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

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.

ESMA dismisses rumors of Blockchain ban and refrains from premature regulation

The greatest hindrance to the development of innovation into a full-fledged functioning concept is the chain of regulation that hampers it. Blockchain enthusiasts and major tech giants have heralded ledger based technology as path breaking and something that holds great potentiality in terms of applications. This has resulted in a host of Fintech startups taking interest in Blockchain and developing applications that can replace the existing legacy modules. Europe has been one of the central hubs of such innovation and the growing turmoil involving various Geo-political-economic issues has only helped the cause. Recently, reported on European Securities and Markets Authority (ESMA) opinion to ban blockchain platforms. However on Feb 7th, ESMA released  a report contradicting the post. Let’s dive into further details of the report:

ESMA considers Blockchain regulation premature:

The European market regulatory agency has revealed that Blockchain Technology is in its nascent stages and regulating it would be premature. This could be deduced owing to the news that EU itself is thinking of launching crytpotcurrency wallets based on ledger technology. With Blockchain Technology facilitating for transactions in quick time and easing the way transactions can be verified across borders, EU considers regulation at such an early stage might hurt the innovation.

Building the framework for later stages of Regulation:

The Distributed Ledger based technology is currently being used for rewriting financial transactions in the most simple and efficient way. Apart from transactions, many firms have already employed Blockchain in post trade processing as it offers reduced costs. Since financial transactions and trade processing do require good amount of compliance, monitoring such support framework has to be made easy. Hence major efforts would be directed towards building a framework that supports Blockchain technology and also ensures regulation in financial transactions.

Why regulation would be important in the future:

It is true that regulation cannot understand or catch up with the speed of innovation but at the same time, it is very important to respect the safeguards that are put in place for every system in the form of regulations. Looking forward it is evident that Blockchain would play a major role in Transactional economics, post trade processing, identity verification and tracking of resources on a broader scale. With good amount of disruption to come, it is imperative that regulation that will monitor the technology is to be in place. Hence ESMA believes that the industry should work towards solutions to address the challenges posed by technology for keeping in mind the future consequences.