Bitcoin has become too successful for its own good and the 1MB block size limit has caused transaction fees to skyrocket over the past few months. Many believe a solution is desperately needed in order for Bitcoin to continue to grow as a payments system rather than just a store of value.

Currently, the network can only support up to seven on-blockchain transactions per second (three in practice) although many more transactions happen off chain. In comparison, PayPal processes about 100 transactions per second, and Visa, about 4,000 per second.

As the network reaches its capacity limits, a large chunk of the ecosystem agrees that one of the many proposed solutions needs to be implemented out of fear that other payment systems which have addressed scaling issues will soon be more attractive to consumers and developers.

The Bitcoin community has been divided for over the past couple of years on how Bitcoin should be upgraded in order for the network to scale. Over the past year, Bitcoin Core’s Segregated Witness (SegWit) and Bitcoin Unlimited were seen as the main contenders for an end to this stalemate.

We surveyed our readers to find out which scaling solution they most preferred..

The Options

Segwit Logo

SegWit is a scaling solution presented by contributors to Bitcoin Core. It comes in the form of a soft fork, a forward compatible upgrade that can work even if some users don’t update their software.

SegWit introduces a new transaction format and updates the 1MB block size limit to a 4 million-unit block weight limit, counting serialized witness data as one unit and core block data as four units. Data don’t get smaller, but instead, are counted in a way that allows for the 1MB limit to be effectively increased.

SegWit offers many advantages including capacity increase, greater security for multisignature transactions, linear scaling of sighash operations, script versioning, and more. But most importantly, SegWit would fix transaction malleability, an attack that lets a person change a Bitcoin transaction’s unique ID before the transaction is confirmed on the Bitcoin network. This allows an attacker to trick a victim into accepting a transaction didn’t happen as valid.

SegWit would also pave the way for layer-two payment systems like the Lightning Network. The Lightning Network allows computers to make blockchain transactions that can be settled on chain at a later time. These lightning transactions are effectively instant and can be made at a rate of thousands to millions per second with fees of a fraction of a cent.

The current deployment of SegWit requires 95% miner approval in order for the upgrade to be activated. The voting is done by miners that include certain data in the blocks they mine to signal their decision regarding the regarding the proposal.

So far, only 30% of miners have signaled support.

However, another proposal, BIP 148, has started to gain some traction. Under this proposal, which is still controversial, users would activate SegWit on their own in an attempt to incentivize miners to do the same.

Bitcoin Unlimited Logo

Bitcoin Unlimited takes a whole different approach to the block size issue. Rather than having a hard coded limit to the network, Bitcoin Unlimited advocates complete freedom and flexibility, and allows miners and users to come to consensus on a block size limit on the fly. Concretely, this means that miners and users can signal which block size limit they prefer and decide to converge at an agreed upon number.

Miners’ control over the block size in this system is not unbounded, as users can also decide to reject a block size increase; however, the default settings in Bitcoin Unlimited effectively give miners control over the limit because a majority of the network hashrate will override the user’s preference after four blocks.

However, opponents argue that such flexibility can result in miners opting for bigger and bigger blocks, making it harder for miners with limited resources to mine, and thus, concentrating the mining power in the hands of a few miners.

Furthermore, Emergent Consensus, which is the aspect of Bitcoin Unlimited that alters the block size limit, is a hard fork of the Bitcoin Core software. A hard fork creates an incompatibility between the new and old protocols, posing the risk of a split in the network where people decide to continue to work on both protocols, thus creating two separate blockchains.

For Bitcoin Unlimited to be successfully implemented, everyone would have to move to the new blockchain and abandon the old one completely. This is an unlikely outcome since Bitcoin has supporters on both sides, Bitcoin Core and Bitcoin Unlimited, who will likely support the protocol they like best.

Bitcoin Unlimited wants to have an approval rate of 75% before implementing the fork. If the quote is met and held for a certain period of time, the hard fork will be implemented — but again, miners cannot force users to follow their lead.

