What was the Blocksize War?

The scaling debate, described as Bitcoin’s first major “civil war”, divided the crypto community and had significant implications for the future of the currency. Two camps developed: “Big Blockers” who wanted to increase block size for cheaper and faster transactions, and “Small Blockers” who wanted the 1 MB limit to remain permanent to prioritize Bitcoin’s integrity and security.

Various proposals and solutions were put forth over the two years, with many of crypto’s biggest industry players and well-known figures tossing their opinions (and their money) into the debate.

Background

In the summer of 2010, Satoshi Nakamoto added an explicit 1 MB size limit for each block. Blocks on the Bitcoin blockchain are batches of transaction information; they are immutable (cannot be changed) and secure.

When Bitcoin was launched, the currency had virtually no value, and only a small contingency of people was mining for new coins. Further, each individual Bitcoin transaction was relatively small from a data standpoint, so the size limit did not originally affect the network. While Satoshi never indicated why the limit was put in place, it is speculated that it was to keep the blockchain small and discourage large amounts of spam transactions.

The 1 MB limit became problematic as the currency grew in popularity. Limiting the size of Bitcoin blocks meant that there was a limit on the number of transactions that could be confirmed on the network. Even today, the Bitcoin blockchain itself can only process 7 transactions per second, versus about 29 on Ethereum and 1,700 on Visa.

By 2015, two camps emerged regarding the 1MB limit, one who believed in the smaller block size, and one who thought that the limit was too small. Bitcoin blocks filled up quickly, making transactions slower and more expensive. However, there was no agreement among the crypto community on how to address the issue.

Big Blockers vs Small Blockers

Two major camps emerged within the debate.

Big Blockers wanted to modify the original Bitcoin protocol to increase block capacity and process more transactions. They believed that cheaper, faster transactions would make Bitcoin more scalable and therefore more accessible. While increasing the block size may not be a permanent solution, some suggested it would help keep transactions cheap in the short-term and allow more time for scaling solutions to potentially develop. This would allow Bitcoin to compete on the global stage as an alternative payment system to companies like Visa or PayPal.

Small Blockers fought to keep the 1 MB size limit in place to prioritize Bitcoin’s fundamental principles of security and decentralization. Small Blockers believed that if the block size increased, it would become too expensive for individual users to run a Bitcoin node. This would lead to companies hosting nodes in data centers, which could compromise decentralization of the network. They believed in system resilience and taking a long-term approach to increasing Bitcoin’s market share.

Sergio Lerner, a cryptocurrency researcher, summarized the nuances of the debate in an email to a Bitcoin Listserv:  

“There are two group[s] of people which have two different visions for Bitcoin. None of these visions [are] "wrong."

One group values … things like decentralization, lack of government, censorship resistance, anonymity. This group thinks that Bitcoin will transform our world in 20-30 years. To reach this goal, it's of utter importance to stick to those values. There is no rush.

The other group values … things like reaching one billion users in the next 5 years, or serving real unbanked users today, even if that requires a political agreement now.

Both visions have their merits. But they are incompatible.”

Proposed solutions

At the start of the debate, the Big Blockers had momentum and significant community support, as well as the backing of many miners, corporations, and asset managers. This camp had a straightforward message – Bitcoin needed more capacity for everyone to use it.

Bitcoin XT

Bitcoin XT was the first solution introduced by the Big Blockers. It proposed raising the block limit from 1 MB to 8 MB and then doubling it every two years until it reached a max size of 8 GB in 2036. The changes were incompatible with existing Bitcoin nodes, so the solution would require a hard fork, defined as change to the protocol which is not backward compatible. Any user running a Bitcoin node would be required to upgrade the software to continue using the hard-forked chain.

Bitcoin XT was proposed by Mike Hearn, a respected Bitcoin developer, and supported by Gavin Andresen, whom Satoshi had designated as the leader of the Bitcoin project after he stepped down. Andresen’s support helped Bitcoin XT gain traction and media attention.

The solution was highly controversial for the Small Blockers, who viewed the hard fork as too extreme. They feared that Bitcoin would split into two coins, people would lose the coins they already had, or it would change the network in other fundamental ways. Further, after a letter of support for Bitcoin XT was signed by several companies such as BitPay, Circle, and Blockchain.info, the Big Blockers camp was seen as aligning with big businesses instead of grassroots users, undermining Bitcoin’s core mission.

Although the solution was well publicized, it failed to gain wide-spread community support. Hearn, who had proposed Bitcoin XT, was so frustrated by the debate that he declared Bitcoin a failed project and sold all his coins.

SegWit

Developer Pieter Wuille put forward a solution called SegWit, short for Segregated Witness. It was a new transaction format where the signature, or “witness”, one of the largest data components of a Bitcoin transaction, was removed from the input field of the block, resulting in more space.

