Developers propose multiple solutions to Bitcoin congestion problem, with Lightning Network as the representative of Layer 2 being the winner

Due to the hype of MEME and BRC-20 tokens, the Gas fees in the Ethereum and Bitcoin networks have hit short-term highs since May. According to BitInfoCharts data, on May 10, the average transaction fee required for each Bitcoin transaction was US$31.1, the highest since April 2021.

Bitcoin miners have received the highest income in several years. In some blocks, the income from transaction fees exceeds half of the block reward. If this continues, the security issues after the halving next year can also be resolved. However, this has also caused congestion in the Bitcoin network, with a large number of unconfirmed transactions in the memory pool. The Bitcoin transaction congestion caused by Ordinals has caused great controversy in the Bitcoin community.

Developers’ concerns and causes of congestion

On May 7, Bitcoin core developer Ali Sherief initiated a discussion on "Should we, as developers, reject non-standard Taproot transactions from full nodes" on the Bitcoin developer mailing list used to discuss Bitcoin's protocol and software development issues. Due to the surge in transaction volume of projects such as BRC-20, the memory pool is severely congested, actual Bitcoin transactions are blocked, and these "worthless" tokens threaten the normal use of the Bitcoin network as a peer-to-peer digital currency. If the transaction volume cannot be reduced, he suggested using the Bitcoin Improvement Proposal (BIP) or enforcing "censorship" at the node level to reject all non-standard Taproot transactions. Ali hopes to find a solution that can satisfy all groups in the Bitcoin community, including absolutists, libertarians, and maximal libertarians.

To understand how to solve Bitcoin’s congestion problem, we should first know how the problem arises.

Initially, Bitcoin's block size was limited to 1 MB. In 2017, the Bitcoin protocol activated Segregated Witness (SegWit) through a soft fork, partially solving the scalability problem and opening the door to second-layer solutions such as the Lightning Network. Segregated Witness changes the way Bitcoin transaction data is stored. It removes the signature data of the transaction from the transaction body and stores it in a structure called "witness". Because signature data takes up most of the space of transaction data, this change can greatly increase the transaction processing capacity of the Bitcoin network and theoretically increase the upper limit of block space from 1 MB to 4 MB.

In 2021, Bitcoin once again implemented the Taproot upgrade through a soft fork, improving Bitcoin's privacy and scalability. Taproot has a new Bitcoin script that makes complex smart contracts look like ordinary Bitcoin transactions on the chain, and makes these complex transactions more efficient in space usage, allowing more transactions to be included in each block.

Based on the Segregated Witness and Taproot upgrades, software engineer Casey Rodarmor created the Ordinals protocol, which allows images, text, SCG, HTML and other information to be attached to the smallest unit of Bitcoin, 1 satoshis. Similar to NFTs, satoshis with special information attached can also be freely transferred to complete transactions. Unlike NFTs in the Ethereum ecosystem, NFTs created through Ordinals will store all data on the chain, while the original data in NFTs on Ethereum may be stored on centralized servers off-chain, which also makes NFTs on Ordinals particularly popular.

Ordinals opposition among Bitcoin Core developers

In early February 2023, Luxor Mining mined the largest Bitcoin block ever, at 3.96 MB. In that block, Ordinals-related transactions accounted for 3.94 MB, or about 99.5%. This brought the problems brought by Ordinals to the attention of the public.

Luke Dashjr is a representative of the Ordinals opposition. He has contributed to many important Bitcoin improvement proposals and tool development. He has been a Bitcoin core developer since 2011. Luke firmly defends the principle of Bitcoin decentralization. He is influential in the Bitcoin community, but he does not always get unanimous support from the community. For example, he once advocated reducing the block size of Bitcoin to increase decentralization and enable more users to run full nodes.

Luke believes that Ordinals is an "attack" on Bitcoin, that it is a kind of spam that should be filtered out, and that existing filters should be extended to Taproot transactions. Interestingly, the NFT associated with Luke's name and code was issued to Ordinals without authorization and auctioned on Scarce.City, where it was sold for 0.41 BTC. When Scarce.City wanted to allocate 90% of the sales proceeds to Luke, Luke rejected this "bribe" and hoped to return 100% of the proceeds to the buyer.

In addition, developer Erik Aronesty is also opposed to Ordinals, believing that "non-monetary use is very dangerous to the stability of the network." Bitcoin's security comes from mining, and the security of mining depends on handling fees. High-value non-monetary use may make Bitcoin more vulnerable to reorganization attacks.

Lightning Network could be a solution

Layer 2, represented by the Lightning Network, is widely considered by developers to be a solution to congestion. It solves the scalability problem of the Bitcoin blockchain by creating a faster and more efficient payment network.

During the congestion of the Bitcoin network, Binance, the largest cryptocurrency exchange, was unable to withstand the pressure and announced the suspension of BTC withdrawals twice. It then increased the withdrawal fee and stated that it would integrate the Bitcoin Lightning Network.

One of the concerns of developers about transaction congestion is that it will affect Bitcoin's vision as a "peer-to-peer electronic payment system." Even if the transaction fees on the Bitcoin network are high and congested, the Lightning Network can still provide a fast and cheap payment tool. Many developers, including Ali, the initiator of this discussion, agree with this view.

In addition to the Lightning Network, some people have proposed using zero-knowledge proofs to make native Layer 2 payments on Bitcoin.

Other solutions proposed by developers

Since the establishment of Bitcoin, the discussion on Bitcoin security and network abuse has continued. For example, in 2010, Satoshi Nakamoto and Gavin Andresen had a discussion. Satoshi believed that the design of Bitcoin relied on all nodes to obtain exactly the same results when synchronizing messages, and that a software version compatible with Bitcoin would pose a threat to the network. Gavin Andresen responded that there are always people trying to destroy and abuse the network, and that all kinds of interesting information can be encoded in the TxOut script. Transaction fees may be seen as a disruption to the network, but they are much less destructive than network splits or large-scale reorganizations.

Melvin Carvalho proposed that the block size could be increased. However, this view was not supported by others because it would reduce the decentralization of the network. Increasing the block size would require more computing resources and storage space to process and store blocks, increasing the operating cost of full nodes.

Peter Todd mentioned that transactions could be modified to reduce embedded data, but this may not be an effective solution to the problem.

Erik Aronesty focused on whether Bitcoin should be used as a currency rather than a global ledger for all things. He proposed a possible solution where each non-economic user keeps enough Bitcoin and returns it to themselves, but also thought it might be troublesome and would not solve the problem of 1 sat.

Aleksandr Kwaskoff proposed an interesting solution, which is to allocate 10% of the space in the block to the senders of non-standard transactions, and let them compete with each other for this block space. If there are no non-standard transactions, then all the block space will be given to standard transactions.

In the end, no one came to a consensus on how to handle Ordinals transactions, but Bitcoin Layer 2 is the development direction agreed by most people.

summary

The congestion of the Bitcoin network caused by BRC-20 transactions has attracted the attention of the Bitcoin developer community. In addition to higher fees and an increase in the number of unconfirmed transactions, developers are also more concerned about the security of Bitcoin, that is, possible splits and reorganizations.

As of May 12, before the release of this article, Bitcoin transaction fees have been significantly reduced. Although developers represented by Luke Dashjr have been opposing the implementation of Ordinals and have provided some solutions, miners and developers are not the same group, and miners may not actively use these tools to filter out transactions with higher fees when possible.

Layer 2 represented by the Lightning Network is generally considered to be a tool for solving Bitcoin payment problems. Binance has also stated that it will support withdrawals via the Lightning Network. Bitcoin Layer 2 may be a direction for rapid development in the future.