of support for an increase in the block size limit among various miners, developers, and various economic participants in the network, there is still a strong contingent of users who would like to take a different approach.

Even if a majority of the network would like to see an increase in the block size limit, that does not mean that the change will or should take place. Although it’s not something that’s set in stone, the current method of adding new features to Bitcoin, Bitcoin Improvement Proposal 9 , requires that 95 percent of miners must signal their support for a change before it can be activated. This is an attempt to make sure that the entire network stays in consensus.

The Bitcoin block size debate (and the greater debate over scalability) will have implications for how governance works in Bitcoin over the long term. The current method of governance involves the BIP process and 95 percent support from miners but we’ll have to see if that changes over time.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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