What people are missing about the bitcoin scaling debate

I frequently hear some non technical people say that we should just increase the block size to solve the issue of bitcoin scaling the way bitcoin cash has done. I’m going to show you why this is a short term solution that creates enormous network problems in the long term.

Right now BCH is running 8 MB blocks. Bitcoin currently processes between 2000 - 3000 transactions per block with about 3 million active users. Blocks are generated every 10 minutes. If we take the average of 2500 transactions per block at 1 MB, BCH will be running at the same capacity that bitcoin is running at right now with 20,000 transactions per block. This means that when the network has 3 million * 8 users (24 million active users), it will be back to where it started and be faced with another block size increase.

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We are currently experiencing a potential parabolic curve rate for adoption. If the rate of adoption is an order of magnitude per year, then block size increases will also have to increase at one order of magnitude to keep pace. In two years, you will have two orders of magnitude (or 100x). At 3 years, it then becomes 1000x. So in 3 years at the start of January 2021, bitcoin would serve 3 billion people but would require 1 GB blocks to do so and that is at an average of about 5 transactions a month.

Keep in mind that in order to keep up, the hardware would have to download and process 1 GB blocks every 10 minutes through your internet connection. That’s 144 GB per day that has to go through your internet connection. Now for those of us running a Blockstream Satellite connection operating a full node that can do independent transaction verification of mined blocks, you can sidestep the internet bandwidth issue because that is unlimited bandwidth, but you’d have to buy a 1TB hard drive every week just to keep up.

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This isn’t the only problem. Mining hardware would become more fully centralized because of the problem of latency. Latency is the amount of time it takes to download a block. From the time that a successful miner has found the nonce and includes the Coinbase transaction in the new block and starts hashing right away, other miners are already at a disadvantage because they now have to download 1 GB blocks instead of 1 MB blocks before they can start trying to hash again.

This causes the miner who found the last block to get a head start on the new block. As a miner finds new blocks, that same miner gets more head starts and it creates a vicious cycle until only a few miners with very expensive hardware running warehouses draining millions of dollars of electricity every day are operating. This is already currently the case in China, but increasing block size is a step in the wrong direction until the issue of mining centralization is fixed.

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If mining centralizes too much, then governments can identify those miners and apply pressure to include KYC (Know Your Customer) and AML (Anti Money Laundering) or shut down their mining operations. Decentralization is the most important property to preserve in bitcoin because without it, it’s just another bank account. It’s only through decentralization that the system can remain free from outside influence, such as government regulation.

Here, Andreas talks about running a full verification node…

(credit - Andreas Antonopoulos)

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