What is the essence of the Bitcoin expansion dispute?

1. What is the essence of the expansion dispute?
2. Is the capacity expansion issue a black-and-white issue?
3. What is the source of Bitcoin’s value?
4. Who is the most loyal supporter of Bitcoin?
5.Why is Litecoin’s market capitalization not as high as Bitcoin’s?
6. Is the Bitcoin blockchain congested?
7. What can you do right now?

1. What is the essence of the expansion dispute?

First of all, I disagree with the view that " this block expansion is no longer a technical issue, but a political issue caused by a conflict of interests. " As an ordinary coin holder, I just hope that the price of Bitcoin will rise and that this problem that I have been thinking about for two years will be solved as soon as possible. If you must say that there is a "conflict of interests" with me, I only speak for my own interests, and at the same time I hope that what I say can promote the development of Bitcoin.

In my opinion, the debate over Bitcoin’s expansion is an “economic issue” rather than a technical issue or a so-called political issue. The expansion issue is simply “is it better to limit the size of a single blockchain 1MB , or is it better to choose to不断地扩容?”

A. If the block size is limited to 1MB, the security of the Bitcoin blockchain network will be maintained by continuously increasing transaction fees;

B. If you choose to continuously expand the blockchain, the security of the Bitcoin blockchain network will be maintained by continuously increasing the number of transactions;

Whether you choose Option A or Option B, the purpose is to collect enough fees to maintain the security of the network. From the perspective of miners' interests, it is appropriate to make an analogy: are you willing to do a large number of small-item wholesales with low profits, or are you willing to do a few large transactions with high profits. But in fact, the problem of Bitcoin expansion is much more complicated than the above metaphor, and any metaphor or analogy is inappropriate.

2. Is the capacity expansion issue a black-and-white issue?

First of all, this issue is not a "black or white" issue. We compare Bitcoin, whose blockchain size is maintained at 1MB, to the "Bitcoin settlement system". Then, a friend in the circle wrote an article criticizing the "Bitcoin settlement system". We should be clear that the "Bitcoin settlement system" is just a metaphor, just everyone's imagination.

As a decentralized value exchange medium, Bitcoin can be used for both settlement and ordinary value transfer. When the handling fee is very high, ordinary people will not be able to use Bitcoin? Doesn't Bitcoin become a "settlement system"? Since others are willing to pay such high handling fees in order to get better and faster services, squeezing out those who want to use the Bitcoin network for free, what are you still worried about?

The issue of capacity expansion is not a black-and-white issue, which means "limiting the size of the blockchain to 1MB". This is just an idea, an exploration to solve the current blockchain congestion problem with minimal modification to the Bitcoin system. If necessary in the future, the capacity can be expanded to 10MB or even 100MB.

3. What is the source of Bitcoin’s value?

1. What are the concerns about maintaining 1MB?

Some people may worry that the value of Bitcoin comes mainly from the network effect. The more people use it, the more valuable it is. Maintaining 1MB will lead to high transaction fees, which will reduce the number of users. The reduction in the number of users will lead to a decrease in the value of Bitcoin, and the decrease in value will lead to even fewer people using it, which will enter a vicious cycle and make the value of Bitcoin return to zero.

2. What are the concerns about increasing the capacity to 2MB and continuing to expand it?

The continuous increase in the size of a single block will lead to a more centralized mining process, fewer and fewer miners participating in mining, and ultimately the entire mining industry will become more centralized. In the summer of 2015, developers proposed to expand the block size to 20MB. Why did domestic miners strongly oppose it? The main reason is that the domestic Internet speed cannot keep up with the level of developed countries abroad. If the blockchain size is increased to 20MB immediately, many Chinese miners may have to quit mining. By the same token, even if the size of a single block is increased to 2MB, it may cause miners in some parts of the world to quit mining. The fewer people involved in mining, the more centralized it is. Centralization is the main reason for damaging the core value of Bitcoin.

From this, it can be seen that no matter whether it is maintaining 1MB or continuously expanding, everyone is worried that the value of Bitcoin will be damaged. So what is the main source of Bitcoin's value?

According to my understanding of Bitcoin, I believe that the source of Bitcoin's value is not just the so-called "network effect". The network effect here means that "the more people use Bitcoin, the more valuable it is." This sentence is correct, but the reverse statement "Bitcoin is valuable because many people use it" is not true.

The main source of Bitcoin's value is that Bitcoin allows two parties in two different places to complete the transfer of value without meeting each other or requiring any third party (such as Alipay or banks). This is the decentralized credit issue that everyone talks about every day. (Some people also believe that the scarcity of Bitcoin is also the source of Bitcoin's value. Since everyone believes that Bitcoin can be divided infinitely, how can it be scarce?)

