blocksize Archives

Blocksize Debate Part II: Bitcoin Reaches a Grand Compromise, Hard Fork is Happening

Posted on April 12, 2017 | by [email protected]

In the previous version of this set of articles, we delved deep into the reasons required for a blocksize increase. After considerable thought, we found that the incentives are better based on the transaction value so that it gives enough motivation for miners to confirm them. Lack of, or constant, incentives might not be the best motivator to include old transactions that have been missed by miners in the past.

The Bitcoin community has reached a grand compromise on the scalability debate and a hard fork is happening. Read below for the details of how the hard fork is going to be executed followed by the impending dynamics.

The final decision:

The decision was made in a series of non-public meetings where independent journalists and observers were invited to observe. Key figures from Bitcoin Core, Bitcoin Unlimited, almost all miners, as well as almost all of the significant bitcoin businesses managed to reach an agreement after a week long discussion. Gregory Maxwell, Peter Todd, and others from Bitcoin Core, together with Andrew Stones, Peter Tschipper, Andrea Suisani and others from Bitcoin Unlimited, as well as J Wang Chun, ihan Wu, Bobby Lee, Alex Petrov, plus Brian Armstrong, Nicolas Cary, Mike Belshe have reached the following understanding:

Bitcoin developers, from both Core and Unlimited, will merge within two weeks to provide a max blocksize increase to 4MB which will then further increase by 25% yearly until 32MB blocksize is reached. This will be coupled with modified segway to remove the fee discount for signature data settling the incentive debate once and for all. On July the 4th 2017, a flag-day upgrade will take place where all nodes are expected to have upgraded by that point. The document states:

“After two years of lengthy debate where all minute details have been discussed at great length, we believe that a slightly more than two months lead time is more than sufficient for the network nodes to upgrade.”

What happens to the Bitcoin Community?

The decision resolved some differences in the Bitcoin community. Gavin Andresen and Peter Todd were spotted having friendly discussions as their animosity comes to an end. Mike Hearn and Gregory Maxwell, Roger Ver and Samson Mow were also seen catching up and thus putting an end to all the circulating rumors of hostility. It is rumored that Michael Marquardt aka Theymos, the top moderator of r/bitcoin, would resign soon. All those who have been banned from r/bitcoin on political grounds are to be unbanned as per the document. The policy of censorship will end effective immediately in a widely democratic Bitcoin community.

Effects on Bitcoin:

Bitcoin’s prices have stabilized over the announcement, putting an end to the bearish cloud that hampered Bitcoin past month. This can be viewed as a victory for both ends as the forking now seems an elected one with sufficient guard rails placed so that both the parties can have what they wanted in a fair trade off. With the fork coming up, Bitcoin prices are expected to dip a little, up to 8%, before getting into a bullish trend once again.

Blocksize Debate Part I: UCL Studies Confirm the Need for Increase in Blocksize

Posted on April 10, 2017 | by [email protected]

The debate that saw the Bitcoin community branch off into two groups appears to have reached some kind of compromise. The debate did have prolonged effects on the prices, functionality and the sentiment surrounding the digital currency. Over two years the debate had affected the prices in phases and packed a hopefully final punch in March that took the prices to below $1000 after a couple of months. The prices have now stabilized after the news of the hard fork was confirmed for an increase in blocksize. Let’s dive deep into whether a blocksize increase is the need of the hour and what the studies have revealed:

The time lag in processing the transactions:

A study by UCL Centre for Blockchain Technologies reveals that around 43% of the transactions are still not included in the Blockchain even after 1 hour from the first time they appeared on the network. Even more concerning is the fact that 20% of Bitcoin transactions are still not included on the blockchain even after 30 days. Over three months of the study revealed that in 12,000 unique nodes connected to the network, the confirmation time is inefficient for large value transactions. This exposes the inefficiency that has culminated in Bitcoin networks and why the blocksize debate has come into the picture as so critical to solve.

Reasons for lagging and inefficient transaction processing

The real problem for the non-inclusion of some transactions is due to the fact that there are no mechanisms that ensure that all transactions are actually processed. The miners are free to choose what transactions are to be included in their block. Satoshi did include a mechanism called ‘First Seen’ but it’s not enforceable at a protocol layer. The first seen method is a typical first in, first out method abiding which transactions can actually be processed instantly. However, instead of ‘first seen’, miners are opting for transactions that give them better incentives.

Possible solutions

Having no/fixed incentives for transactions might be a solution as miners would stick to ‘first seen’ transactions while processing once they see incentives aren’t based on the amount being transacted. However, Pappalardo said that:

“What we suggest is that miners have no incentives to include all transactions and therefore some are missed and after a while it becomes increasingly unlikely that a miner will willingly include old transactions. Without any incentive for proper processing and timely recording of transactions, it is unlikely the system will spontaneously invest efforts to become more efficient.”

While blocksize increase seems inevitable, the inclusion of mechanisms to make sure all the transactions are processed in time would be essential to keep the Bitcoin network honest and efficient.

