Why Small Blockers Won: In Defense of Bitcoin's Core Values

The Battle for Bitcoin's Soul: The Case for Keeping Bitcoin Decentralized

The forthcoming book, "Hijacking Bitcoin: The Hidden History of BTC," by Roger Ver and Steve Patterson with contributions from Jeffrey Tucker, presents the argument that the original vision of Bitcoin was hijacked in the blocksize wars. This occurred, according to the authors, when "a small group of insiders assumed control of the project, enacting fundamental alterations to Bitcoin's original design." While the contentious block size wars reached a conclusion in 2017, a deeper comprehension of the rationale behind the Bitcoin community's decision to retain small blocks remains essential for anyone invested in the cryptocurrency's past, present, and future.

A Recap of the Block Size Wars

In Bitcoin's early days, transactions were notably cheap (almost free) and swift. However, as Bitcoin's popularity soared, so did transaction fees, leading to a divide within the community. The "Big Blockers" (led by miners) advocated for a significant change to Bitcoin's protocol to keep transactions affordable. Their solution was to increase the size of each Bitcoin block, thereby accommodating more transactions. Opposing this proposition were the "Small Blockers," (led by developers) who contended that increasing block size would compromise Bitcoin's decentralized essence. They argued for maintaining the original 1MB block size limit, preferring to innovate with new on and off chain scaling technologies as the path forward. Although the outcome was close, ultimately, the Small Blockers' perspective prevailed. In response, the disgruntled Big Blockers initiated a fork of Bitcoin, creating Bitcoin Cash (BCH) and later Bitcoin SV (BSV), both of which ultimately failed to achieve market adoption despite nearly free payments.

Why the Small Blockers Were Right

The Market's Verdict on Bitcoin

Following the split of Bitcoin into BTC and BCH, each member of the Bitcoin community was faced with a crucial decision: whether to exchange their BCH for more BTC, or vice versa.

A few years after the fork, the market capitalization of BCH dwindled dramatically, plunging from 25% to under 0.6% relative to BTC. This stark decline is a clear market consensus favoring BTC's value proposition over that of BCH. Therefore, the debate over the comparative value propositions of BTC and BCH is not merely theoretical; market dynamics have conclusively demonstrated that BTC's value proposition is superior. Moreover, while Bitcoin's transaction capacity fluctuates between 5 and 8 transactions per second (TPS) , BCH's TPS hovers around 1, despite its offering of "free" transactions and much higher throughput.

Bitcoin has been dubbed "digital gold," serving primarily as a store of value, whereas Bitcoin Cash positions itself as "digital cash," facilitating inexpensive online payments. This divergence has led the market to a decisive conclusion: the value of decentralization in Bitcoin enhances its utility both as a robust store of value and as a reliable payments platform. The consensus among users is clear—they prefer paying much more per transaction for the assurance and security Bitcoin offers, over free transactions that can be compromised by malicious actors.

Small Blocks: A Superior Approach to Scaling

The decision to focus on technological innovations for scaling, rather than simply increasing block sizes, has been vindicated for advocates of small blocks.

Transaction Costs Significantly Reduced: Transaction fees on the Bitcoin network have decreased to under $1 from a high of $55. This reduction can be attributed to several factors:

• SegWit's Efficiency: The implementation of Segregated Witness (SegWit) enhanced the network's capacity by enabling up to four times the number of transactions per block. SegWit transactions are now as much as 97% of transactions in Bitcoin blocks.

• Innovations in Layer 2 Technologies: The adoption of second-layer solutions like the Lightning Network and Liquid has been instrumental in offloading frequent transactions from the main blockchain, thereby easing congestion and reducing fees.

• Efficiency Through Transaction Batching: Techniques such as multiple inputs and outputs (batching) have also played a crucial role. SegWit and batching collectively have elevated Bitcoin's transaction throughput from approximately 6.6 TPS to about 9.5 TPS.

• Focus on Value Transmission: Transaction costs focus the use of Bitcoin's blockchain to genuine value transactions, as opposed to other types of data, has helped maintain its affordability. (However, the surge in popularity of Bitcoin ordinals and BRC-20 tokens suggests that even these reduced transaction costs might still be too low, given their extensive use.)

Together, these strategies have not only validated the small blockers' perspective but also underscored the effectiveness of a multifaceted approach to scaling that prioritizes the network's decentralization and security.

Data Always Expands to Fill Available Space

A fundamental principle observed within digital ecosystems is that data inevitably expands to occupy available space. This phenomenon holds true in the context of blockchain technology, where increasing the block size to accommodate more transactions invariably leads to broader utilization of the available capacity, often for purposes that diverge significantly from the original goal of promoting financial autonomy.

Take, for example, Bitcoin SV (BSV), which has adapted its protocol to allow for massive block sizes of up to 4GB. Despite BSV's market value being only 0.1% of Bitcoin's, and the financial significance of its transactions relatively minor, the BSV blockchain has ballooned to an immense 16 TB. This vast capacity has inadvertently transformed it into a repository for a wide variety of data, much of which may not directly support its primary financial objectives—effectively, a dumping ground for data that contributes little to its stated mission.

This trend mirrors the way computer systems evolve: increases in RAM and storage space are quickly consumed by more demanding applications, games, and high-definition media. A similar fate befalls any blockchain that substantially lowers the cost of space. Such policies, while seemingly beneficial by making transaction space more accessible, ultimately compromise the very essence of decentralization that blockchains strive to uphold.

