Bitcoin: Block Size Debate and Possible Solutions

Thankfully, the release of BitcoinXT has forced a community referendum of sorts, wherein users must choose.

The past year in the world of Bitcoin has been dominated by two discussions, the outcomes of which will have a significant impact on the cryptocurrency. Regulation and the many possible forms it may take in different jurisdictions has been hotly debated, and the ongoing block size argument has been heating up lately.

Since the cryptocurrency’s introduction, transaction blocks contained on the Bitcoin blockchain have been subject to a 1MB size limit. It is widely accepted that in order for the Bitcoin network to scale up, such that more widespread global use is possible, an increase in the maximum block size will be required. A near consensus on the need for a size increase has been achieved, but the Bitcoin community is yet to reach a decision on how best to move forward.

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In recent weeks, the debate has been forced onwards quite significantly after the release of BitcoinXT by Gavin Andreson and Mike Hearn, two prominent Bitcoin developers. BitcoinXT is an alternative implementation of the Bitcoin software, which uses the solutions suggested in Bitcoin Improvement Proposal 101 in an attempt to solve the block size debate. BIP 101 put forward a new block size limit of 8MB, which would double every two years.

BitcoinXT represents a hard-fork in the software, but it must be adopted by a significant majority of the Bitcoin mining community before larger blocks would be accepted on the blockchain. The release of BitcoinXT has been criticised by some members of the industry. It is thought by some to represent an attempt to divide the Bitcoin community, due to it being released to the public, without first being agreed upon within the developer community.

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Proponents of BIP101 and BitcoinXT wish to see a predictable new block size limit, which would not hinder the growing transaction volumes anticipated by many VC-backed Bitcoin start-ups. The Bitcoin mining community has concerns about such significant changes to block sizes, as they could seriously impact the profitability of mining operations. High block sizes also have the potential to decrease the decentralisation of Bitcoin, which many see as a fundamental feature of the cryptocurrency.

An alternative to BitcoinXT comes in the form of BIP100 from Jeff Garzik. BIP100 takes a different approach to implementing a fix to the block size limit, and this would see a dynamic, changeable limit implemented in the software, which can essentially be voted on by miners. This would likely result in a more gradual adjustment of block size, in line with the growth of Bitcoin transaction volumes. A consensus of at least 90% of mining pools is required for a block size limit increase. Critics of this approach have suggested that BIP100 hands over the control of block size limits to miners, who themselves are controlled by the profitability of their operations. However, it grows more and more difficult to keep Bitcoin truly decentralised, and mining pools can provide a good cross-section of community opinion.

There is no easy-fix to the block size problem; the nature of an open-source project such as Bitcoin means that significant changes can take a long time to be agreed upon by all parties. Thankfully, the release of BitcoinXT has forced a community referendum of sorts, wherein users must choose. BitcoinXT & BIP101 or Bitcoin Core & BIP100?

In the weeks since the release of BitcoinXT, only around 10% of full nodes on the network are running the alternative software, and only a handful of blocks have been mined using XT. The concerns by the mining community have resulted in many large mining pools publicly dismissing BitcoinXT, instead choosing to show support for the more moderate BIP100 approach. The final outcome of the block size debate is surely just around the corner, however the end result is unknown as of yet. As always, being actively involved in the world of Bitcoin is an exciting and rewarding endeavour; further developments will be interesting to watch unfold.

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