The solution to the decentralized credit problem and the reliability and stability of the Bitcoin blockchain are the main sources of Bitcoin’s value. Other factors, such as the growing number of users and applications, are all derived from Bitcoin’s inherent properties and are only one aspect of its core value.

Therefore, I think that even if the blockchain size is maintained at around 1MB in the next few years, the number of Bitcoin users will not decrease. Users who normally use Bitcoin for transactions will not care about the handling fee at all. The price of Bitcoin fluctuates so much. In recent years, the average daily volatility of Bitcoin is about 5%. The value change brought by the price fluctuation on any day is tens or even hundreds of times the current default handling fee (0.01% of Bitcoin). The profit after increasing the handling fee tenfold is a considerable amount for miners.

At present, the default handling fee is one ten-thousandth of a bitcoin, which is 0.25 yuan in RMB. In 2015, the total handling fee collected by miners was about 8,500 bitcoins. If the default handling fee of bitcoin can be increased by 10 times, that is, 2.5 yuan per transaction, for every ordinary user who conducts on-chain transactions, considering the volatility of bitcoin prices, this 2.5 yuan is really nothing. But for miners, the income from handling fees is 85,000 bitcoins per year. In 2015, the number of bitcoins rewarded by the network was only 1.3 million. If 85,000 bitcoins can be received as handling fees, it is indeed a considerable income. And considering that the output has been halved since the second half of 2016, only about 650,000 bitcoins can be obtained as rewards each year in the next four years. If the handling fee can receive 100,000 or even 200,000 bitcoins per year, it is already quite considerable.

4. Who is the most loyal supporter of Bitcoin?

There is no doubt that ordinary miners are the most loyal supporters of Bitcoin. Miners invest a lot of resources to participate in the maintenance of the blockchain network. They have to invest fixed costs and cannot recover them immediately. All investments take up a certain amount of time opportunity cost. Before recovering the cost, ordinary miners certainly hope that the price of the currency will continue to rise, and through the continuous rise of the price of the currency, they will bring them multiple profits.

Speculators in the Bitcoin market only care about whether the price fluctuates, and have no idea about the specific value of the price. What they need is fluctuation, and only when the price fluctuates can they make a profit.

As for value investors of Bitcoin, when serious loopholes occur in the Bitcoin network, they can immediately sell the Bitcoins they hold on the market.

Merchants who accept Bitcoins have no idea about the specific price of Bitcoins. What they need is the stability of Bitcoin prices, not fluctuations. The volatility of Bitcoin prices is so great that it brings various inconveniences to merchants who accept Bitcoins.

In summary, Bitcoin is still in a very early stage of development, and we should find ways to expand the number of miners so that miners from more regions around the world can participate. Any move to reduce the number of miners will further centralize Bitcoin and weaken its core value.

5. Why is Litecoin’s market capitalization not as high as Bitcoin’s?

Since the source of Bitcoin's value is mainly to solve the decentralized credit problem, why is the market value of Litecoin or other competing coins not as high as Bitcoin?

Bitcoin has indeed gained a first-mover advantage. The first-mover advantage means that even if we can make trains and subways very spacious now, we still have to design them according to the established width. Why is that? Because the carriages more than a hundred years ago were that wide, and the train tracks were designed according to the width of the carriages. The first-mover advantage means that even if we now have a better keyboard layout to improve typing efficiency, because everyone is used to the current layout, changes will cause more people to be uncomfortable. The current keyboard layout was designed decades ago to prevent typists from typing too fast and damaging their keyboards.

6. Is the Bitcoin blockchain congested?

Quoting the article "BitFury CEO: Calm down, Bitcoin will continue to move forward":

Fact 3: Bitcoin transaction processing is not currently blocked There is no observable evidence that Bitcoin transaction processing is currently blocked. Statistics collected by http://statoshi.info/ over the past few months show that the pool of unconfirmed transactions has remained relatively stable at 10,000 transactions, and during the "stress test" in September 2015, the number of unconfirmed transactions increased significantly to 75,000 transactions. According to the CoinTape website, most unconfirmed transactions are due to no transaction fees or close to zero transaction fees.
For Bitcoin wallets that add modest fees, these congestion challenges simply don’t exist. According to CoinTape’s estimates, the optimal average transaction fee on the Bitcoin network was less than $0.1 in January 2016.

