Bitcoin: The Block-Size Wars

Bitcoin: The Block-Size Wars

In 2016, an important phase in the evolution of Bitcoin called the Blocksize Wars occured.

The Blocksize is a security parameter in Bitcoin that determines the speed at which transactions are recorded on the Bitcoin Blockchain Network.  

The genesis of the Bitcoin Blocksize Wars was the fact that a bigger Blocksize would have meant that Bitcoin was able to store and record more transactions per second on the Blockchain.

This would enable Bitcoin to compete with Fiat Currency payment processors like Visa, Mastercard and Paypal.

However, at the core of the Blocksize Wars was the underlying question of Bitcoin’s Consensus Rules and the reason for Bitcoin’s existence itself according to the Satoshi Nakamoto Whitepaper.

The Bitcoin Blocksize Wars & Bitcoin’s Consensus Algorithm Rules 

A faction within Bitcoin wanted to scale Bitcoin by increasing the Bitcoin Blocksize so that the Blockchain could run more transactions per second.

However, increasing the Blocksize for this reason meant that Bitcoin would have to switch from being on a Decentralised to a Centralised Network because processing large Data Blocks of millions of Transations on a Decentralised Network would create problems like latency which would slow down the Network.

The solution was to upgrade the Bitcoin Network to a more Centralised infrastructure through a hard fork.

In order to achieve this however, Bitcoin’s consensus algorithm required that the entire Bitcoin community including the miners, nodes and Users be persuaded of the desirability of this upgrade to a more Centralised Network.

However, increasing the Blocksize would have compromised the ethos of Bitcoin as a form decentralized digital scarcity.

In essence, the issues that came out of the Bitcoin Blocksize Wars went to the core of what the objective of Bitcoin itself was according to Satoshi Nakamoto’s Whitepaper.

The Bitcoin White paper states explicitly that Bitcoin is a peer-to-peer electronic Cash system.

In classical Economics, Cash is understood as a form of value that is not dependent on the settlement of any debt i.e. Gold.

As such, properly understood, in stating that Bitcoin is peer-to-peer electronic Cash system, the Bitcoin White Paper is actually referring to a form of digital value that is not dependant on Debt.

The reference to Cash as it applied to Bitcoin in the White Paper should therefore be understood in the classical sense of Cash as a Store of Value that is not linked to Debt in the same way Paper Fiat Currencies are linked to the payment of Debt by Governments to Central Banks as the Principal means of money creation under the current Fiat Money system.

From this perspective, the Bitcoin Blocksize Wars were about the true purpose of Bitcoin as a means of transferring Debt Free Digital Value.

The purpose of Bitcoin according to the White paper is not to transfer cash in the form of Debt based Fiat currency.

Once this was understood, it meant that the true purpose of Bitcoin was to enable the transfer and storage of Debt Free value outside the influence and control of a Central Authority.

For these reasons, the Blocksize Wars led to a rejection of the attempt to turn Bitcoin’s Blockchain Network into a Centralised Fiat Currency Payment Processing system because this would have defeated the reasons for Bitcoin’s existence in the first place.

More particularly in that it would have corrupted the nature of the value transmitted across the Bitcoin Network by allowing Debt Based Fiat Currency to be transferred when the purpose of the Bitcoin Blockchain was to transfer Debt Free Cash Value (Gold) only across the Network according to the Bitcoin White Paper.  

Furthermore, in order to fix Network issues like speed, the Blockchain would have become centralised contrary to the fundamental intention of Bitcoin as a decentralised, Censorship-resistant store of Debt free value.

Conclusion: Legacy Of The Bitcoin Blocksize Wars

Ultimately, If we insert Gold for the word Cash in the Bitcoin White paper it becomes clear why the Bitcoin Blocksize wars did not result in a change of the Bitcoin Protocol.

To increase the Bitcoin Blocksize would have gone against the fundamental essence of Bitcoin by violating the most basic principles of the Consensus Algorithm which require Bitcoin to transmit Debt Free Value across a Decentralised Network architecture.