Bitcoin Scaling: Reflections from the DCG Portfolio

This article was edited by Meltem Demirors - Head of Development at Digital Currency Group ( DCG) . Please note that it was edited following feedback received on Sunday 12th February and quotes were added to highlight that this article incorporates personal comments and quotes. Part 2 will be published soon - thanks for the feedback.

Over the past few weeks, I’ve been speaking with executives from our DCG portfolio companies about their thoughts on SegWit. Many of these executives have built their companies and products on the public, public Bitcoin blockchain, and from speaking with them, I get the sense that many are frustrated by the lack of solutions to the scaling problem, and they want to share their perspectives on why SegWit is important to them and their companies.

I wrote an initial draft, which sparked a lively and illuminating discussion on our domestic DCG Slack community, where Bitcoin and blockchain companies that are part of the DCG family communicate and collaborate. Positive response?

It’s hard to know what to support and how to help Bitcoin scale. We want to disrupt the status quo.

After a few days of chatter, we all agreed that it would be helpful to take the discussions, turn them into a more coherent narrative, and share it with the wider community, in the hope of facilitating a more open and pragmatic conversation about how to break the current impasse that seems to be affecting everyone in different, but generally negative ways.

Note: The following comments use the collective noun "we" to express a variety of opinions that may or may not come from those participating in the discussion.

Frustration with network congestion

“We (although not most) are affected by network congestion and it’s hard to know how to move Bitcoin forward in terms of scaling.

One company noted: “Last year we were desperate to follow Bitcoin Classic. Our position was: SegWit sounded complicated, while Classic seemed easy and would buy us time. Now, a year later, it’s hard to know what to support and how to help Bitcoin scale.”

Another company said: “We took a risk by building on Bitcoin with an existing project — not a generic ‘blockchain’, but the true public blockchain BTC…Just demonstrating this to potential customers was a headache due to the issues with simple user verification of transactions confirmed by the network. For example, we paid higher than average transaction fees and sometimes required multiple blocks to confirm transactions.”

“The last few days have been particularly bad, with some users on our exchange sending transactions over 100 satoshis/byte still waiting over 12 hours for their transactions to be confirmed.”

“It’s really bad right now. Bitcoin is in a situation that’s starting to make SWIFT look attractive. If this isn’t fixed, I expect we’ll see non-speculative use cases move to other chains.”

The company states that “SegWit enables increased capacity and, with the deployment of the Lightning Network, can help address these issues.” This is covered in more detail in Part 2 of this article.

Can't we ask miners to activate?

“The current situation is that changes to the Bitcoin node code have been proposed (by Core), but have not received enough “miner” votes to be applied to the network. Why is this happening?”

“We might conclude that miners do not believe this modification is in their best interest (i.e. it is considered too risky, or not risky enough/does not solve a pressing problem).”

“Here we should emphasize the distinction between miners and mining pools. It should be the case that mining pools are encouraged to offer miners a choice of node options (otherwise miners can just switch pools and get what they want). Mining pool operators should not and should not be mobilized to make decisions about mining node selection.”

"So how do we break this impasse while there is still time? We have been trying quite a bit to secure the best approach to reaching an agreement, but now we are no longer making progress. Why is this happening?"

“This is because those who really value change (miners, not pool operators) remain skeptical of attempts. On the other hand, they must also start to think that they may never recoup their large investments in equipment. They must seek solutions.”

One of the companies noted that “it’s important for developers and businesses to help miners,” and several companies have invested a lot of time and resources in this effort.

This led to a broader discussion that highlighted the complexity of governance and consensus in a system as complex as Bitcoin.

Why SegWit is a Challenging Network Upgrade

“SegWit, at its core, is a technical problem. For entrepreneurs who are busy running a company and trying to keep their products and platforms running for paying customers, trying to focus on making significant changes to the core Bitcoin protocol is a challenge.”

“Our summary of SegWit is not “bad” but “complex” — in every sense of the word. SegWit is a good “lego block” foundation that can advance the ecosystem. It is also very complex from a technical perspective and more, technically, and governance wise. This is why we are working on a “SegWit for CTO” style document.”

Multiple companies noted that “SegWit provides a much-needed scalability fix that enables more advanced features, and their companies depend on it.”

“We’ve been asked by many people to support it (whatever that means), and while we like it conceptually, I don’t think we’ll support it unless we do rigorous analysis and testing.” Note that this was said by one company, but many of our companies actually tested SegWit, which will appear in our second article.

“Testnets have been testing SegWit for some time, but Bitcoin’s main network has done little testing. Several larger networks are waiting for the results of lib updates before starting their own testing.”

“Our understanding is that on the testnet, it is only tested by core developers… The main concern is that this testing may not match the technology that enterprises really need at a production level”

Maybe there are other ways to test

Some of us think of SegWit and Lightning as falling into the “exciting, but still in testing” category — this nuance can make us lose excitement about SegWit and Lightning.

Other companies have indicated that they have been testing SegWit for nearly a year. Many companies in the industry have also tested it, which can be viewed here.

We don’t want to be opponents or supporters of SegWit, we’re just pragmatists. One company pointed out that “there seems to be a disconnect between what developers are building and what companies really need and want, which is a larger issue about how to manage resources.”

