The Sky Isn’t Falling: Steven Zeiler on Why Bitcoin’s Future Is Strong
Steven Zeiler explains why a one-megabyte block size limit isn’t a fatal problem. Bitcoin isn’t doomed, it’s stronger than ever!
Bitcoin Classic, a fork of Bitcoin with a doubled two-megabyte block size limit, appears to have failed. Now, many in the Bitcoin community have voiced fears that, with a continued one-megabyte limit, transaction confirmation times and fees will increase to the point where Bitcoin itself is untenable, potentially dooming the cryptocurrency.
However, Steven Zeiler, Software Architect at Zen Software and former software architect for Ripple, holds a different view. He feels that the block size limit is at present a non-issue, and that the Bitcoin economy continues to work relatively seamlessly, with no major threats on the horizon from the one-megabyte limit.
Cointelegraph spoke to Zeiler about why the state of Bitcoin is strong despite block size limit challenges.
Block size limit issue
Cointelegraph: Do you view a 1MB block size limit to be an issue?
Steven Zeiler: I spend Bitcoin nearly every day for regular purchases, using a variety of wallets, services and exchanges, and in my experience the payment network is functioning exceptionally well. Yes, a cap on the block size will eventually raise the fees per, but I'm confident transaction verification won't be too poorly affected, since most merchants don't ever wait for a confirmation anyway.
The merchants I'm setting up all use BitPay, which seems to have algorithms for confirming transaction validity instantly with a high degree of certainty. The agorists and smaller businesses I deal with who use regular wallets also aren't usually aware of the "block confirmation" timescale and simply count the bill as paid when they see the transaction has been broadcast.
I did have one issue last year because my wallet didn't have adjustable fees and a payment to a Coinbase merchant online was stalled, and I had to deal with customer service, but since then most wallets I use have corrected the problem by offering dynamic fees.
Though I haven't analyzed the blocks, my hunch is that most blocks have lots of room for transactions with reasonable fees, and we will simply see low-fee transactions crowded out. At the end of the day, with services like Purse.io and Airbitz I can save 5-10% or more on nearly everything I need to live, so a 10 or 25 cent transaction fee doesn't even register as important to consider in my mind.
CT: Do you think higher transaction volume will ever make confirmation times an actual issue? Weeklong-plus confirmations, for example.
SZ: Everything being equal, more Bitcoin payments might lead to higher confirmation times, but the trend I see is wallets and payment processors researching and implementing technology to increase confidence. The market for wallets is heating up, and the ones with the best confirmation experience and technology will win greater share.
Ultimately confirmation comes down to trust, do you trust the person paying you isn't going to double-spend? If so your confirmation time is equal to the transaction broadcast propagation time, ie almost instantaneous. When shopping locally, I feel a high degree of trust with my neighbors so trust isn't a limiting factor. Chances are that if a transaction makes it into the mempool, it is going to become part of the blockchain.
CT: You mentioned increased fees not being an issue because of discounts from using Bitcoin. What about with merchants that offer no discount?
SZ: For me, the transaction fee is the cost of doing business, and currently that cost is extremely low. For example I bought two water bottles the other day at Bikram Yoga Portsmouth with Bitcoin, and paid a fee of ten cents on five dollars. That's still only 2%, whereas credit cards would be higher. But if I was paying my monthly dues of $100 the fee would still be only ten cents, only 0.1% of the bill much lower than credit cards. Though fees aren't a pain, one we are experiencing is lack of a recurring billing protocol for Bitcoin, which would help our yoga studio save money.
Potential from increased volume
CT: At what rate, in your opinion, would Bitcoin fees become a problem?
SZ: Higher fees have marginal disutility, so as they increase, fees become a problem for more, but different, people. For me, fees have never been a problem. If I hold Bitcoin worth $1,000 and in a year or two it is worth $2,000 because of increased demand and decreased supply, then I don't really care how much I've paid in fees. Honestly, the actual amount of the fee has never even registered with me. I do always make sure I pay enough of a fee to go through, though. Maybe if fees go over $1 it will impact day to day use, but that is speculation.
It makes sense that miners would ultimately want to maximize the amount of money they make, and given the market size of the entire world population, it seems that an increase in the block size will ultimately yield them more profits than simply raising fees. I believe the potential for fees from increased transaction volume vastly outweighs the potential for higher fees on the same transaction volume, and miners will tend to act like other economic players and maximize for profits. Higher fees very well may prevent poorer people for using Bitcoin, but I'm interested in using Bitcoin here in New Hampshire, one of the wealthiest places in the world, in an effort to ditch the Federal Reserve system.
Competition with fiat
CT: Do you see confirmation times and higher fees making Bitcoin lose ground to another cryptocurrency competitor or, worse, to fiat money?
SZ: That's a great question. I would love to live in a world where the general public is actively discriminating between crypto currencies based on their fees and confirmation time. To answer the question in a word, no, if Bitcoin fails to gain market share against central bank money it is because people like you and me aren't talking about the benefit of Bitcoin to their neighbors and friends, to the girl at the coffee shop and the mechanic fixing your car. It's our responsibility to teach people that they even want better money. Deep down most people know there is a problem with their money but don't even know they have options. For instance, three people this week said they were interested in Bitcoin but couldn't afford to buy a whole coin! They aren't even aware that you can have $20 worth instead of $750.
As far as losing share against other crypto currencies, confirmation time seems less important than fungibility and privacy since Bitcoin was created by anarchists for anarchists who often value anonymity. When I worked at Ripple, we were measuring something like 200 transactions per second with a final confirmation time of three to five seconds. Why then did libertarians and Bitcoin fans hate Ripple so much? Because their system is designed specifically to not be private and anonymous, so no real people (other than bank employees) use Ripple even though it has superior confirmation time, fees and throughput.