Other options have been proposed to scale the Bitcoin network including Bitcoin XT, a solution that originally proposed an increase of the block size limit to 8MB. Backed by Mike Hearn and Gavin Andresen, Bitcoin XT received significant attention in mid-2015 but gradually declined as it lacked support from the wider community.

Bitcoin Classic is another proposal that aims to increase the transaction processing capacity of Bitcoin, originally through the increase of the block size limit to 2MB. In November 2016, this changed and the project moved to a solution that moved the limit out of the software rules into the hands of the miners and nodes.

Bitcoin Classic is also an attempt to move the technical governance of the Bitcoin project from the developers of Bitcoin Core to a voting process involving the largest community of miners, businesses, developers and users.

The concept of extension blocks has also been proposed on a few different occasions, with Bcoin’s recent proposal being the one to gain the most attention. In this model, a separate chain with a bigger block size limit is soft-forked into the Bitcoin network. Both the original chain and the new chain with the larger block size limit would exist on the same network, and users would be able to send bitcoins between the two chains.

Another concept that is similar to the extension blocks proposal is the concept of a big block sidechain.

A new proposal that received significant support from some of the world’s largest Bitcoin companies and miners was unveiled earlier this month. On May 23, at the Consensus 2017 conference, Bitcoin startups executives and miners held a meeting during which an agreement was signed by over 50 companies including the Digital Currency Group, Bitcoin.com, Blockchain, Coinbase, ShapeShift, as well as major mining players like Bitmain and BitFury. The proposal includes lowering the barrier for the activation of SegWit to 80% of the network’s mining power, technical information on the proposal is still scarce, however, the solution will rely on new software which is currently not developed and may not be compatible with existing software. Despite support from some of the biggest companies, many have criticized the complexity of the solution and believe that it is being used as an attempt to stall a user activated soft fork.

The Results

CoinJournal conducted a survey asking over 1,100 of our readers* which proposal they preferred. Results show that SegWit is the clear winner with 71% of the respondents selecting this option as their preferred solution. Roughly 18% responded Bitcoin Unlimited, while around 11% said they preferred another solution. Respondents were also given the option to comment with many showing support for a user activated soft fork (UASF).

As a side note, 74% of respondents claimed to be bored of the scaling debate.

Towards the conclusion of this survey, there was an agreement among various Bitcoin companies and miners made during the Consensus 2017 conference and the concept of a user-activated soft fork for SegWit (via BIP 148) have both gained some traction. However, the support for both of these proposals among Bitcoin’s user base is still difficult to measure. For now, it appears these are the two main proposals to watch.

 

*Users were selected at random and only one entry per I.P address/ device was permitted.

Bitcoin Scaling Survey

  • Segregated Witness
  • Bitcoin Unlimited
  • Other

What The Community Thinks

We asked several prominent members of the industry what their preferred method for scaling was and why.

Samson Mow,

CSO Of Blockstream
Blockstream Logo

“The Bitcoin scaling debate isn’t really a debate at all. It’s a coordinated effort to influence and control protocol development. Bitcoin is the first and most successful protocol for money, so the temptation and reward for various parties to control it is immense – especially businesses that are looking for short term results to induce an exit or liquidity event. Those short term goals are at odds with the Bitcoin developers who are working diligently on creating digital gold, which requires stability, maintaining backwards compatibility, and real scaling through engineering. That led to the establishment of a faction completely fixated on a single variable, the blocksize, to attack developers through a narrative centered around “scaling,” which is ridiculous. Just because an angry internet mob screams that the blocksize should increase from 1 to 2 MB does not mean progress has stalled on scaling.