Other companies in our portfolio are building technology and products that rely on SegWit — again, part 2 of this post will highlight examples of this.

“In general, the bigger problem is pursuing niche projects rather than enterprise and user needs that could actually change the user experience in necessary ways.

Please note: Funding development is critical to developing the various “road maps” that will help the business achieve its needs.

“It would be beneficial to have a constructive dialogue about the realistic view of the benefits of technology timelines to user experience, prioritizing how and when upgrades are deployed to benefit the most stakeholders.

“In general, there are better ways — we can approach new technologies as a community. For example, NASA has been dealing with new technologies and has come up with a way to assess how ready a new technology is for production, the Technology Readiness Index.”

Note that there is a list of SegWit-ready companies that have already been testing and preparing to upgrade, which can be found here .

Are we trapped in a false dichotomy?

The conversation then led to a conversation about whether we are limiting Bitcoin development to a false dichotomy — either Segwit or not — while ignoring other technical options that could help address the network’s capacity shortfall and scale the Bitcoin network.

“We never understood why it had to be one or the other — why not both? Why can’t we just introduce layer 2 technologies (because they’re ready) and increase the blocksize?”

“If you remove all the arguments we throw at them — we can benefit from both (block size increase and SegWit).”

Another company noted that “SegWit increases capacity by 2-4x, and if SegWit were to be done with a hard fork, they estimated that development would be delayed by at least a year or more.”

We don’t want to “choose sides”

“As we’ve outlined, the idea of ​​pursuing a hard fork and activating Segwit is a relatively nuanced issue that has mostly been reduced to a case of publicly choosing a “side” — often boiled down to Segwit lovers or Segwit haters, which is not a scientific term.”

“It was hard to determine how we could effectively facilitate discussion — anyone who publicly took any stance, even compromisingly, was immediately labeled as either a SegWit supporter or an SegWit opponent, and discussion was deadened and degraded into personal attacks.”

“As a community, we should steer clear of articles that are entirely positive about SegWit (with some caveats included carefully) just as we should steer clear of articles that are entirely negative about SegWit. This is a very complex upgrade, as the developers themselves have mentioned many times.”

Another company said “We believe the upgrade is not too complex and the optional nature of SegWit integration will give companies more time to prepare.”

“What we’ve observed is that communication has gotten worse — people are calling each other and lying, claiming that the ‘other side’ is destroying Bitcoin, calling anything that doesn’t fit their proposal a ‘coup’, which is very unprofessional. It makes every Bitcoin investor look bad. We’d like to see communication return to a professional, scientific level.”

But it is clear that the current approach is not working.

"We've thought this through - what we really want to see is compromise (i.e. both sides working together to find the most effective solution possible) - but it's like trying to get the extremes of the political left and right to agree to something they fundamentally disagree with - pushing for compromise/confrontation seems to just further entrench both camps."

The company that built and tested SegWit said they were willing to “meet with other members of the community to discuss their perspectives.”

One company noted that "the 'get all developers to sit down and figure out how to work together' approach has been fruitless so far, and trying to push it has done more harm than good. Events like the Hong Kong conference, various roundtables, etc., have served to divide opinions rather than unify them."

"Private, closed-door meetings do little to address the major issues we see in support tickets every day. To address these issues, we need to talk about alternatives and options."

“It seems like a better use of energy to identify a new mechanism to bring developers, operators, and miners together — rather than private, invite-only roundtables.”

“We have quite a disagreement about the value of the roundtable and private meetings, but for people who don’t attend the roundtable, it seems that they are not committed to such things, judging by the results. We need other methods.

So what are the other options?

All of the above comments lead to an interesting observation - some of the pain and frustration we see in the Bitcoin ecosystem is due to not having a clear understanding of what is and is not negotiable. In Bitcoin, Zooko Wilcox elaborated on his view on the unwillingness to compromise:

“Perhaps some of today’s frustration is caused by people not knowing their Best Alternative to a Negotiated Agreement (BATNA). When you don’t know your BATNA, if you assume you’re not going to get a Negotiated Agreement (NA) and then try to force the other party to agree to your NA, you’ll panic.

Some people apparently believe that if they don’t get their way, Bitcoin will end, the world will end, and they may go find a different industry or purpose in life. This feeling may make the negotiation unsuccessful.

· Perhaps the way forward is to start accepting the inevitability of death and taxes, the futility of life, and the fact that Bitcoin is doomed, and then start letting go of your inhibitions and start thinking about what your options are.”

Zooko notes that your options may include:

1. “Minority-supported forks

2. · A certain altcoin

3. · Now take over your opponent's place and create your era

4. Work for a FinTech “Blockchain” startup

5. Take a vow of silence and stay away from arguments

(We note that others may say no change is needed)

He concluded, “Following this logic, it may initially sound like ‘giving up’ on your desired outcome. But if instead we assume that all paths ultimately lead to a compromise, or BATNA, that is not our initial NA, we may gain more.”

While it may sound tempting to stay away from the fray, we can all agree that one of the main reasons the ongoing Bitcoin debate has become so emotional is because there is so much at stake.

What's next?

As a community, we should engage in constructive, respectful conversations together so that we can continue to build this incredible technology that we all believe will change the world.

In Part 2 of this post (coming soon), we will highlight the stories of companies that have already tested and integrated SegWit, and why they pursued this path.