Understanding the Implications of Restricting Capacity in a Peer to Peer Cash System.
It is likely that there will be 3 competing versions of Bitcoin after the upcoming fork in November of this year. The purpose of the discussion today is to quickly examine the technological limitations and the scaling roadmap of each fork. Most importantly we will be examining the difference between On chain transactions vs. Off chain transactions, a hotly debated topic in the crypto space.
While at first glance it may seem like the debate is mostly over Segwit1x vs. Segwit2x, the REAL battle that is taking place is between people who want to keep Bitcoin decentralized by keeping transactions on-chain and people who want to change Bitcoin by moving "Off-chain."
The difference between a chain with Segwit/1MB and Segwit/2MB is negligible. Neither 1MB nor 2MB is anywhere near enough to scale on chain competitively.
On Chain Capacity of the three likely forks:
- Segwit1x - ~ 3 tx/s with 0% segwit usage, ~5 tx/s with 100% segwit usage.
- Segwit2x - ~ 6 tx/s with 0% segwit usage, ~10 tx/s with 100% segwit usage.
- Bitcoin Cash (Original Bitcoin protocol), ~100 tx/s on chain with 32MB blocks before another protocol upgrade is required for scale.*
*The original Bitcoin protocol that Satoshi built scaled all the way to 32MB, before the 1MB spam protection limit was added.
Bitcoin Cash is the original protocol with the limit removed so it scales all the way to 32MB before any major changes are needed.
This means the Cash fork is capable of delivering 100tx/s on chain, today. That is ten times what the Segwit2x fork can do under optimal conditions.
It's important for people to understand the ramifications of going off-chain vs. Staying on-chain.
Taking transactions off chain means no proof of work is being performed. Proof of work is arguably the most important part of the system as it is what keeps transactions secure and irreversible. The Bitcoin Cash fork has capacity to serve 100 proof of work tx/s on chain right now. BTC has 3 tx/s and will maybe be getting a measly 1MB upgrade to 2x in November, which would allow 5-6 tx/s. . The Cash fork will still have orders of magnitude more than both forks, combined.
The segwit + L2 "scaling" proposal is inadequate to meet market demand for on chain capacity. They both restrict block space to push business onto L2. That is not a "scaling" solution at all, that's the removal of Proof of Work from the system altogether. Neither Segwit(x) fork is capable of handling a sudden uptick on demand but the Bitcoin Cash fork is ready for it.
It is also important to note the implications of restricting the block size. This is being done not to the benefit of the public but to the benefit of private corporations that seek to restrict block space in order to create demand for their Layer 2 systems. Restricting block space not only changes the supply demand equilibrium by decreasing supply of block space, inflating the cost of on chain transactions, but also removes Bitcoin's competitive edge as a payment system, as refusing to raise the block size is akin to refusing to adapt to market forces.
I walked into best buy a few years ago and bought a first Generation HP-Pavilion DV6 laptop for about $600. That machine used to come with a 500GB hard drive and 4GB of RAM, for about $600. Now, you can go back into that exact same Best Buy store, look in the same spot on the shelf, and for about the same price of $600, the newer generation HP-Pavilion DV6 comes with 6GB of RAM and a 750GB hard drive.
So, same machine, same store, same brand, same price, TODAY, comes with 6GB of RAM and a 750 GB hard drive. But the one I bought for the same price 4 years ago had only 4GB and 500GB of memory. This is how technology progresses. I'll likely walk back into that same Best Buy store in another 4 years and see that same HP-Pavilion DV6 near that price point of $600, with 12GB of RAM and a 1.5TB hard drive this time. This is just reality.
Keeping block size restricted in the face of market demand does not make any sense from a technical point of view, a practical point of view, or an economic point of view. No computer, machine or piece of technology ever capped it's growth like that. Can you imagine if HP and DELL in the 90's said, "Fuck it, we're going to limit the capacity of our computers to 256MB of RAM and only a 256MB hard drive, from here on out, forever." Wouldn't make any sense would it? That's how much sense a 1MB block size forever makes.
