“Most users should start running client-only software and only the specialist server farms keep running full network nodes, kind of like how the usenet network has consolidated.”

Satoshi Nakamoto

The Bitcoin Scale Saga

As I have written before, a major problem with digital assets is the ability to fork (ie. clone) code. Say what you want about centralized code – it still makes more money than open source.; because open source encourages innovation at the expense of assurance and profit. Hence Apple, Google, and Microsoft thrive though each has open source to thank for their existence. This is an unfortunate reality, but it happens because money has a strong tendency to gravitate to the profit motive.

Over the last 5 years there has been a completely unnecessary civil war within the Bitcoin community. The main point of contention is around scalability which is why Bitcoin Cash (BCH) forked from Bitcoin Core (BTC) in 2017 and why it split again into Bitcoin Satoshi Vision (BSV) in 2018. This story is backwater in cryptoland, but it is relevant to the future of Web3 simply because forked code holds the very real danger of dilution before  projects with great product-market fit even have a shot at adoption. 

 

 

Lightning

Bitcoin Core (BTC) for about half-a-decade has tried to scale off-chain retaining small 1MB blocks (via the Lightning Network) so autonomous full nodes can still exist to preserve a decentralized network that lowers the overall attack surface of the network and essentially preserves the 3 existing branches of BTC governance (via J. Lopp Oct 2016):

    • – Miners: can veto devs
    • – Full Nodes: can veto miners & devs
    • – Developers: can help others bypass some vetoes

This view of governance puts developers at the center of power since they can write (or in this case keep) code that can bypass vetoes of the other two. This position also had the added effect of turning Bitcoin into a held investment (i.e. HODL) and not a usable Internet of money, since BTC policy will not allow it to scale beyond 1MB blocks (7 transactions per second). Small blocks are meant to keep the protocol decentralized till the pay-go Lightning Network can scale Bitcoin transactions off-chain.

Unfortunately, the Lightning Network has seen about as much progress as ETH 2.0 over the last 5 years. Thus, Bitcoin as “digital gold” is the only meaningful avenue of adoption available now. Sovereign adoption helps, but that use case is still at the edges. The gold analogy holds the same flawed premise gold does – it’s slow, but it works so sloth tech 2.0 is good enough. 

That logic is not realistic simply because it operates on the premise that Moore’s Law and Turing exponential compute are irrelevant. This thinking flies in the face of logic and there is massive evidence to the contrary.  

 

Failed Challengers

Bitcoin Cash (BCH) sought to expand the 1MB limit to 32MB as a step toward moving Bitcoin away from being a HODL investment (like gold) to its’ original purpose as a peer-to-peer electronic cash system. BCH was born out of the ashes of Mike Hearn’s Bitcoin XT and later Segwit2x which was supposed to double the original blocksize,… but never did. BCH’s leadership believes in retail adoption via education and grass roots utility projects, but they also support the altcoin universe that the BTC team essentially created by limiting its’ focus. Like BTC it still leaves veto power with a small group of developers. In less than 1 year it fell apart and forked again into BSV. 

Bitcoin Satoshi Vision (BSV) goes much further with a 128MB blocksize growing to 2GB in mid-2019 which will eventually remove a default hard cap to support theoretically unlimited transactions on (or off) chain. Lifting the cap means expanding use cases beyond peer to peer cash. BSV also puts the balance of power into the hands of miners since miners secure the network and will be able to flag whatever blocksizes they want. In 2022 BSV devs continue to scale the protocol to online gaming, supply chain, and P2P payments. Unfortunately a fork of a fork is still just a copy of a copy, even if the ceiling for that copy is much higher. 

Some would argue that these PoW projects are evolution, but the free market does not seem to think so, and open markets in general are an excellent barometer of success (or failure).

 

Lessons

Over these last 5 years, a new generation of altcoin projects under the Web3 banner – Ethereum, Polkadot, and Solana emerged that scale by reaching consensus much faster and more securely than PoW, and with forward thinking governance models. Each has their own pros/cons which I won’t go into, but you can DYOR research here. The main idea is that these second generation/Web3 projects will have the mammoth task of bridging in Web2 users, tech, and regulation if they are to succeed this decade. 

If Web3 UX/UI is the front end holy grail, then Web3 scale is the backend holy grail; because scale makes utility possible which ultimately decides adoption. Like all thing technical – one size will not fit all this is why Gavin Wood’s multi-chain world is the likely outcome. Yet, users, businesses, & eventually governments will gravitate to the Web3 projects that resemble the Internet meaning:

  • 1. The protocol is decentralized
  • 2. The protocol changes very rarely
  • 3. The protocol can scale on demand
  • 4. The protocol is modular – meaning it can port Web2/Web3 apps without painful overhead
  • 5. The protocol co-exists w/ centers of power (i.e. big businesses & governments), but (like the Internet) there is no one center of power. This is why decentralization is important. A risk aware governance model plays a key role here.

 

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Top photo by alan KO on Unsplash