Opinion: Collapse of Bitcoin’s “New York Agreement” Would Have Long Term Consequences

The New York Agreement appears to be crumbling, and that’s bad for Bitcoin. No, I’m not taking a stance on the agreement itself. I recognize that all scaling plans are controversial, and I don’t know whether the “2x” part of the agreement would be good for Bitcoin or not.

Who is in charge anyway?

I do know a little about trust, though. I also know that Bitcoin has a rather complicated governance model. At first, it seems rather simple: miners have the final say on which code changes to accept because that’s the way Nakamoto consensus works. The longest chain is the winner, the end. Full stop.

There are those who argue that even more important than miners are the “economic actors.” Supporters of a proposed user-activated soft fork, which never occurred, had argued:

“There are strong economic incentives in the Bitcoin system for nodes to cooperate and remain in consensus to prevent chain splits. If the economic majority is signaling as of Aug. 1st, miners have many incentives to follow along. Not following along would make it difficult to sell coins mined after August 1st as the blocks would not be accepted by the economic majority. Essentially, miners would be producing an altcoin not recognized by users and exchanges, making them less useful and in lower demand.”

This is an interesting point-of-view, and while it’s unlikely that exchanges and wallets would choose to go a different way from the overwhelming majority of hashpower, I’ll leave that argument for others to sort out.

Then, of course, there are the merchants and their payment processors, such as BitPay, whose opinions must be taken into account. Finally, but not least of all, are the end-users of Bitcoin. Their support is most important of all, yet from a technical standpoint, they essentially have no say in the matter.

New York Agreement

I won’t rehash the four-year scalability drama here, but suffice it to say that Bitcoin was divided into two camps: the big blockers and the small blockers. The big blockers wanted just that--an increase to Bitcoin’s 1 MB blocksize. They also believed in on-chain scaling, such that all transactions occur on Bitcoin’s Blockchain. Now and forever more.

The small blockers were looking for a more elegant and permanent solution, and they eventually settled on a code called Segregated Witness (SegWit). This code separated the signatures from the transaction data in each block, then only counted the transaction data as subject to the 1 MB cap. SegWit also allows off-chain scaling through something called the Lightning Network. Transactions would occur off the Blockchain between parties on the Lightning Network, while periodically being “settled” on Bitcoin’s Blockchain. This solution would theoretically allow virtually unlimited scaling.

Neither group could gain more than about 40 percent support from miners, so at the appropriately named Consensus conference in May, both sides agreed to a compromise. SegWit would be activated in August, and Bitcoin’s blocksize would be doubled in November. Over 80 percent of miners agreed to this compromise, and the activation of SegWit was successfully accomplished on schedule.

There’s one interesting twist to this story, however. An overwhelming majority of Bitcoin’s miners and Bitcoin-based companies agreed to the plan, but Bitcoin’s core development team refused to get on board. Core supported SegWit and were delighted when it activated. But they will not support any increase of the blocksize in November.

Not my agreement

Now all Hades is breaking loose, because some of the signatories of the agreement, such as Bitwala and F2Pool, are reneging. They will not go through with the doubling of the blocksize in November, no matter what the supermajority of miners decides.

Following the “Breaking Bitcoin” conference in Paris recently, famous Bitcoin investor Tuur Demeester tweeted:

Since the blocksize increase would require a hard fork to carry out, an overwhelming majority of miners would have to agree to it. Even just a few miners withdrawing their support could doom the plan.

It’s about trust

I frankly couldn’t care less whether the blocksize is increased to 2 MB or not, and I can’t imagine that it would make much of a difference in the long run in any event. But what I do care about is Bitcoin’s ability to solve future, unforeseen problems. The project we call “Bitcoin” is more than a network and more than computer code; it’s a diverse ecosystem of countless individuals and groups with varying motivations and different incentives.

Withdrawing one’s support from important agreements erodes trust within the community. Parties that don’t trust each other have a difficult time compromising and meeting possible future challenges.

What will be the next crisis? What happens if Bitcoin faces something potentially catastrophic, like the creation of a true quantum computer capable of running Shor’s algorithm? Will we be able to implement Lamport signatures quickly enough, if nobody in the community trusts one another?

Trust is one of the most precious resources in the universe, and once betrayed, it grows back ever so slowly. Parties that don’t trust one another won’t work with each other and won’t sacrifice a little of their own interests for the greater good. If Bitcoin is going to become as huge as we all believe, we can be assured that there will be even more serious, possibly existential, crises in the future. Now is the time to for the signatories of the New York Agreement to decide if they are as good as their word, or if they can’t be trusted to keep their promises--neither those of today nor of tomorrow.


Follow us on Facebook