Valery Vavilov, CEO of Bitfury, believes there is a solution to the current bitcoin block size challenge. In a recent video interview at TC Davos, he explained his
solution and he also expounded on his belief in the future of bitcoin, taking issue with those who are proclaiming its demise.
The solution to bitcoin’s block size challenge is to increase the current one-megabyte “block” to two megabytes, Vavilov said. He acknowledges the need to increase the bitcoin blockchain’s scalability, and he envisions a great future for bitcoin in improving its scalability. He gave his insights during an interview with Matt Burns, senior editor of Tech Crunch, at TC Davos.
“I think the biggest issue of bitcoin and blockchain now is the lack of education…what is very important to understand is bitcoin is not a currency,” he said.
“Blockchain is the huge ledger; bitcoin is the vehicle which runs across these rails, and you can digitize anything of value, digitize any asset, put it inside this vehicle, and it transacts on blockchain… in each token you can transact anything of value.”
BitFury’s Scalability Solution
BitFury recently announced it is increasing the size of its bitcoin blocks. “We think the block size should be increased… The question is how.” He noted that increasing the block size is the discussion taking place in the bitcoin community.
The block size must increase to improve bitcoin’s scalability. Vavilov said there are different ways to do this, and increasing the block size is one. Another is Lightning Network, a blockchain technology that allows instant transaction.
It didn’t take long for the discussion to address the current debate about bitcoin’s future. “We feel very comfortable,” Vavilov said. As for comments about bitcoin dying, he noted that since 2010 there have been 88 announcements of bitcoin’s death.
“But bitcoin is alive. Bitcoin is moving forward. I think last year was great for the blockchain and bitcoin, and a lot of positive news from regulation, from law enforcement, the Blockchain Alliance was created (at) the end of last year; it’s some kind of forum between business and the law enforcement and regulators.”
A Parallel With The Internet
Vavilov noted that when the Internet began, there were also a lot of issues such as compatibility of different protocols. “World Wide Web consortium was created; it’s the consortium that creates the standards. I think bitcoin blockchain consortium should be created this year to provide the standardization to the industry.”
He called for a separation between business players and R&D providers. The consortium should hold public discussions. Industry should provide what they want to see and the developers should provide the most efficient way to implement it. He said universities such as MIT, Harvard and Stanford should be involved.
Acknowledging that its use as a currency is bitcoin’s most popular application, Vavilov said bitcoin can be viewed as an empty certificate where you can digitize anything of value and transact it on the blockchain. He cited property registration and smart contracts as bitcoin uses other than currency.
Top Use: Property Registration
Eighty percent of the world’s population does not have good property rights registration. “I think the biggest story of the blockchain and bitcoin will be not in the U.S., not in the Europe; it will start in emerging markets where the friction is highest and the people don’t have access to the financial system, they don’t have access to property rights registration.”
Burns noted that some still question bitcoin’s security. Vavilov, whose company secures bitcoin, said bitcoin today is secured by 750 petahashes of computational power. The bitcoin blockchain is the most secure blockchain, he said, and it is 3,000 times more secure than the 500 top supercomputers in the world.
In a recent blog on Medium, Vavilov said it was disappointing to see Mike Hearn say the bitcoin was a failed experiment. “Perhaps the road for Hearn has come to an end, but for me and my many colleagues and fellow Bitcoin Blockchain experts, it is safe to say that we are just beginning down this incredible road and we see a promising future.”
Top Points On Bitcoin
Vavilov noted the following points:
- Bitcoin is not an electronic payment system similar to PayPal. Bitcoin was not designed to confirm instant payments and to believe so is a mistake. Bitcoin can act as an instant payment system with an additional system operating on top of it. Such systems exist in bitcoin exchanges and custodial wallet services.
- Bitcoin is not and should not be free. It takes a lot of computing power to secure the blockchain and transaction fees are needed to support that effort. Vavilov said transaction fees must increase to sustain a high level of network security.
- The bitcoin transaction process is not currently clogged. Statistics from Satoshi in recent months indicate the unconfirmed transaction pool has been steady for nearly 10,000 transactions, marking a big decrease from more than 75,000 unconfirmed transactions during the September 2015 “stress test.” Most of these transactions pay zero or near-zero fees.
- There is no clogging challenge. There is an issue with “free riders,” found in applications with a business model that relies on non-existent bitcoin transaction fees.
- Miners embrace bitcoin. Miners and transaction processors like BitFury remain the biggest bitcoin supporters. Miners invest heavily in developing and maintaining their hardware.
Vavilov noted that miners have demonstrated support of “cautious” increases in the block size limit.
- Bitcoin mining is decentralized. Because most mining pools are public, they consist of tens of thousands of independent users that can join or leave the pool when they wish. Private mining pools frequently are run by companies like BitFury that sell mining equipment.
There are many bitcoin nodes that are not controlled by miners that would serve as a barrier against rogue miner behavior. A rapidly growing block size could put most of these nodes out of work since they would have to switch off due to lack of necessary hardware to perform transaction processing. This would lead to real decentralization.
- Mass rule is not proper for bitcoin. Some in the bitcoin community want to govern the system by having ordinary users vote for changes by adopting the corresponding full node software. Vavilov said this is impractical and undesirable. Such users do not own a full node and if they did, they would not be likely to afford to maintain it after a block size increase.
While users should have a say in the technology’s direction, it is important for those who are scientifically knowledgeable to take a leadership role to keep the blockchain secure.
Problems With BitcoinXT
Vavilov took issue with BitcoinXT, Hearn’s solution to bitcoin scalability.
BitcoinXT would not have solved bitcoin’s challenges. Upon close inspection, BitcoinXT leaves some of bitcoin’s challenges unmet, Vavilov said. XT would not have made transaction confirmation immediate and it would not have lessened the risk of double spending for unconfirmed transactions.
XT would not have eliminated transaction fees, it would have done nothing about mining centralization, it would not have helped decentralization, and its code updates would not have differed from Bitcoin Core in the expressive means of its users.
The bitcoin community did not support XT and its predecessor, bitcoin improvement proposal (BIP) 101 since they contained too many debatable features. These hard fork proposals could break bitcoin as a system for value transfer.
Vavilov said he wishes Hearn the best in working with R3CEV. “It is important that we respect various input but simultaneously resist the temptation to give Mr. Hearn’s voice too much weight.”
Vavilov said the potential of bitcoin and blockchain are just being realized.
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