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Bitcoin’s Transaction Backlog Hits All-Time High

Last Updated March 4, 2021 4:54 PM
Andrew Quentson
Last Updated March 4, 2021 4:54 PM

Almost 100,000 bitcoin transactions are currently stuck, waiting to move, with around $30,000 in fees queued for miners to pick up. The mempool backlog is above 56MB. The network is running above capacity, usually operating at more than 4 txs/s. Users are once more complaining.

Price appears resilient and even going higher due to many other factors, primarily the much-anticipated ETF decision. As far as the protocol is concerned, the tape is stuck on repeat, the debate is on an endless loop, the community is paralyzed, a solution is nowhere in sight.

Miners appear to be preferring neither Segregated Witnesses (segwit) nor Bitcoin Unlimited. They are stuck in the middle, unable to choose because if they go with segwit a considerable portion of the bitcoin community will consider the currency doomed. If they go with Bitcoin Unlimited, a considerable portion will likewise consider it failed.

As always in these cases, it is probable that neither is fully right or fully wrong. The problem is, the two can’t quite be reconciled. Their visions are diametrically opposed. Segwit proponents want full blocks. BU proponents want the block space to be above capacity. Segwit proponents think that would centralize it. BU proponents think Segwit would centralize it. A classic, intractable, argument, which, like most intractable arguments, is based on subjective mere opinions.

How Did We Get Here?

To really understand how we got here, we need to go to a more peaceful and free-er time, the 90s. To be more precise, Friday, 27th of November, 1998, when Wei Dai – who allegedly worked at Microsoft as a cryptographer, but google doesn’t provide much credible information on his background, thus might just as well be a pseudonym – announced b-money.

This is one of the first conceptualization of how digital money could work and it describes two layers. The base layer, which Dai says “is impractical, because it makes heavy use of the asynchronous and unjammable anonymous broadcast channel. However, it will motivate the second, more practical protocol.” And the second layer:

“In the second protocol, the accounts of who has how much money are kept by a subset of the participants (called servers from now on) instead of everyone. These servers are linked by a Usenet-style broadcast channel. The format of transaction messages broadcasted on this channel remains the same as in the first protocol, but the affected participants of each transaction should verify that the message has been received and successfully processed by a randomly selected subset of the servers.”

B-money wasn’t developed, presumably because its actualization had many difficulties. It does, in a skeleton way, describe mining, but the linkage between miners appears to have many flaws. That is – it lacks a consensus mechanism.

Nonetheless, it appears to have laid down this idea that there must be a base layer and a second layer. An idea which was then gradually developed to what used to be called bitbanks and now is called Lightning Network (LN) hubs.

When Nakamoto made his announcement, it appears that the bitbank idea was so entrenched, it was seemingly taken for granted any digital money must have a second layer. Interestingly, it appears that Nakamoto was unaware of these discussions  or of b-money/bit-gold.

It seems that Nakamoto firstly contacted Hal Finney, who made him aware of Szabo’s bit-gold thoughts, and further introduced Nakamoto to Adam Back. Back, in turn, made Nakamoto aware of b-money.

Hal Finney, a Caltech graduate, developed Reusable Proofs of Work (RPOW) , which was based on Adam Back’s hashcash and was developed in collaboration with the “IBM Crypto Team” and the Department of Computer Science at Dartmouth College, according to RPOW’s page. The latter probably published academic papers on RPOW, which is probably what led Nakamoto to Finney.

Neither Dai nor Szabo are known to have published anything academic on digital money, thus perhaps explaining Nakamoto’s lack of awareness. As such, it appears that Nakamoto came to the problem and its solution from a more thorough, scientific-based, study and analysis, rather than thinking out loud, throwing things out there, mailing list discussions.

While the seemingly collaborative thinking of Finney, Back, Szabo and Dai led to an entrenched path with no solution, it appears that Nakamoto’s fresh thinking, unburdened by pre-conceived assumptions, allowed him to tie it all together.

Much of the above is speculation, but looking at the facts and using some common-sense thinking, the described unraveling of events appears likely.

To come to the present day, Gregory Maxwell and Peter Todd seem to have taken part in these discussions between Finney, Back, etc., and thus appear to have built the same assumptions that were then taken for granted and seem to originate from the b-money idea.

Like the Aztecs, who, based on one assumption, went on to create utterly complicated and entangled math systems, constantly building on top of it and spending much of the time trying to go around limitations of their original assumption, so too it seems the pre-Nakamoto era was focused on solving the limitations of b-money, developing that further and by it being entangled. Instead of starting anew.

That brings us to the current two, apparently irreconcilable, visions. Nakamoto’s on-chain scaling on one hand, or Finney’s bitbanks on the other. Arguably, both can co-exist, but the latter would be difficult to implement without full blocks.

Where to Now?

As Nakamoto has made it clear that bitcoin can scale on-chain, it will likely be very difficult to persuade a significant part of bitcoin’s community that blocks should always be full. As Finney’s followers are convinced there must be a second layer, they too might not be persuaded that blocks should not be full.

The former needs to increase on-chain capacity. The latter need segwit if layer twos are to be of any use. Neither is getting what they want, but the latter does currently have their full blocks. However, without a layer two, they are most probably aware full blocks are fully damaging.

The miners are choosing neither. If they do, they’ll be attacked by the other side. We appear, therefore, to have gridlock. The worst possible outcome.

Nonetheless, the price is going up, the times are good, the party can go on, but when the music stops, the hangover might considerably hurt.

Image from Shutterstock.