Is the scaling effort leading to Bitcoin’s privatization? accuses Blockstream of crippling Bitcoin for financial gain.

Since Blockstream got involved in the scaling of Bitcoin, the issue of Bitcoin privatization has sprung up.

Blockstream President Adam Back is of the view that a plan for scaling Bitcoin to handle more users over the next few years would double the on-chain transaction capacity on the network three years in a row, while simultaneously allowing for the development of layer-2 solutions, such as the Lightning Network, which could allow for millions or billions of transactions per second across the network.

To shed light on what it is, Back explained that Lightning Network transactions are real Bitcoin transactions that could be posted to the Bitcoin blockchain as a valid transaction though with a caching mechanism that collapses them so they don’t all need to be sent to the blockchain.

Bitcoin Core in the pay of Blockstream?

However, a main critic of this plan is, which accuses Blockstream of “currently paying off many of the key Bitcoin "Core" software developers” and having “directed the crippling of Bitcoin in order to provide the solution, for their own future, financial gain.” posted in a public service announcement:

“These Blockstream-paid Bitcoin developers (for the Bitcoin "Core" software) are enforcing a limit on how much information can be transacted in Bitcoin. This is limiting the number of transactions to just 3 per second, approximately.

Blockstream is concurrently developing a "solution" to this problem, called the "Lightning Network".  This "solution" is to be placed on top of the crippled Bitcoin network to allow it to scale.   Blockstream will monetize the Lightning Network in the form of fees required to use their service.”

The following are views from two individuals with interest in the subject. Please note that one of them has chosen to be anonymous. However, we don’t have any reason to believe that the non-disclosure of his identity has any major impact of his views as shared via email.

Lightning Network as the solution

“Lightning allows Bitcoin network participant to process settlements with a lower time and CPU costs comparing to a traditional Bitcoin blockchain,” says Mike Harrier, CTO “In case a substantial number of users choose to utilize this mechanism, one can argue that the scaling problem is solved.”

The anonymous respondent differs on this. The writer says LN is not a solution for scaling on-chain transactions as there is no tech for that yet.

“LN scales off-chain transactions, it’s quietly using smart contracts to execute behind the curtain. But it is a great scaling solutions nonetheless. LN It’s just not perfect and not how users would like to see it. It’s controversial, implementation of LN requires some trust in Blockstream – there is no guarantee LN will be decentralized. You can read a very good explanation of LN tech here ” 

LN is like a payment network, where everything happens very quickly and scales perfectly, but it does not happen directly as Bitcoin’s Blockchain. And in the moment user would like to “withdraw “ Bitcoin from LN, scaling wouldn’t be this good. The plan is the majority of transactions will happen via LN, this way LN will work perfectly.”

Blockstream created a problem to provide a solution?

Harrier will not agree with the statement that the problem was created to provide a solution because Blockstream formalized a potential problem and speeded up its solution through certain ideas and concepts that secure the future of Blockstream's business.

“Nevertheless, the growing daily transaction number has recently become a more apparent problem, which may lead to some organizations not being able to maintain their operation rate without such a solution,” he said. 

The anonymous contributor considers the claim controversial, saying Blockstream looks in the future with views that differ from Satoshi’s.

“They don’t say it straightforward, but they do think that Bitcoin shouldn’t be for everyone. They don’t want to create super free, decentralized, open and cheap payment network. Probably because they think it’s not a viable choice for Bitcoin,” the writer stated, adding that increasing blocksize would help Bitcoin at the moment as blocks are full because of huge amount of microtransactions and fees are growing.

The contributor claims that Blockstream is doing what would make Bitcoin less appealing to the public.

“I suppose they could increase blocksize to 2MB, but right now it is the matter of principle. Bitcoin with big blocks would be totally different from Bitcoin with small blocks, but with LN and SegWit. First one is mostly for people, the second one is mostly for business. Blockstream’s plan has been to make Bitcoin a business. They are succeeding so far, the problem emerged because of Bitcoin popularity and huge community energy and ambition. But it’s only natural that community and “board of directors” (metaphorically speaking) would want different things.”

Danger of Bitcoin privatization noted on its page that the only way for the private company, Blockstream, to be removed as the central authority over a crippled Bitcoin is for miners and pool operators (not users) to adopt a different implementation of Bitcoin, such as Bitcoin Classic as a failure to do so will result in “Blockstream's paid Bitcoin Core Developers to have unfettered control of the Bitcoin system for their own financial gain.”

Harrier thinks privatization should not be implemented. He said Bitcoin has always been and will continue to be, first of all, a monetary unit.

“Even Lightning Network uses bitcoins as a collateral. Therefore, from my point of view, privatization should not be the case.”

The anonymous contributor says what is about to happen is not privatization, citing conspiracy theories, but a change of philosophy. “It’s basically impossible to privatize Bitcoin – too many people own Bitcoins, too many history, too many losses if this happens, and most important – it won’t function properly without its blockchain, which can’t be privatized.

Privatization talks are just conspiracy theories. But - Bitcoin could (and probably will) become much more centralized.

Community’s idol is Satoshi Nakamoto, who wanted Bitcoin to be different from what it is now. But Satoshi is not here, he is not participating in Bitcoin development. Part of community feels that his views are outdated (they are even having proposals to update the whitepaper).

The only person who totally has been sharing his philosophy is Gavin Andresen, who had been a lead developer for a long time. Current devs pushed him out of the project, this was kind of ugly.

This also says something – they are trying to replace everybody with the “old views”. There is a “danger” of Bitcoin to be much more centralized. It would be totally different from the way it has been supposed to work. It would be a disappointment for people who have been believing in Bitcoin for years, but Bitcoin will live without these people. If Blockstream is here to stay (and it seems that it is), Bitcoin will be different.”

Proposed way out

“I am confident that what we currently witness is global financial mechanisms being established,” Harrier says. “Thus, I wouldn't like to be affiliated with any party supporting any particular proposal. In my opinion, we all are definitely going to use smart contracts more in order to make settlements easier and faster. It's hard to predict whether side chains such as Lightning Network will be required. In any case, it is crucial that the active community participants put substantial effort in finding mutual understanding and a collaborative optimal solution to such problems.”

The anonymous writer proposes three ways.

“First one – nothing happens. Bitcoin will probably be successful under Blockstream. It will bring miners the money, it will bring traders the money, and it will bring Blockstream and VCs the money. Bitcoin will lose its spirit and philosophy, but, basically, who needs it except relatively small group of people? There is need of progress too, and it’s hard to achieve without people who are getting their pay check regularly.

Second way – rebellion happens. Right now opposition is relatively small, but if (for example) Satoshi will come back or/and Chinese miners suddenly will change their minds, or Blockstream screws up majorly, then Bitcoin will fork, and Bitcoin XT, Classic, Unlimited or some new fork will be executed as a main fork. Bitcoin will change. Blockstream will be pushed out of project. This way fully depends on miners (China).

Third way (idealistic) - Current devs will change their minds and philosophy and will go back to their roots. Bitcoin will be improved with LN, SegWit and everything else, but it will be for the greater good, not for the business causes. First one is more likely to happen. This is not a way out, this is a way all in. Second way is the only way out. Third one is a pure fantasy.”

He concludes by saying:

“Remember, the only solution is for MINERS and POOLS to adopt non- "Core" software.”