Happy Halloween! Let’s talk about the scariest thing in the tech world today. No, no, not bubbles, drones, or unicorns: Bitcoin. Seriously. (Mostly.) Whether you think it’s a boondoggle scam, a libertarian Trojan horse that threatens governments, the scourge of Wall Street, or the thin edge of the post-capitalist wedge, you face two scary prospects: what if you’re right? And what if you’re wrong?
I’m a long-term Bitcoin believer, in case it isn’t clear, esconced in the (counterintuitive, possibly hopelessly optimistic) “thin edge of the post-capitalist wedge” camp. And while you probably weren’t watching, interesting things have been happening in the Bitcoin world of late. Angry conflicts that could break the Bitcoin blockchain! Fascinating launches and proofs-of-concept! And, most entertaining of all, the ongoing teetering crawl towards mainstream acceptance! Be still your beating hearts.
Let’s start with the angry conflict; everybody loves angry conflict.
I Got The Blocksize Blues
Bitcoin 101: bitcoin transactions are stored on a globally distributed blockchain, which is, surprise, a chain of “blocks” of cryptographically verified Bitcoin transactions, each linking to the previous block in the chain. Lo these many years ago, Bitcoin’s implausibly mysterious1 creator Satoshi Nakamoto implemented a limit on the size of those blocks: 1 single megabyte. This was fairly clearly intended as a temporary restriction to avoid denial-of-service attacks.
Since a new Bitcoin block is generated every 10 minutes (ish), this restriction limits the throughput of the entire Bitcoin network to a mere ~7 transactions per second. And so, many people (including me) believe the blocksize limit must ultimately be raised. The problem: this is a hard fork, i.e. will essentially create a blockchain incompatible with older versions of the software. If a meaningful number of clients don’t upgrade, the notion of a single undisputed master blockchain — the primary concept on which all of Bitcoin rests — could be at risk.
So the Bitcoin great and good got together and agreed on a wise upgrade plan! Right? You wish. Instead, after various proposals were advanced, two of the core developers essentially went rogue and released their own Bitcoin fork, Bitcoin XT, over the strenuous objections of many.
Give those two some credit, though; their fork doesn’t activate unless more than three-quarters of Bitcoin miners adopt it (which seems vanishingly unlikely) and for better or worse, it successfully forced some progressive discussion on the issue. To my mind, the most sensible proposal by far, rather than adding complexity or locking in 20 years’ worth of changes, is that of Blockstream president Adam Back:
…and I will not be at all surprised if that’s the compromise that Bitcoin eventually settles on. The whole kerfuffle really highlights one thing, though; for a revolutionary initiative that has spawned countless startups, and a cryptocurrency worth billions of dollars, Bitcoin’s overall governance really is remarkably seat-of-the-pants right now.
Sidechains For Everyone!
Speaking of Blockstream, a Bitcoin core-infrastructure startup I’ve been fascinated by for some time, they’ve only just gone and released their first production sidechain, Liquid, into the wild. Which is pretty remarkable.
Sidechains are secondary blockchains whose tokens are fully mathematically convertible to and from Bitcoin — but which run under their own rules. For instance, you could create a sidechain that supports confidential transactions (Bitcoin transactions are pseudonymous but completely public), or one that finalizes transactions much faster than Bitcoin does. Or even do both…which is exactly what Liquid is.
This isn’t what I would call a pure sidechain; transfers to and from it require validation by a consortium of entities. This will be necessary until and unless the Bitcoin protocol is modified to add a new smart-contract instruction type to make that validation automatic. (As a reminder; every Bitcoin transaction is in fact a program coded in Bitcoin’s scripting language. That language needs to be slightly more expansive to support sidechains.)
Bitshares and Lightning
Speaking of smart contracts — arguably the single most interesting and revolutionary thing about Bitcoin, the feature that makes it not just cryptographically scarce but programmable money — there have been numerous interesting developments there, too. Bitshares, a (blockchain-based, but separate from Bitcoin) “industrial-grade smart contract platform,” launched their 2.0 platform on October 13th. It features a whole cornucopia of interesting features.
(Including, somewhat controversially, a “consensus algorithm” — the code which secures its blockchain — fundamentally different from Bitcoin’s: “delegated proof-of-stake” vs. Bitcoin’s “proof-of-work.” Which may sound to the non-cryptocurrenscenti like a dispute about angels dancing on pins, but trust me, it’s a fundamental and fascinating divergence. I may write about it at greater length in the future.)
Bitshares wants to be the go-to platform for financial applications worldwide … although given their dire straits only a few months ago, one has to wonder. And that still makes them much less ambitious than Ethereum, who I’ve written about before, and who recently partnered with none other than Microsoft.
And then there’s the proposed Lightning Network (which I’ve also written about before) — essentially a write cache, a bit like Akamai for Bitcoin, that could let the currency scale to a truly gargantuan number of simultaneous transactions. Blockstream (yes, them again) commenced development on Lightning earlier this year, and it continues apace … although it too will require updates to the core Bitcoin protocol.
But What Does It All Mean?
The above may seem like a kaleidoscopic and disconnected series of developments. They are not.
Bitcoin as we know it, call it “Bitcoin 1.0”, is a fascinating technical breakthrough, and already valuable as is; but it suffered from several flaws, from a general user’s perspective. It didn’t scale to widespread use. Transactions were slow to commit, always irreversible, and anything but confidential. And Bitcoin’s governance, and its amendment/iteration procedure, were ad-libbed and/or difficult-to-nonexistent.
All of those flaws are currently being addressed, in more or less elegant ways, by the iterations itemized above. (I’m not a million percent sure about the reversibility, I’d need to dig into the technical guts, but my presumption is that a write-caching network like Lightning could at least in theory permit time-limited transaction reversals.) We are witnessing the growing pains of multiple new, improved, and far more powerful decentralized blockchain-based networks, all of which may well eventually be interwoven with one another.
In other words: you ain’t seen nothing yet. Interesting times indeed. And scary ones, too, if you’re a defender of the status quo…
1I have my theories, which fit the evidence available to me. (Of course I do; I used to write thrillers for a living.) But they’re only theories.