Why I do not worry about the Bitcoin scaling debate (anymore)

The Bitcoin scaling debate

The Bitcoin community is up in arms in relation to what I call the 'scaling debate'. This debate is all about the capacity of the Bitcoin network to process transactions. The current capacity of the Bitcoin network is about 7 transactions per second (7 tx/s). Hardly a number that matches the needs of a worldwide payment network, but the developer(s) of Bitcoin thought this through. There is an inherent trade off between security, incentives and scalability. Whereas this trade off worked fine in the early days (or to say it otherwise: did not caused issues), Bitcoin's success raises problems both in terms of transaction costs as well as capacity to handle transactions.

Solutions offered

The two solutions offered that have the largest camps are SegWit (Segregated Witness) and increase of the block size. To (probably incorrectly) summarize these solutions: Segwit is opening up a secondary channel to perform payments outside of the Bitcoin network, and increasing the block size is making changes to the Bitcoin protocol to make more room for transactions. I have not sufficiently looked into these solutions to have a clear opinion on which solution in the best. But both come with their own issues and are only temporary solutions. For a further read up for lay men, see this summary.

No indefinite solution (yet). But no worries

So there is no definitive solution to the scaling issue, and none of the parties involved (developers, miners, others) seem to agree on one of the proposed solutions that are in essence only stop gaps.

So why am I not worried about all this?

The reason is Mr Market. This argument needs to be broken down in a couple of separte points.

1. Bitcoin is open source: this means that it is owned by no one. Anyone can review the code, change and copy it and run his own version of Bitcoin. This means that Bitcoin has a very large source of developers that can solve problems. In fact, the largest source in the world compared to closed source approaches. Now that we have the scaling issue, a lot of bright minds are cracking this. Either by entering into the public debate about Bitcoin's scaling debate or by coding other open source solutions offering better scaling solutions for testing. If necessary, Bitcoin could take over scaling solutions that prove workable. No one will resist a solution that proves to be THE solution.

2. No one is forced to use Bitcoin: this means that we are free to jump on another train if other solutions are offered that work better. Of course, this could create noise/havoc in the market and be messy, but that is what freedom is all about. Freedom inherently is a messy business, just like nature tries and fails a lot in finding better solutions. Whether the future solution to scaling is found/applied in the Bitcoin sphere or somewhere else, at some point things will change because I am confident that a solution will be found (because: see point 1).

3. Crypto currency is supposed to solve a problem: if it does not offer a solution, there is no place for it in the market. Sim-ple. If no long term solution can be found to manage scaling, crypto currency simply fails on this point. Yes, permissionless decentralised open source currency is possible but no, it won't be low fee or free of charge. If that's the case, the market (meaning everyone) will just have to deal with this. No scaling debate will fix this. If fees turn out very high, there is real pressure to seek and implement solutions, whether intermediate or indefinite. People will continue to seek this solution, eager to gain reputation, profit or just being humans liking to solve problems. As long as no solution is found, everything remains as it is. Crystal clear. Perhaps a major set back for our expectations of crypto currency at this stage but if it fails to bring what we expect, that's just what it is until a solution is found.

Freedom is messy but also provides solutions if solutions can be found. Looking at the various achievements already and recent developments, I am confident a solution can be found, whether that is something to be implemented in the Bitcoin protocol or by another crypto currency taking over. From my point of view, the defining characteristic of 'blockchain' technology (setting it apart from the broader term 'digitalisation') is decentralised consensus mechanisms. Proof of Work as utilised with the Bitcoin network is not the only solution out there. Other solutions have been proposed and implemented already, such as Proof of Stake (as utilised by Peercoin) and (recently) Proof of Importance (as utilised by NEM). The examples are by no means meant to exclude other solutions; for example I am sure most of you have seen Byteball as recent 'new' blockchain solution that is supposed to scale tremendously and also has 'black' tokens for private transactions.

All these developments make me very confident that a broad solution will be found (or perhaps unwittingly already has been found), with or without Bitcoin.

Mr Market

It seems the market agrees with my optimism; the price keeps on rising relentlessly despite of the bickering between the two camps. I do like to add that another theory could be that participants want to be in before 'the lock' so that in case of a fork of the Bitcoin network, the existing holders of Bitcoins have Bitcoins in each network that comes out of the fork. Regardless of which fork wins, those holders will have secured their rightful place. If this theory is true, one can expect an exodus from exchanges a few weeks before 1 August 2017. As a side note, I think exchanges need to communicate very clearly what their intentions are in terms of a possible fork in order to avoid users massively taking their Bitcoins out of the exchanges.

Summary

So am I worried about the scaling debate? No, because I am confident a solution will be found in the end. If not, crypto simply will fail to meet part of the expectations. No big deal, because the idea of crypt currency won't suddenly be uninvented. New things will arise at some point.

For now, let's enjoy the turbulence of freedom and stay positive.