The Limits of Onchain Scaling for Bitcoin

The cypherpunks' ambition to establish sound money accessible to all eight billion people on Earth faces significant scalability challenges with Bitcoin when considering on-chain solutions alone. The arithmetic is straightforward: eight billion people conducting ten transactions each per day, with each transaction taking up 0.5KB, would amount to 40 gigabytes of data daily, or 14.6 terabytes annually. Operating a decentralized network becomes impractical if running a full node requires the infrastructure akin to a data center.

Many assume optimistically that the global uptake of Bitcoin will occur gradually over decades, giving technology ample time to evolve and address scalability challenges. However, the principle that data expands to utilize available space holds true. Making more space available inevitably leads to its utilization for a multitude of purposes. For instance, the use of Ethereum smart contracts demonstrates how quickly space can be consumed through the generation of numerous transactions and significant amounts of data. A similar expansion and resultant bloat are likely on any blockchain that significantly reduces the cost of transaction space.

BSV Demonstrates The Failure of Onchain Scaling

Moreover, the challenge isn't solely about storage capacity. The experience of syncing a full Bitcoin SV (BSV) node, which can take months, highlights the impracticality of such a system for average users. This difficulty has led all major blockchain explorers to drop support for BSV. Even for a blockchain that sees minimal transaction volume in monetary terms, the barrier to participation for regular community members is insurmountable. If those who operate blockchain infrastructure struggle to maintain full nodes, the prospects for a truly decentralized community dim.

For the verification of its 16TB blockchain, BSV recommends specifications that far exceed the reach of typical users: a 1 gigabit ethernet connection, a 16 TB SSD, and 128GB of RAM. These requirements are for a blockchain that, realistically, has negligible adoption in the real world. Maintaining a blockchain with 4GB blocks necessitates not just substantial hardware but also data center-level internet connectivity to download new blocks in time, which effectively negates the possibility of a decentralized framework. Large blockchains demand extensive (gigabit-plus) and stable internet connections, high-speed solid-state drives, powerful CPUs, and extensive memory just to remain synchronized.

These are just some of the technical challenges Small Blockers warned us about during the blocksize wars. BSV has demonstrates other risks to large blocks, including chain splits and many 51% attacks.

Decentralization: The Uncompromisable Core of Bitcoin

At the heart of the Block Size Wars was a pivotal choice faced by the Bitcoin community during the 2017 market boom, when an unprecedented wave of adoption led to intense competition for block space. Should the community favor lower transaction fees, or uphold the principle of decentralization? The overwhelming preference for Bitcoin over BCH in the aftermath revealed a profound truth: the essence of Bitcoin's value lies in its resistance to censorship, rather than in facilitating low-cost transactions. This is underscored by the transaction volume ratio between BTC and BCH; BTC handles 150 times more value, illustrating a widespread preference for a currency that ensures the security of assets over one that primarily offers cheaper transactions.

Was Satoshi's Vision Hijacked?

Claims from the big blocker faction that Satoshi's original vision for Bitcoin was derailed—as the currency evolved from a primary focus on transactions to becoming a form of digital gold—warrant scrutiny for several reasons.

Firstly, for Bitcoin to ascend to the status of digital gold, it was imperative to first establish itself as a reliable payments network. The trust in Bitcoin as a store of value today is built on the foundation of years of successful transactions, proving its utility and reliability in daily commerce before it was widely accepted as a valuable asset.

Secondly, a thorough examination of Satoshi's writings and communications reveals no explicit directive that Bitcoin should handle every transaction in the world directly on its blockchain. The emphasis was on creating a decentralized system, not necessarily on how every single transaction should be processed.

Lastly, the question of "Satoshi's true vision" is becoming increasingly irrelevant over time. Bitcoin, as a decentralized project, has evolved beyond the scope of its creator's initial vision. The community that supports and maintains Bitcoin now steers its direction, making collective decisions on its future path based on current needs and technological possibilities. This dynamic evolution is a strength, not a betrayal, of the initial impetus behind Bitcoin.

How to Onboard the Next 7.9 Billion People

I want to close with a discussion of the future of Bitcoin. As more of the world switches to Bitcoin, and as more and more financial activity is conducted on-chain, today's era of sub-$1 transactions will end. This shift is inevitable as Bitcoin becomes more integrated into daily financial activities worldwide, and the blockchain faces increased demand. Even with the implementation of second-layer solutions like the Lightning Network, the existing 4MB effective block limit will fall short of meeting the needs of a global user base that could include not only 10 billion humans but also 100 billion sentient AIs competing for transaction space.

To navigate this future, a philosophy that balances the drive towards massive adoption with the imperative to uphold Bitcoin's security principles is essential. The urgency to enhance transaction efficiency cannot be overstated, especially before Bitcoin becomes the default monetary system for the entire world. The push for technological advancements such as SegWit and transaction batching has already demonstrated significant progress, with major exchanges adopting these innovations, and platforms favoring the Lightning Network for smaller payments. This proactive approach has been pivotal for Bitcoin's scalability and will continue to be critical as we advance.

However, the day will come when even these advancements won't suffice to accommodate the burgeoning demand for block space. At that juncture, a careful and considered increase in block size may be warranted. Any proposal to adjust block size should be meticulously designed to ensure it does not compromise the network's security or decentralization. Ideally, it would aim to preserve a balance, maintaining a fixed unit of value per transaction size to sustain Bitcoin's role as both a store of value and a medium of exchange in the face of exponential growth and adoption.

Embracing this forward-looking perspective ensures that Bitcoin remains resilient, secure, and scalable, ready to welcome the next 7.9 billion users into its ecosystem.