Week in Review: Bitcoin has Positive Start for the Month, Scalability Tackled

Posted on April 5, 2017 | by [email protected]

The last couple of weeks towards March’s end saw Bitcoin fighting off scalability issues and ETF rejections that staggered prices. Just when things picked up from the Winklevoss ETF rejection and prices were looking optimistic, the blocksize debate has slipped up the prices again bringing the price to just under $1000 levels. However, in the first week of April, things look very optimistic for the cryptocurrency as Bitcoin prices have increased by 8% with the digital asset trading over $1,100. (Read more reviews about Bitcoin investments here.) Fundamentally there have been many positive re-enforcers during the week for the change in the winds. Let’s dive deep into the most significant positives for the week.

Mexico recognizes Bitcoin as a digital asset

Mexico has had problems arising due to unstructured economic planning. Added to that, it is also the 4^th highest country for inflow of remittances. These characteristics have created an ideal environment for Bitcoin to step up and thrive constructively on these positives. While the idea is certainly positive, the Mexican Government has signed a bill that classifies Bitcoin as a ‘Digital Asset’ and sets forth rules for Bitcoin exchanges. The wide consensus has been noticed in support of the bill among disparate political parties with an eye towards benefits for the economy triggering more foreign investment to help local industries and businesses grow.

Bitfinex redeems its tokens

On August 2nd, 2016, the leading bitcoin exchange by USD volume Bitfinex has suffered a major hack where 119,756 bitcoins were stolen. This forced the exchange to issue “Recovery Rights Tokens” as an IOU to customers. These tokens were set to be traded as BFX tokens and are to be paid back as soon as they hit $1 which is their underlying value. Bitfinex has made good on their promise and as of 4^th of April, the exchange announced that it is now paying off debts in full. Redemption started late last year with BFX tokens trading well below the $1 value and being termed as a scam to buy more time. However, the exchange intermittently reimbursed hacked customers, proving their commitment towards the services they provide.

Forking has reached consensus

After two years of heavy debating, the scalability issue that has plagued Bitcoin in phases has finally found a solution. Bitcoin developers both from Core and Unlimited will merge within two weeks to a maximum block size increase to 4MB. This will then further increase by 25% yearly until 32MB. 4^th of July is the designated date on which Bitcoin will hard fork and any node left on the original Bitcoin network would be cut off. All the nodes are expected to upgrade by this date with the requisite hardware that makes this possible set in place. Since the debate has now become harmless, bitcoin prices are now soaring high and look good for weeks to come.

How Bitcoin exchanges are planning to tackle the Bitcoin Hard Fork

Posted on March 20, 2017 | by [email protected]

With the Bitcoin markets fixated on slowly making the switch to bigger blocksize, speculation has taken over the Bitcoin market prices. The number of outstanding transactions to be processed on the Bitcoin Network has been piling up due to the limit on the Blocksize of the Bitcoin network. With piling transactions, there has been a delay in the validation of the exchange. This has defeated the unique selling point of the cryptocurrency and the Bitcoin community has concentrated their efforts towards tackling the problem. Let’s dive deep into how proposed alternative for Bitcoin fork will be impacting the exchanges and how they plan to handle the ordeal of fork in the days to come:

Speeding up transactions:

The Bitcoin community has resolved to speed up the transaction by increasing the block size in which the transactions are produced and stored per every ten minutes. This would mean by proposed terms the blocksize would increase from 2 M.B to 8 M.B being able to process more transactions per 10 minutes and thereby delivering on the transaction speed. These bigger blocks would be on the blockchain labelled as Bitcoin Unlimited and already 11% of the nodes are running on Bitcoin Unlimited. But this would mean exchanges also have to shift to the agreed upon currency depending on the final decision.

Exchange’s plan:

According to the statement released by a group of 20 exchanges, their plan for tackling the hard forking would be to list Bitcoin Unlimited as a separate currency. Since the digital currency would be splitting up into two currencies, Bitcoin Core and Bitcoin Unlimited would be the two blockchains on which the currency would be splitting up depending on the Block sizes. Bitcoin Unlimited would now be listed as an alternative cryptocurrency under the BTU or XBU tickers in the event of a network split.

The exchanges said:

“As exchanges, we have a responsibility to maintain orderly markets that trade continuously 24/7/365. It is incumbent upon us to support a coherent, orderly and industry-wide approach to preparing for and responding to a contentious hard fork. In the case of a bitcoin hard fork, we cannot suspend operations and wait for a winner to emerge.”

Why it becomes necessary:

The statement signed by Bitfinex, Bitstamp, BTCC, Bitso, Bitsquare, Bitonic, Bitbank, Coinfloor, Coincheck, itBit, QuadrigaCX, Bitt, Bittrex, Kraken, Ripio, ShapeShift, The Rock Trading and Zaif – the exchanges, clearly stated that the exchanges would be listing BU since the fork seems inevitable. The exchanges feel that with the advantages and integrity of the cryptocurrency being questioned, this would indeed be the right move to give the users of the company best service.