If HP and DELL decided to limit the capabilities of their production model computers and NOT keep up with advances in the market, they would go out of business pretty quickly. Who would buy the $600 HP-Pavilion DV6 laptop that is capped at 4GB of RAM while the new Lenovo machine offers you 8GB of RAM and a 1TB hard drive at the same price point? HP-Pavilion would be out of business before you know it. This concept was also clearly demonstrated by the fact that as soon as Bitcoin's 1MB block size limit was hit, there was a mass exodus from BTC to altcoins. BTC dominance dropped from 90% down to around 45%, confirmed transactions per day on chain started to go down and the altcoin market caps gained MASSIVELY. This loss of market share was directly correlated with the hitting of the 1MB limit...and the refusal to advance and adapt to market forces.
If you don't advance in the market, you get left behind. User need Peer to Peer cash, which means fast, cheap and reliable on chain transactions, in a decentralized and trustless manner. If they don't get that from BTC they'll go to whatever coin offers that utility at the time.
Block size is supposed to be a public good, not a centrally planned commodity. Think of a public park. There is one right by my house that is about 25 acres, I can go to that park and do whatever I want at any time. If I bring friends, that's ok, if 500 people come with me, that's ok too. The 25 acres of park land is a public good to be used by the public. Now, imagine if some corporation came along, blocked off 20 acres of the park that they "control," leaving only the remaining 5 acres for the public. NOW, the public is stuck sharing the measly 5 acres and if you want to use the 20 acres they blocked off, they charge you or make you pay a subscription fee and then you have limited privileges on what you can even do inside the 20 acres. This would of course be wrong, because the park is a public good which shouldn't be controlled by any corporation. In the same sense, it is wrong for a corporation to restrict block space to try to push you onto their Layer 2 system.
NOW, this matters because Bitcoin with small blocks can only be a settlement system that pushed business onto Layer 2, not a peer to peer cash system. We saw this at the beginning of the post when we compared the on chain capacity of the three likely forks. A small block leads to a system that inevitably pushes people off chain. A peer to peer cash system needs a market based block size, not a centrally planned one, so if transaction volume rises massively one day, block space should be able to rise to accommodate it. This method of scaling is what made Bitcoin great to begin with. The settlement system version of Bitcoin with limited on chain throughput doesn't provide as much utility to users because it's not peer to peer cash and doesn't work the same way, it has higher fees, less freedom and it is not censorship resistant and decentralized, so it's no better than the money system we have now. So by restricting block size to push people onto L2, we are losing most of the benefits of the system of Bitcoin. Peer to peer cash is the most valuable aspect of a cryptocurrency, not "digital gold." Second layer and "off chain scaling" is companies trying to insert themselves as middlemen between users. Users are supposed to be able to transact on chain, trustlessly, without the need for permission from a company or middleman. If we're not careful, we are going to lose this ability to transact with each other without permission on the BTC Blockchain.
There is a lot of propaganda and misinformation centered around convincing people that on chain scaling doesn't work. This is just pure hogwash. If you do the research, you'll see the truth: scaling on chain totally works and always did but it's being derailed by entities that want to change the vision of Bitcoin to benefit themselves personally at the expense of the public. NOT scaling on chain, makes about as much sense as HP-Pavilion keeping their DV6 at 4GB of ram forever. HP knows they would go out of business, because the rest of the world will progress while those that refuse will fall behind. The same thing will happen on Bitcoin. Hence the Bitcoin Cash fork.
- Block space is supposed to be a public good subject to the will of the market but it is being rigged to be a centrally controlled, restricted commodity, to push people onto corporate L2 systems, which aren't Bitcoin.
- Bitcoin was originally created to be a public good, a decentralized peer to peer cash system for people around the world to transact with each other directly. It is designed to support fast, low fee, trustless, decentralized, ON CHAIN payments from anyone in the world to anyone else, no permission needed. The corporate world is using massive propaganda to convince everyone that on chain transactions aren't feasible and we need to use their Layer 2 solutions, that THEY control.
- There is a major difference between "Peer to Peer cash" and "Digital gold." The style that benefits the people of the world is Peer to Peer cash. The style that benefits corporations is the digital gold. Peer to Peer cash requires on chain scaling and big blocks, while digital gold requires a centrally planned block size and restricted public use of the actual blockchain.
- Bitcoin as a system needs to react to market forces and the will of the users. This happened when the cash fork was born, with increased capacity, restoring the old rules to the system, doing away with the system that restricts block size to force users onto L2. The market wants the fork of Bitcoin that allows for Peer to Peer cash payments. That's the big block fork. The market doesn't want one that is centrally controlled and restricted.
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