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Blockchain.info CEO: Industry Standoff Poses Serious Risk to Future of Bitcoin

Last Updated March 4, 2021 4:47 PM
Lester Coleman
Last Updated March 4, 2021 4:47 PM

Much of the bitcoin industry no longer shares the same vision and are not likely to pragmatically compromise to avert a serious risk facing the industry. That was the impression of Peter Smith, CEO of Blokchain.info, at the recent Satoshi Roundtables, writing in Medium .

Peter Smith
Peter Smith

Smith, in summarizing his thoughts about the state of the industry, noted last week’s spike in bitcoin activity offered an early look at the state of the network as blocks get fuller and the “mempool” gets backlogged. He saw a troubling trend in the data.

Transactions Took Longer

Transactions took longer while fees rose significantly and prices declined. Users paid more for less value. The higher fees did not bring faster transactions, but only a longer backlog.

Comparing this scenario to last May’s conditions, the network’s performance losses become even clearer.

It is clear bitcoin users are paying more for less, Smith wrote. Blockchain.info historically has seen few tickets related to transaction times or fees. He is now seeing new records for the number of tickets received in this category every day. The tickets grow by a factor of 10 per week. It has become the exchange’s top support issue by ticket volume.

During this busy time last week, the exchange experienced a mere taste of what lies ahead as the network continues to become overwhelmed. The industry should plan for success, Smith wrote, not for previous growth rates and not for survival. The industry should seek an outcome where millions more decide to join the bitcoin economy.

Smith 1

What Caused Congestion?

Smith noted that some argue the network gets congested on account of attacks or spam. He said this has occurred previously with low-value transactions. But during this recent deterioration of network conditions, there has been no room for low-fee or “dust” transactions. Nor has there been clear evidence of a widespread network attack.

Smith 2 image

While some observers noted a certain address that appeared to attack the network (circulating on Reddit ), similar transactions accounted for a tiny 0.275% of transactions from Feb. 28 to March 2. There were 2,859 total transactions, a small number compared to 1,042,993 in the same period on the network.

Most of the jump in transaction volume for the period came from wallets to exchanges, which points to early stage capital flight where bitcoin holders move bitcoin from storage to an exchange, preparing to sell down positions or move them to new positions, Smith observed.

Writing off these network issues as spam related is like a limited number of people adjudicating what the network is for.

Central Planning Taking Place

More importantly, this is a dangerous game as developers or the industry declare what transactions are “attacks” and which are “good.” For bitcoin to be an open network, central planning of the type of transaction is acceptable should not be acceptable.

The industry has long known bitcoin would have to scale to support more transactions. The first references to this discussion date to 2010 when Satoshi wrote the solution will be not to care about how big it gets. He also noted most users will have to use Simplified Payment Verification (SPV) and will not store or send the entire blockchain, but leave this function to specialists with server farms.

Rather than deploying this vision, Smith noted some developers working on Bitcoin Core decided to centrally plan the bitcoin economy. They did this without consensus and opted to eliminate various types of transactions, trying to push the industry to new business and security models to hotwire bitcoin to be a settlement layer.

Bitcoin’s Original Vision

The vision of bitcoin was to be a system for peer-to-peer Internet transactions among people. Satoshi was explicit in this and designed the system that has proven to contain the proper checks and balances. Had Satoshi waited to solve every possible attack vector, the bitcoin economy would not exist. A system is sometimes good enough – “perfect is often the enemy of done.” For proof, look at the first code base.

Should some current Bitcoin Core developers blocking Satoshi’s vision for scaling have a superior plan, they are responsible for gaining the support needed for that plan, Smith wrote. It is not the community’s responsibility to try to gain their permission to deploy the original vision. This attempt by some current developers to centrally plan the bitcoin economy by implementing new rules is incredibly dangerous.

Also read: Satoshi Roundtable of presumption & ego

Free Market For Bitcoin

The most surprising thing to Smith from discussing this issue for the past year is that while there are many free market people in the bitcoin community, some of these people don’t believe it extends to bitcoin itself. Smith believes a free market for implementing bitcoin will encourage the pace of innovation. It will also deliver better choices and strengthen decentralization.

“We as a community and as an economy need to get used to making choices between different options and visions.”

The community and the economy can choose between the original P2P cash vision, including widespread consumer use and scale, and a new settlement system. Those who believe in the first vision should go to Bitcoin Classic in the near term, Smith wrote. He called it a simple, production-ready solution.

The market is not limited to only a bitcoin version. The ideas forming blockchains, cryptocurrencies and distributed systems will reshape digital value transfer and finance for decades.
The community is competing in a market with private chains, not just other cryptocurrencies.

Smith said he is hopeful more in the community will choose the original vision. The community can scale bitcoin to become a global and open community.

Images from Medium, Twitter and Shutterstock.