Economic Concerns over the Bitcoin-XT Hard Fork

A Response to“Why Bitcoin is Forking

Everyone involved in the bitcoin community, whether they hold half a bitcoin or a thousand wants to see bitcoin grow in users and in value. No one is debating the desire to advance, we’re debating exactly how the advancement should be achieved. If you consider bitcoin a legitimate currency, you are necessarily accepting a broader definition of money that has ever existed before. Because Bitcoin is not only a store of value, it’s a digital payment system.

“Fundamentally this question exposes ideological differences between people interested in Bitcoin. Is Bitcoin > more of a digital gold or is it more of a competitor to Square?” — Gavin Andresen

For those who value bitcoin as a payment processor
removing or expanding the block size limit lets the ability of the technology freely meet the demands of the market.

For those who value bitcoin primarily as a currency,
expanding the block size limit while advocating for growth in the number in transactions, may be an indication that the 21 million cap will also be one day disputed in a similar line of reasoning.

Ideological differences aside, Bitcoins use as a payment processor and as a store of value mean less, if it falls short of either side of that definition.

While Mike Herns does a fine job of explaining his rationale for pressuring a consensus in increasing the block size, in his article “Why Bitcoin is Forking”, he does little to account for the technicalities of his proposed BTC-XT fork.

He stages the “tale of differing visions” from the perspective of the original, true, and right path in following the Creators vision:

The founding vision for Bitcoin was carefully laid out by Satoshi, and has always been crystal clear. This dispute is about growth. In 2008 he responded to the first question ever asked about Bitcoin’s design with a simple statement:
“Visa processed 37 billion transactions in FY2008, or an average of 100 million transactions per day…”
Although common in bitcoin scalability discussions, the comparisons to Visa are not relevant to this fork. Currently no more than 220,000 transactions has ever been seen on the blockchain in a single day. The proposed 8MB block size will allow for scaling to a theoretical 53 transactions per second. While comparatively Visa processes payments magnitudes higher, at a rate of of 2,000 transactions per second.

The article contains no mention of Bitcoin-XT’s block size limit doubling every two years.

And where it is mentioned on the BitcoinXT Software Batches page, the doubling effect is thoughtfully framed next to the word “smoothly”.

“After the switch the max block size limit smoothly increases, doubling every two years.”

Stated without any justification as to why this approach is chosen over others, and why he thinks it will happens smoothly. This sets the theme for Herns use of adjectives over market data. If the goal is to get 75% of hashing power in line with this choice, more explanation is needed.

One of the benefits of a decentralized cryptocurrency is its ability to side step small centralized economic planning. It’s obvious that this is not yet fully possible in the world of cryptocurrency. But by setting this as a standard, current implementations should also aim to limit the amount of market analysis necessary for future implementations.

This article does not fully address the possible outcome involved in the Bitcoin-XT launch.

  1. If less than 75% of the nodes choose to accept it, will they readjust and launch again?
  2. If 75% of the nodes choose to run Bitcoin-XT without the core choosing to upgrade (hard fork), will people with pre-existing coins be able to spend once on both sides?
  3. If 75% of the nodes choose to run Bitcoin-XT and bitcoin core chooses to upgrade, is Mike unofficially promoted to a Bitcoin core developer? Is this a conflict of interest?

Many core developers have stated a desire to raise the block size and move towards becoming a more competitive payment processor. But priorities and trade offs between developing each of the new features are something to consider. And its something to distinctly address if you are the one proposing the trade off.

Increasing the block size means a larger blockchain, and fewer people being able to run a full node. I understand that not everyone needs to run a full node, and that Satoshi didn’t originally design the blockchain for every user to run one. But so what? If the ability to validate your transactions on the blockchain without having to trust a third party adds value-and you’re proposing to limit that capacity questions ought to be addressed. How much is the full node feature worth? Is immediate scalability of the blockchain worth more? Does one have to come at the cost of the other?

The most concerning dimension of this article and the BTC-XT proposal is how much it reads like a covering of a political debate. Characterizing bitcoin core developers as being stunted and fearful of success. Using Satoshi’s words to add credibility to the fork, all the while boasting his achievements in the bitcoin development community. The political metaphor wouldn’t be complete without his final appeal for a vote.

Having the miners decide via hashing power is oddly reminiscent of letting those who own the land decide. A vote is going to happen, but it won’t only happen in hashing percentage it will happen in dollars.

Bitcoin is the first free market cryptocurrency, but it’s not a business. There is no CEO to decide core changes or Content Strategists detailing how news should be released. This is a community of developers that without donations and support have little incentive to implement the features we as users want.

Support Bitcoins core developers.

Support the implementation of one key feature at a time–to protect Bitcoins value as a currency.

Core developers Gavin Andresen, Cory Fields and Wladimir van der Laan have joined The MIT Digital Currency Initiative. Click here to donate to them at MIT. Or start your own bitcoin development team, and contribute.