Assumptions and Arguments for 1mb Blocksize
BTC supporters argue that raising the blocksize would lead to centralization of mining and nodes and decrease the censorship resistance of the bitcoin network.
This initial assumption is dubious and is based on the arguments:
- That growth in the blockchain will outpace the growth in computing memory, and as a result, running nodes will become impossible without expensive equipment
- That this will lead to a limited amount of nodes and miners and allow for rent-seeking and censorship
A quick scan of the computer specs on Bestbuy.com should make you seriously question the first assumption.
A few minutes thinking about the competitive landscape in cryptocurrency and incentives of those involved should make you question the second.
Regardless, most people don’t question the assumptions and as a result they take high on-chain fees for granted and argue:
- The lightning network will fix this, or
- Bitcoin is a store of value, not a medium of exchange, or
- Some combination of the two
The lightning network in combination with Segwit does seem like it has potential to lower transaction costs, but if it costs $10 or more to open a payment channel on the lightning network and you need to allocate enough funds into each channel when you open it, it will not make transactions low-cost except with organizations that you will spend a lot of money with over time.
If you want to understand the lightning network and issues with it check out:
The Lightning Network Simply Explained: https://youtu.be/rrr_zPmEiME
How the Banks Bought Bitcoin: https://youtu.be/UYHFrf5ci_g
To me, the lightning network makes more sense to enable micro-transactions in an already low fee environment. For example, if it costs $0.02 or even $0.10 for a transaction on-chain, a payment channel to allow tiny payments makes a ton of sense.
But with current level or higher fees with bitcoin the cost of opening a payment channel is so high that even taking money off an exchange would not be feasible for most buyers.
Store of Value
The argument for Bitcoin being a store of value comes from equating it to gold vs fiat currency. Right now the USD is a medium of exchange, and for some people, gold is a store of value.
The argument is that bitcoin can maintain high fees because you will keep your long-term wealth in BTC, but move it out in chunks to another cryptocurrency that you can use day to day.
Ignoring the fact that hardly anyone uses gold as a store of value today, the gold/fiat analogy is missing something obvious. People chose to use a store of value other than fiat, because fiat sucks and governments inflate the shit out of it.
In the past, gold was used as a medium exchange, and fiat only gained traction because it represented gold (or other valuable commodities). The problem with fiat is that its portability meant it was not scarce. If a medium of exchange is not inflationary, it will be a store of value.
Since August I’ve invested more and more time learning about the issues and arguments in the block-size debate. The more I learn, the more I am convinced that Bitcoin is fucked if it continues on the same course.
I'd love to be shown how I'm wrong about this, so I've made comments free, let me know if I'm missing something.
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