There’s a saying that everything a company does is marketing, from how they do their hiring to customer service and so on. It’s the same principle for scaling. Everything that the Bitcoin developers have been doing for the past 7 years has been to scale Bitcoin. Anyone that has worked closely on Bitcoin at any level knows there have been massive scaling improvements: signature caching, ultraprune, parallel script verification, headers first synchronization, block file pruning, libsecp256k1, memory pool limiting, and the list goes on. Unfortunately, most people don’t bother to follow development closely or read the very public chat logs, email discussions, and meeting notes. That problem is further compounded when “captains of industry” decide to make misleading and irresponsible statements about development – the most awkward example is the CEO of a small discount e-commerce startup saying that the 400 or so diverse and geographically distributed volunteer Bitcoin Core contributors are a “monopoly.”

 SegWit is the solution for those that are clamouring for more throughput; nothing else even comes close to being viable.”

Sergey Ponomarev,

CEO of SONM
SONM Logo

“I stand for Segregated Witness. Bitcoin Unlimited and other solutions that are proposing an increase in block size will lead to the further centralization of already centralized Bitcoin mining. Furthermore, I believe Segregated Witness is a more flexible way of solving Bitcoin’s scaling issues because it uses a soft fork rather than a hard fork.”

Josiah Hernandez,

Chief Strategy Officer of Coinsource

“Segwit is an elegant solution to a complex problem. It is the culmination of years of research, testing, and development that has already largely reached consensus among both bitcoin businesses and nodes. While providing a foundation for Layer 2 scaling solutions such as lightning network, it also offers an immediate way to help address upwards fee pressure and increased transaction confirmation times via an effective block size limit increase to 2MB. As is, it is the most ideal proposal in market.

While BU has non-negligible miner support, it has experienced frequent issues in stability and code quality that keep it from being used in production by serious players at scale. There have been multiple incidents where over 50% of all active BU nodes have crashed, which could have resulted in network reliability issues, financial downside, and potential loss of network effects due to decreased trust in bitcoin if it was being used at scale. Scaling Layer 1 via direct block size limit increase is largely viewed as an inefficient, brute-force method of scaling that has more tradeoffs to the downside than upside.”

Simon Yu,

CEO of CakeCodes

“Both options have their pros and cons but currently I’m favoring Segwit as it grants a temporary fix to the issue without destroying the original value proposition of Bitcoin. If block size is unlimited then it defeats the purpose of the underlying value of Bitcoin which was designed as a way to fight against devaluation of currencies with a limited supply. Segwit isn’t a permanent solution for the increasing transaction fees, but I think the temporary solution will allow developers around the world to come up with a better long term solution that is better than both BTU and Segwit.”

Emin Gün Sirer,

Associate Professor, Cornell University

“I believe that the only serious proposal is one that is not on the table yet: can we evolve the protocol such that the bottleneck involved in block dissemination is eliminated? Bitcoin-NG showed that this is possible, and ByzCoin carried out additional science. In the long term, there is no doubt in my mind that advanced coins will adopt Bitcoin-NG-like techniques.

When it comes to scaling in the short term, we have Segwit on the one extreme, and because the pro-Segwit team did not budge at all, a large number of proposals that all are very close to Segwit. Intellectually, the Segwit patch is messy; provides little in the way of scaling; the process that led to it isn’t healthy, and it’s impossible to justify issuing a centrally-determined subsidy to spur its adoption. But then again, financial software have always been a mess, and it’s perhaps inevitable that Bitcoin will also lose its elegance of form. I believe that the real, long-term solutions involve better technology, such as Bitcoin-NG, and I am OK with any solution in the short term.”

Dr. Peter Rizun,

Chief Scientist, Bitcoin Unlimited
Bitcoin Unlimited Logo

“Many people are confused: bigger blocks and segwit are not mutually exclusive.  Increasing the base block size limit is most urgent, as it will have the immediate effect of reducing fees and improving confirmation reliability.  If there is real demand for segwit, we can have that too; it’s not one or the other.”

Thank you to all of our readers who answered our survey and to those who contributed to this piece of content.

Writing & editing credits: Oliver Carding, Diana Ngo, Kyle Torpey