Bitcoin Unlimited takes off as Core blocks mined drop below 90% for the first time, indicating that Bitcoin may be forked, increasing the block size limit.
Attempts to raise the block size limit have been made in the past, the latest of which before Unlimited, Bitcoin Classic, reached 70 blocks per 1,000 at its height before slowly declining. This month, Bitcoin Unlimited, which would allow the block size to be increased, took off, fast approaching 10% of Bitcoin blocks mined per thousand. Added to Classic’s roughly 30 (and declining) blocks and Core’s block share has dipped below 880. That degree of momentum could signal that a hard fork is on the way soon.
Jose Rodriguez, vice president for payments of Bitso, sees an eventual increase in Bitcoin’s block size as necessary to the network’s expansion if it ever seeks mainstream adoption on a wide scale:
“Ideally the block size should increase to scale and be able to surpass American Express, Mastercard and Visa in number of financial transactions processed. Visa is currently the leader with 71 bln transactions in 2015 according to it's 2015 annual report. Thats over 1.3 mln transactions every 10 minutes to place it in perspective versus Bitcoin.”
Delayed action on the block size highlights Bitcoin’s governance challenges
The current one-megabyte block size limit has been the subject of much controversy in the Bitcoin community. Proponents of a block size increase claimed that small blocks drastically reduces Bitcoin’s speed and increases its cost, making it untenable for wide adoption, while opponents claim that the currency is strong, and attempting fundamental changes to Bitcoin would be pose an unnecessary risk.
According to Eric Sammons, consultant for competing cryptocurrency Dash (which had its own very brief block size debate before the limit was raised), sees Bitcoin’s issue being not with the block size itself, but with its lack of an effective governance model:
“... The real issue isn't block size, it's governance. One of the main reasons I (and others) became interested in Dash was frustration that Bitcoin couldn't come to a final decision on this. It was just battled out in the forums and on Reddit, and controlled by a small number of miners and developers. This is clearly an inefficient governance system. Dash, on the other hand, has a built-in governance system which allows issues like block size to be settled definitively.”
If successfully implemented, Unlimited would allow for a varied block size, giving miners freedom to determine what size blocks they are willing to process. This would allow for larger blocks when necessary for the network, as well as potentially avoiding another confrontation on the issue in the future.
With bigger blocks, miner profitability needs to be solved
If Bitcoin’s block size is increased, however, a new challenge presents itself: miner profitability. Keeping a network rapid and low-cost allows for greater transaction volume and network participation, but also disincentivizes higher fees among Bitcoin users. This in turn reduces the incentive for miners to maintain the network as the block reward, their profitability, continues to go down. Cryptocurrency investor Marc De Mesel sees the future challenge presented by a more uninhibited network:
“By 2021 it will be less than 2%,so Bitcoin becomes more and more vulnerable to a 51% attack, unless miners are starting to earn income from other sources than inflation. Transaction fees are perfect for this and Bitcoin can afford to ask fees as it has first mover advantage. So indeed, by limiting the amount of transactions per minute people need to start paying transaction fees if they want to have their transactions validated quickly.”
De Mesel does see the need for a block size increase, albeit a gradual one so as to maintain the need for premium fees:
“Over time of course block size needs to go up as [transactions per second] needs to go up manyfold, but indeed it could be done gradually so that there always remains a competition for those that want fast validation.”