The biggest suspense in the cryptocurrency world in 2017: Can the dispute over capacity expansion be ended?

In the early days of Bitcoin’s development, community discussion of its protocol was pretty much the only thing that mattered, and in 2016, that discussion arguably returned to center stage.

The debate over the scalability of the Bitcoin network is becoming increasingly heated. More specifically, the community is discussing whether modifying Bitcoin’s block size is the only correct way to increase the network’s transaction throughput.

It’s worth noting that for some people, the ongoing “debate” isn’t actually a real debate.

At the annual developer conference for bitcoin technology, a proposal known as Segregated Witness appeared to have a lot of traction, and if it were approved, it would nearly double the capacity of bitcoin.

However, some people continue to hold opposing views (the disagreement is about "Satoshi's vision" and partly due to distrust of the Bitcoin Core development team). Therefore, the debate on the pros and cons of Segregated Witness has not been completely resolved.

Entering 2017, the price of Bitcoin has returned to its high point in 2013, and the biggest suspense left for us is: Will miners be willing to upgrade to Segregated Witness?

The progress of many developments (such as the much-hyped Lightning Network), as well as the business models of many startups, will depend on the implementation of SegWit.

Against this backdrop, 2017 could be a pivotal year.

Now, let’s review how the scaling debate unfolded in 2016, as well as the projects and people involved.

1. The formation of two major camps

The debate over blocksize and scalability was already contentious in 2015, but the main difference is that back then, there were a slew of solutions on the table and the party lines were not as clear.

In December 2015, Blockstream co-founder and developer Pieter Wuille proposed the Segregated Witness proposal at the Scaling Conference. It aims to increase network transaction throughput by changing the Bitcoin transaction storage format and reducing the space occupied by data (without changing the block size).

Segregated Witness can be implemented via a soft fork, which many developers believe would be beneficial.

This year, Ethereum proved that a hard fork could potentially split the economic network into two incompatible versions (opponents claim that hard forks are more democratic because they allow voting and there are two possible outcomes).

Following the release of the SegWit whitepaper, scalability proposals effectively divided into two camps: supporters of block size increase (with further debate on what the ideal block size is), and supporters of SegWit and second-layer protocols such as the Lightning Network.

As a result, as we enter 2016, the debate over Bitcoin scalability is more polarized than ever.

In February 2016, an alternative Bitcoin client, Bitcoin Classic, began to gain support. It only made a few changes to the Bitcoin Core code, changing the block size limit from 1MB to 2MB.

However, almost at the same time, another power group emerged, a coalition of miners and exchanges, announcing that they would not support any proposals that would lead to a hard fork of the network, and Bitcoin Classic has never recovered since then.

2. Bitcoin Core Progress

In mid-2016, 20 Bitcoin Core code contributors gathered in Zurich to review the SegWit code.

Soon after, Bitcoin Core developers merged the Segregated Witness code into the main branch of the Bitcoin codebase and began a new round of testing.

After several months of testing, Core developers finally announced that the Segregated Witness code will be included in the 0.13.0 version of Bitcoin Core software, making it in a pre-activation state. The 0.13.0 version of the software also includes other technical updates such as faster block relay.

Meanwhile, in July, Core developers also announced an upgrade to the Bitcoin network’s block relay structure.

The project is an improvement to the Bitcoin relay network, a system that increases the speed at which block data is propagated between Bitcoin miners, thereby reducing the probability of orphan blocks.

3. Obstacles to be overcome

Despite the great work of the Bitcoin Core team, the last few months of 2016 proved that it was still difficult to reach a consensus on the expansion debate.

One of the obstacles comes from Roger Ver, the owner of ViaBTC and Bitcoin.com, who both oppose the Bitcoin Core roadmap and have a lot of mining power.

In late October, the entire ViaBTC mining pool switched its hashrate to Bitcoin Unlimited, an alternative software that allows miners to customize the block size to their needs.

(For more on how Bitcoin Unlimited works, you can read Peter Rizun’s article on how Bitcoin Unlimited nodes handle larger blocks).

Since Segregated Witness requires 95% of the network’s computing power to pass, any mining pool with a computing power share greater than 5% can effectively prevent the implementation of Segregated Witness, which has brought the scalability process to a standstill.

At the time of writing, more than 50% of Bitcoin full nodes are running SegWit-compatible Bitcoin Core version 0.13.0 or 0.13.1, compared to nearly 7% running some version of Bitcoin Unlimited (data from Bitnodes).

Although more nodes appear to be leaning towards Bitcoin Core, the story of the scaling battle is far from over as the majority of computing power still has not voted.