Possible outcomes to the scaling debate

12 Jan 2018

The Bitcoin network is currently at a turning point. 1MB blocks can no longer serve its user base and a solution is desperately needed in order for Bitcoin to continue growing. We have seen what happens when the network reaches full capacity. A fee market is created where miners have an incentive to only include transactions with the higher fees, while others are left behind and take several blocks to process. - Read more about the Block size limit.

However, there is more than one scaling solution on the table and it is hard to know what is going to happen. Currently, Bitcoin core’s SegWit, Bitcoin Unlimited and an immidiate increase to 8MB blocks are competing for miner approval. We explore what may happen in each scenario so that you may know what to expect.

Nothing happens

If no solution is accepted, the Bitcoin network will remain the same. This is a problem. If we can’t agree on a solution for Bitcoin’s most pressing issue, Bitcoin  will never grow. Users will eventually get tired of waiting for transactions to confirm and paying high fees and will move to other coins or payment systems. This will cause Bitcoin to lose popularity and momentum. This is why we believe a change is urgently needed in order to allow Bitcoin to grow at its pace.

SegWit gets approved

If the scaling solution proposed by Bitcoin Core is accepted, it will be implemented as a Soft fork. In order for this to happen, Bitcoin Core has stipulated a 95% miner approval. Once SegWit is activated, the network capacity will increase roughly by two fold and other issues such as transaction malleability will be fixed which will allow developers to implement second layer protocols such as the Lightning Network, which is one of the reasons why some miners dislike SegWit. Second layer protocols mean less fees for miners since transactions would take place on these channels.

Even if SegWit is activated, other solutions may follow. Miners may vote to activate an immediate increase to 8MB blocks or they can vote to activate Bitcoin Unlimited after the SegWit soft fork is applied.

Bitcoin Unlimited gets approved

This is where things get a bit more complicated. This outcome leads to three other possible outcomes. This is because Bitcoin Unlimited is a hard fork and it all depends on how the community reacts to it. A hard fork creates an incompatibility between the new and old protocols. This means that the old Bitcoin blockchain will not support Bitcoin Unlimited’s blocks if they are bigger than 1MB and don’t follow the old rules. This can cause a “split” in the network, where people decide to continue working on both protocols, thus creating two separate blockchains.

Bitcoin Unlimited wants to have a approval rate of 75% before implementing the fork. If this quota is met and held for a certain period, the hard fork will be implemented.

There are still some major concerns regarding Bitcoin Unlimited. Some members of the community have expressed their concerns regarding possible chain splits within the Bitcoin Unlimited blockchain and regarding centralization.

Successful hard fork

In this scenario, Bitcoin Unlimited is successfully implemented meaning that everyone moves to the new blockchain and the old one is completely abandoned. In this case, Bitcoin Unlimted would become Bitcoin and the old Bitcoin would cease to exist.

Unsuccessful hard fork

Here, Bitcoin Unlimited would fork Bitcoin only to be abandoned completely. No one would move to the new blockchain (accept blocks with new rules) and the old Bitcoin blockchain would continue be active and worked on.

Blockchain split

This, in our opinion, is the most likely outcome in case of an hard fork. Since Bitcoin has supporters on both sides, Core and Unlimited, people will stick to their convictions and support the protocol they like best. This results in the aforementioned network split, where two blockchains, Bitcoin and Bitcoin Unlimited continue to be active and worked on. This is exactly what happened in 2016 with Ethereum and Ethereum classic.

In this event, exchanges will list Bitcoin Unlimited as an alternative cryptocurrency and keep the old Bitcoin blockchain as Bitcoin. Bitcoin holders would then have coins on both blockchains (just like ETH/ETC) since both blockchains share the exact same history, transactions, balances and so forth up until the moment of the fork. It is likely that exchanges will credit users with BU tokens if this chain split does take place

However, this scenario is somewhat troubling as it would mean that the hashpower, nodes, and services would be separated. Let’s say that half the miners move to Bitcoin Unlimited. In this case, both blockchains will have half the hashpower that Bitcoin used to have, meaning that both blockchains are not a secure as the unified Bitcoin network would be.

In this outcome, it is possible that the Bitcoin blockchain would activate SegWit, which would now be much easier, since all Bitcoin Unlimited supporters would be on the new blockchain and not voting on the old one.

8MB Blocks get approved

This seems to be the less likely outcome as this proposal is the one with less support. Increasing the block size to 8MB (or any number above 1MB) would mean an hard fork. So, the same scenarios shown in Bitcoin Unlimited can hold true for 8MB Blocks. However, a split in the blockchain seems less likely since many SegWit supporters would also support a bigger blocksize (but not the Emergent Consensus proposed by BU). So, we could still see a successful hard fork, an unsuccessful one or a blockchain split.

Conclusion

Whatever happens in the course of the next few months, Bitcoin is definitely at a turning point. The scaling debate conclusion is one that can make or break Bitcoin, so we ask everyone to take a look at the possible outcomes and consider the possibilities. If you are miner remember to vote for what you think Bitcoin should be about.

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