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What’s the Bitcoin Block Dimension Debate and Why Does it Matter?

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The question of how to scale bitcoin is not new. However, since increasing transaction volumes can be expected in the coming years, from the perspective of the advocates of change, questions about the future composition of the cryptocurrency must be answered sooner rather than later: Whom does it serve? How should it look? What makes it unique

What are blocks?

Blocks are batches of transactions that are confirmed and then recorded in Bitcoin’s public ledger, the blockchain.

In the early days of digital currency, these blocks could hold up to 36MB of transaction data per piece. However, in 2010, Bitcoin’s creator Satoshi Nakamoto decided to reduce it to 1MB to reduce the threat of spam and potential denial-of-service attacks on the network.

This limit still applies today. But as transactions increase, the blocks of bitcoin fill up quickly – and approach that 1MB limit. Miners have a financial incentive to fill blocks regardless of how many transactions take place. With more network users, there are more transactions, which leads to more pressure to increase the block size. So far, however, there is no indication that the developers will increase the block size directly.

Data published by Ycharts confirms that the average block size is now 0.7928 MB. That may seem high, but it’s a 39.71% drop from last year.

The implementation of Segregated Witness (SegWit) – an upgrade that removes signature data from the main block and stores it off-chain – resulted in two big changes in the Bitcoin network:

  • Signature data, which normally make up 65% of the data stored in a block, is removed from the main “Basic” block and stored in a separate block. This allows more transactions to fit into each basic block.
  • SegWit has also introduced “Block Weight”, which technically increases Bitcoin blocks from 1 MB to 4 MB; consisting of 3 MB signature data and 1 MB transaction data.

What was particularly clever about the new block weighting was that the base block still only stored 1MB of transactions, which meant SegWit was compatible without all Bitcoin users having to update to support it.

Average Bitcoin Block Size Last Year – Source: Ycharts

Today there are several blocks of Bitcoin that are 1MB or even larger. This is due to Segregated Witness, which allows a theoretical block size of up to 4MB. Over 77% of the network blocks are already using SegWit.

Bitcoin miners are not required to fill blocks all the way to the top. You are able to “tailor” mined blocks between 0 and 1 MB, while the standard Bitcoin client has a default setting of around 732 KB.

Advantages and disadvantages of increasing the block size

The debate about whether Bitcoin needs larger blocks has been raging for years. Several arguments can be made as to why developers should or should not try this option.

Possible benefits are:

  • Lower transaction fees
  • More transaction capacity to compete with other payment systems
  • A boost to the use of Bitcoin for micropayments

However, the counter-arguments should not be overlooked either:

  • Becoming a full node becomes more expensive due to larger blocks
  • More centralization concerns if the above outline comes true
  • Security problems due to grouped full nodes that create single points of failure.

With no one officially “responsible” for Bitcoin, it has proven incredibly difficult to reach consensus on this issue. There will always be winners, losers, and those who don’t care.

Various suggestions for changing the block size

Increasing the limit on the block size is an option. That is the idea behind Gavin Andresen’s BIP 101 proposal “larger blocks”, which was first presented in May 2015 and finally tested live as a Bitcoin XT client. BIP 101 was eventually removed from Bitcoin XT and replaced with a one-time increase in the block size to 2MB. However, the Bitcoin XT client is no longer used in any significant way.

The former senior developer and current chief scientist at the Bitcoin Foundation suggested raising the limit to 8MB, which would increase an additional 40% every two years through 2036 to accommodate future growth in CPU performance, memory and bandwidth.

Andresen had originally set for a hard limit of 20MB, but many Chinese miners, who account for more than 50% of the network’s hashing power, have expressed concerns about such a drastic change due to the country’s limited bandwidth.

Other suggestions for the Bitcoin core team include Pieter Wuille’s annual block size increase by 17.7% and Jeff Garzik’s 2MB “emergency” suggestion. However, these and other ideas haven’t found widespread support from Bitcoin Core developers, and the debate seems to have calmed down since Segregated Witness became the standard type of transaction on the network. As of August 2021, more than 77% of all Bitcoin transactions use SegWit.

Problem solved, right?

As developer Peter Todd emphasizes, blockchains are – due to their design – not scalable. Even Andresen, the thought leader behind the “bigger blocks” proposal and a driving force behind Bitcoin XT, admits that increasing the block size limit is a “kick”[ing] the can down the street. “

Others have expressed concerns that increasing the block size limit will result in fewer full nodes – nodes that store the entire blockchain on one hard drive rather than a stripped-down version – due to the associated increased data storage costs. This could discourage users from running full nodes and centralizing the system around units that are able to pass larger blocks. This, some opponents of larger blocs say, would contradict the distributed, censorship-resistant nature of Bitcoin.

Richard Gendal Brown, formerly at IBM UK and now at R3, traced that mindset in part to the security mindset – “How can I break this?” – a fear of technical failure that would postpone that decision. On the flip side, those who see the bigger problem as a more imminent threat are driven by a fear of practical failure that drives away users.

Since Bitcoin blocks can now – theoretically – be up to 4 MB in size, there is no immediate reason to increase them further. This topic could be revisited in the future depending on how widely Bitcoin is used as a payment network.

So what other options are there for the future?

Other solutions include various mechanisms that “off-chain” the many tiny transactions on the Bitcoin network, such as those from gambling sites and faucets. One known as the Lightning Network is a kind of “hub-and-spoke” solution that allows two parties to trade privately and then put their data back on the blockchain at an agreed time. The Lightning Network is available on the Bitcoin blockchain today, although its introduction is still in its infancy.

Sidechains, led by Blockstream, a $ 299 million company, was mentioned in the context of the scalability discussion. However, some members of the team behind the concept that allows developers to experiment on separate chains tied to the Bitcoin blockchain say their focus is not on scalability.

Luke Jr, one of several core developers involved in Blockstream, commented on Reddit:

“Sidechains are not about scaling, but about improving the functionality of Bitcoin. Some of these features can be useful to improve scaling, but sidechains themselves don’t. “

Over the course of development, the block size debate has touched many vulnerabilities for the currency as it tries to grow. For many people – anarchists, speculators, entrepreneurs – Bitcoin is a lot that has not been a major problem so far.

Although Segregated Witness offers a temporary solution to the block size debate, the question of the currency’s future remains. Will it compete with Visa like Visa as a cheaper, faster payment channel? Or should it remain an ultra-secure, high-quality – and scarce – store of value to which other services can be linked?

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