Let’s try to analyze the sources of small or no-fee transactions:

A. Coin Mixing Service <br/> The principle of coin mixing service is to split a large number of normal Bitcoin transactions into dozens or even hundreds of transactions in a cycle, and then put the split transactions into a P2P transaction pool that automatically matches transactions, and calculate the mixed transactions to achieve anonymity.
For special needs such as currency mixing services, normal fees should be paid to the network. In addition to currency mixing services, many projects also need to initiate a large number of transactions directly on the blockchain, but they do not pay fees for such transactions, or only pay very small fees.

B. Bulk spam transactions <br/> There are some projects that specialize in collecting Bitcoin addresses to send advertisements. Since blockchain.info and related wallet services or blockchain query applications have the function of labeling Bitcoin addresses or Bitcoin transactions. Simply put, this type of function is that after you send a transaction, you can label the transaction or the sender's Bitcoin address on the blockchain query website to indicate who sent the transaction. When users query the blockchain, they will not only see the general information of the incoming transaction, but also the sender's information. For example, the following example:

This has created a good free marketing environment, using programs to collect various Bitcoin addresses on the Internet, and then transferring a very small amount of Bitcoin to each collected address, such as one ten-thousandth or one hundred-thousandth of a Bitcoin. After sending the Bitcoin in batches, they will be labeled on various blockchain query websites, and users who receive this meaningless Bitcoin will see the advertisement of the sender when they query.

In addition to sending advertisements, some people also use it to send various fraudulent information. This type of project is a pest on the blockchain. If we continue to serve transactions with low handling fees, will this type of project increase in number, occupying too many blockchain resources and making it impossible to process normal transactions?

C. Blockchain Dust Attack
In September 2015, a company conducted a "stress test" on the Bitcoin blockchain, sending a huge number of small transactions. During the test, the number of unconfirmed transactions increased significantly to 75,000. Many users who use Bitcoin to transfer money clearly feel that the Bitcoin confirmation time is much slower than usual. The unlucky ones even have to wait for several days before the first confirmation. Many people in the digital currency circle have issued statements condemning this behavior.

For such behavior, all that can be done now is to issue a "condemnation" statement, but there is no punishment or loss for the perpetrators. Moreover, the launch of dust attacks is under the established rules of the Bitcoin blockchain, and there is no "foul" in itself. It can only be said that such behavior is "immoral", nothing more.

At present, a single company initiating a batch of transactions can cause serious congestion in the Bitcoin blockchain. As Bitcoin grows and gets more attention from the outside world, it will surely attract more low-cost dust attacks from different forces and organizations. Is Bitcoin currently prepared for such attacks?

In summary, is the choice to expand the blockchain to 2MB a short-term solution? Is the choice to continuously expand the blockchain encouraging all kinds of junk transactions?

7. What can we do right now?

If you agree with Satoshi Nakamoto that Bitcoin will ultimately rely on fees to maintain network security, then it is best to start cultivating users' payment habits now. There is a saying that goes, "If you don't manage your finances, your finances won't manage you." If users' payment habits are not cultivated, they will not have the awareness of paying, and the Bitcoin blockchain, which is expensive to maintain, will always be filled with a large number of low-value transactions.

Cultivating users' payment habits is an important way to increase the value of blockchain itself!
Cultivating users' payment habits is an important way to increase the value of blockchain itself!
Cultivating users' payment habits is an important way to increase the value of blockchain itself!

Regardless of whether you want to expand capacity, you can do the following:

1. When users withdraw digital currency, major trading platforms add a fee setting option and mark it with legal currency. For example: A. I am a rich person, and I pay a fee of 5 yuan; B. I am generous, and I pay a fee of 2.5 yuan; C. I am a loser, and I only pay a small fee, and I pay a fee of 0.5 yuan; and set the default option to 2.5 yuan, which is generous in the middle.

2. All major wallet projects and related applications should refer to the above.

3. All the major mining pools jointly issued a statement, explaining the high cost of maintaining the Bitcoin blockchain network, and suggested that users pay more fees when transferring money, so that transactions can be processed more easily, so that users can support miners and Bitcoin can develop more healthily. Furthermore, it can even be stated that transactions with fees below a certain value will no longer be packaged and processed.

4. Developers or people who are willing and able to participate in the maintenance of Bitcoin source code should start to develop an "automatic fee suggestion" module to let users know the relationship between the amount of fee and the network confirmation time, and provide appropriate fee suggestions.

Author: Pan Guoli, founder of Bifu.com
Editor: Meng Dada
Source: Babbitt Information (http://www.8btc.com/bitcoin-kuorongbenzhi ‎)