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Bitcoin processes transactions via the mining process. Miners gather up all the transactions that Bitcoin users broadcast and package them into blocks which th
by pmorici 11y ago
Bitcoin processes transactions via the mining process. Miners gather up all the transactions that Bitcoin users broadcast and package them into blocks which they do their mining work on. Every ~10 minutes a block of transactions is mined.
There is currently a 1 MB limit on the size of a block. A typical individual Bitcoin transaction is around 500 bytes in size. So if a block is produced every 10 minutes and the size of a block is limited to 1 MB that limits the transaction throughput of the Bitcoin network. When the rate of transactions being broadcast by users outstrips the available space in the blocks being mined then there is a backlog and not all the transactions will be mined in a timely fashion.
Which transactions get in a block are determined by the miners so the net effect of there not being enough room is that miners pick the transactions with the highest fees to include first. Over time as the Bitcoin network gets very large this will artificially drive up transaction fees to very high levels. The fact that the block size limit is 1MB was a quick hack in the early days to prevent spam and was always meant to be lifted once Bitcoin gained popularity.
Back to Blockstream. Blockstream is developing a technology generally referred to as "sidechains". It would allow users to perform transactions on private blockchains that are pegged to the Bitcoin blockchain. A sidechain can be thought of as a alt-coin backed by Bitcoin (similar to how paper money might be backed by gold, or the full faith and credit of a powerful government). Transactions on a sidechain wouldn't need to be processed by Bitcoin proper so the sidechain wouldn't be limited by any block size limit in Bitcoin.
There is nothing inherently wrong with sidechains and the idea is even kind of cool. The problem is that Blockstream and those acting on it's behalf oppose any increase in blocksize. This will have the net effect of driving up Bitcoin transaction costs to artificially high levels making it unattractive to use for every day transactions and would relegate Bitcoin to a settlement layer where high value transactions between major financial players take place and nothing else. Blockstream is hoping this would drive people who still wanted to use Bitcoin to sidechains where there wouldn't be a back log. These sidechains could in turn be controlled by a company or bank for their specific purpose. ie: you can transact on the Visa sidechain powered by Blockstream.
Raising the block size doesn't preclude Blockstream from implementing sidechains but keeping the block size small as Bitcoin grows very large will make Blockstream's sidechain scheme absolutely necessary. If the block size were allowed to grow it isn't clear if the value proposition of sidechains would be as strong.
- kanzure 11y ago> The problem is that Blockstream and those acting on it's behalf oppose any increase in blocksize. .... because Bitcoin Core developers find that most block size increase proposals seem to be incompatible with Bitcoin resource requirement minimization. Absent the existence of Blockstream I suspect the currently-non-Blockstream developers would still prefer to focus on their own understanding of Bitcoin, rather than popular sentiment on Bitcoin block size limits. Anyway, Bitcoin Core developers have done just that and have organized a FAQ regarding some fascinating proposals and implementations they are working on for how to increase capacity: https://bitcoin.org/en/bitcoin-core/capacity-increases-faq https://bitcoin.org/en/bitcoin-core/capacity-increases-faq > and would relegate Bitcoin to a settlement layer Ehhh settlement layer is sorta unfair. Existing "settlement layers" are things like Target2 RTGS, which turns out to be a typical centralized payment processor under the hood. oops. > where high value transactions between major financial players take place and nothing else. Transaction fees offer prioritization for inclusion, true. I don't think it's reasonable to blame Blockstream for an absence of a solution to this problem :-). > Raising the block size doesn't preclude Blockstream from implementing sidechains but keeping the block size small as Bitcoin grows very large will make Blockstream's sidechain scheme absolutely necessary. Nah any form of sidechain would work, not just Blockstream's implementations. Also, from an experimentation standpoint, sidechains are necessary regardless the value of the block size limit. > If the block size were allowed to grow it isn't clear if the value proposition of sidechains would be as strong. It would be just as strong, read the sidechains whitepaper: https://blockstream.com/sidechains.pdf https://blockstream.com/sidechains.pdf (basically they are valuable as an experimentation tool, even if they are not being used by businesses; indeed, Blockstream could experiment using sidechains prior to gathering consensus for deployment of features on the Bitcoin blockchain, which is itself quite valuable to Blockstream).
- pmorici 11y ago"most block size increase proposals seem to be incompatible with Bitcoin resource requirement minimization." What are you talking about, there are no such requirements and current requirements are nowhere close to being beyond the reach of a typical user. "Transaction fees offer prioritization for inclusion, true. I don't think it's reasonable to blame Blockstream for an absence of a solution to this problem" The alternative to a hard limit on block size is to have no limit and let miners set their own soft limits for fees and block size so they compete on efficiency. Artificially restricting the supply of transaction space is not something that was in the original vision for Bitcoin. Satoshi himself said a number of times that the 1MB block limit was a _temporary_ measure that should be lifted in the future.