Talking about Bitcoin expansion and decentralization

There is a topic in the Bitcoin industry that will inevitably be criticized if you talk about it, and that topic is - capacity expansion. Therefore, the views in this article only represent my personal opinions, and I have the nerve to say that I don't care if I am criticized.

The expansion problem is the most urgent issue to be solved by Bitcoin and even all digital currencies. Compared with traditional currencies or payment methods, the advantages of digital currencies may be well known to everyone, but its current shortcomings are also obvious, that is, inefficiency.

Bitcoin is almost the most inefficient digital currency in the market.

The average time it takes for a Bitcoin confirmation is 10 minutes (it depends on the situation. If you are lucky, you may get a confirmation in 2 minutes. If you are unlucky, you may have to wait for half an hour). The 1 MB block size limit temporarily modified by Bitcoin founder Satoshi Nakamoto also results in a very limited number of transactions that can be processed within each confirmation time (around 1,800 transactions in 10 minutes on average).

But facts also prove that the market value of this least efficient digital currency is several times greater than the total market value of all other private digital currencies (excluding "MLM coins" under the banner of digital currency)!

Bitcoin transaction efficiency is so slow that if these small transactions are still conducted on-chain, it will cause congestion to the Bitcoin blockchain (of course, the purpose of these transactions is clean, and from the starting point, they are different from the junk transactions conducted by attackers).

Well, the “artificial scarcity” of Bitcoin block space has caused the transaction fee of Bitcoin to continue to rise. Up to now, the handling fee of each on-chain transaction has reached about 0.3 US dollars, which means that if you go to buy a bun, you have to pay twice as much! This kind of transaction is of course not cost-effective. In this way, Bitcoin has lost some application scenarios... If this part of the application is lost, the value of Bitcoin will decrease, but the current Bitcoin price is still rising! Where does this reason come from?

Simply put, there are users who don’t care about the fees and fill in part of the lost value of Bitcoin. These users who don’t care about the fees will choose Bitcoin for various possible reasons (such as short-term bullishness on Bitcoin, or “business” that requires Bitcoin). As a result, some people in the industry have made strange noises about “low-end users” and “high-end users”. In fact, we shouldn’t distinguish between high and low, because their respective roles and division of labor are different. In other words, if Bitcoin is completely left to speculators, and no one in the ecosystem actually uses it for payment, I believe its value will be greatly reduced.

What will happen if there is no expansion?

This is a difficult question to answer, because the only answer you can give is what happened in the past. As for what will happen in the future, you cannot accurately predict it.

Since the birth of Bitcoin, it can be said that it has not undergone any substantial expansion. However, because it had a small number of users in the past, its original design did not make people feel inappropriate. However, as more and more Bitcoin adopters have adopted it, Bitcoin's user experience issues have become prominent.

"Zhang San wanted to make a transaction with Li Si. Zhang San paid with Bitcoin, but because the handling fee was not paid in full, his transaction was "stuck" in the Memory Pool and was not confirmed for a day. Li Si couldn't wait and canceled the transaction..."

I think this kind of thing exists in reality. So, if Zhang San and Li Si are new to Bitcoin, they may choose not to use Bitcoin anymore, but if they are old Bitcoin users, I think they will not give up Bitcoin because of temporary card transactions, because Bitcoin transactions are not efficient.

Therefore, without expansion, I think the development of Bitcoin is more likely to slow down, rather than go straight to death as some people say. Of course, after reaching a critical point (that is, when the number of new users is less than the number of lost users), the scale of the Bitcoin network will become smaller.

Capacity expansion, what are you arguing about?

If I tell you this, I'm sure you'll salivate.

So far, the factions supporting Bitcoin expansion are divided into the following categories:

1. Supports Segregated Witness (SW) + Lightning Network (LN), but does not support hard fork block expansion;

2. Support first Segregated Witness (SW), then hard fork block size expansion, and then implement Lightning Network (LN);

3. Only supports hard fork block expansion;

4. Support hard fork block expansion first, then implement segregated witness, and finally Lightning Network (LN);

The hard fork expansion is divided into classic, unlimited and other plans. The entire expansion dispute has become more and more complicated from the initial Onchain vs Offchain, so complicated that it can be described in a paper. If you are interested, you can read Professor Chang Yong’s masterpiece "The Expansion Dispute and the Political and Economic Prospects of Bitcoin".

Currently, there are two ways to upgrade a blockchain: (1) soft fork and (2) hard fork. Of course, the author of Babbitt proposed a synthetic fork. If you are interested, you can read the relevant posts.

For fun, let’s use a less vivid metaphor to describe them. A soft fork is like a person undergoing an organ transplant, while a hard fork is like a person being cloned.

After an organ transplant, the person remains the same, but there is no guarantee that he will be the same as before. After cloning, the person is divided into two, and one of them may die young. (Not rigorous, just for entertainment)

From a technical point of view, the hard fork code is simple and will not increase the technical complexity of the system. If Bitcoin users agree, then hard fork will be a very good way to upgrade. But in fact, people are complicated. It is difficult for us to unify the majority of people under normal circumstances. Without a majority consensus, the implementation of a hard fork will lead to a complete split in the community. Although soft forks can reduce the risk of splits, they will also encounter a lot of resistance because their codes are more complex and will increase the technical debt of the system in the future. Hard forks have the risk of increasing the total amount of coins in disguise due to the emergence of "twin" coins. This upgrade method is more likely to cause a drop in the price of coins than soft forks. Therefore, unless it is absolutely necessary, the implementation of hard forks will be more difficult than soft forks.

To sum up the above paragraph with a nonsense sentence: no matter whether you use soft or hard methods, the upgrade method that causes less loss to miners is more likely to be accepted.

Is Bitcoin becoming centralized?

This is a very common question. Many people will say: You see, most of Bitcoin's computing power is concentrated in China, and 90% of Bitcoin transactions take place in China.

Then, they took it for granted that Bitcoin is played by Chinese people, Bitcoin is controlled by Chinese miners, and Bitcoin has become centralized.

I give this reasoning 10 points...of course the full score is 100.

In the field of digital currency, the word去中心化is often mentioned.

Is there absolute decentralization? I tell you, there is not.

What is absolute decentralization? It means complete decentralization in politics, architecture, and logic (quoting Vitalik Buterin).

Architecturally, anyone can run a computer that can calculate Bitcoin, which Bitcoin cannot do.

Politically, everyone has their own opinions, but can everyone come up with a roadmap for the development of the Bitcoin network? This is also impossible.

We must understand that the higher the degree of decentralization, the lower the efficiency of the system. Therefore, it does not mean that the more decentralized, the better. Instead, there should be an appropriate degree of decentralization. As long as we can ensure that no individual or organization can fully control the development of the system, then we can say that the system is decentralized.

Therefore, private chains are centralized. Although they are decentralized in architecture, they are politically centralized.

Therefore, Ethereum’s degree of decentralization is not enough. Although it is decentralized in architecture, its degree of political centralization is relatively high.

As for Bitcoin, when it comes to the issue of capacity expansion, the developers are divided into several factions, the opinions of miners have never been unified, and the debate within the community has never stopped. So, can we say that it is centralized?