SegWit changed the way block size was calculated which would effectively result in a small block size increase to approximately 2 MB, a notion that was still supported by most of the community as well as embraced by Small Blockers. It would be implemented with a soft fork, meaning that the upgrade was compatible with existing nodes.

However, SegWit was technically complex, and many developers did not understand it. Communication about SegWit from the Small Blockers was convoluted, often failing to explain the solution in layman’s terms. Further, it required 95% of miners to signal their support to activate the upgrade, a number that was implausible at the time.

Bitcoin Classic

Bitcoin Classic was a proposal from the Big Blockers with Gavin Andresen as lead developer. It was another attempt to raise the block limit to 2 MB through a hard fork. Bitcoin Classic gained widespread support from companies such as Coinbase and various mining pools, and was viewed as a more moderate attempt to increase block size than the jump to 8 MB by Bitcoin XT.

However, Small Blockers opposed the measure, believing that it wouldn’t get the support from miners.

The New York agreement

On May 22, 2017, leaders from 58 crypto companies and some miners had a closed-door meeting where they created a two-phase solution: activate SegWit, then double the block limit compared to the original SegWit proposal. They believed it would resolve the conflict by combining both a soft fork (SegWit) and a hard fork (raising the block size), giving each camp a part of the solution they had been working towards.

Many in the crypto community saw the agreement as a corporate takeover of the Bitcoin network. They were angered that there was no mention that Bitcoin users are the ones who control the protocol and that support from users was necessary before enacting changes. The Small Blockers voiced especially strong objections to the agreement, noting that they did not feel represented.

After months of contentious debate, the proposal was suspended in November 2017, and the second phase of the agreement (raising the block size through a hard fork) was abandoned completely.

Bitcoin Cash

The Big Blockers were displeased with the results of the New York Agreement and still wanted a larger block size increase. A group of miners and developers split off to introduce a hard fork of Bitcoin in July 2017, originally called Bitcoin ABC and eventually renamed to Bitcoin Cash. A week later, major exchanges started to accept the new currency.

Bitcoin Cash had a block size of 8 MB that increased over time, resulting in higher throughput and lower fees. Further, the developers argued that Bitcoin Cash was necessary because it serves as a payment system, whereas Bitcoin had become an investment instrument with people holding onto their coins (HODL).

Roger Ver, an early Bitcoin enthusiast and owner of Bitcoin.com, signaled his support to shift all company resources to Bitcoin Cash, helping the new currency to gain traction. The Big Blockers celebrated a victory in launching a new coin with a higher block limit.

UASF

The Small Blockers camp, while smaller and much less funded than the Big Blockers, had become an increasingly vocal and persuasive group. They were still garnering support for SegWit, bolstered by the anti-establishment views that swept through the community after the New York Agreement. However, SegWit had nowhere near the 95% support it needed from miners to activate.

A developer using the pseudonym Shaolinfry introduced a new strategy called User Activated Soft Fork (UASF). Traditionally, soft forks were triggered by miners, which gave them control and power over the network.

Shaolinfry’s proposal, named BIP 148, let users running a node signal their support for SegWit ahead of an activation date, and to not accept non-SegWit blocks from miners. If enough nodes signaled their support for SegWit, then the miners would have to accept the upgrade by the activation date or else their blocks would be rejected.

The risky idea paid off when SegWit was activated on the Bitcoin network in July 2017 with the largest miner, Bitmain, flagging its support and other miners following to implement the upgrade.

SegWit also laid the foundation for the Lightning Network, a protocol built on top of the Bitcoin blockchain that enables off-chain transactions.

The end of the war

With the dissolution of the second part of the New York Agreement, the creation of Bitcoin Cash, and the adoption of SegWit, it’s generally agreed that the Small Blockers came out on the “winning” side of the Blocksize War. The UASF raised the block limit without using a hard fork. Further, the change was implemented through ordinary users, not by miners or corporations, an event that was seen as encompassing the original spirit of Bitcoin.

In his book, The Blocksize War, author Jonathan Biers speculates:

“In essence, this story is about how the Small Blockers had constructed a more compelling and attractive narrative than the larger blockers. A new form of money where the users set the rules, simply made for a better story than a high capacity, low fee, global payment system, irrespective of the truth of either claim. Money is ultimately a collective confidence game, the Small Blockers proved themselves to be quite effective players of the game and for this they were rewarded, with their victory.”

Blocksize War essentials

• The Blocksize War was a technical debate about software scaling on the Bitcoin blockchain that took place between 2015 and 2017.

• The debate exposed deeper practical and theoretical arguments within the crypto ecosystem, such as who controls the protocol and the long-term plan for Bitcoin’s market share.

• The resolution encompassed multiple technical changes and events, including the creation of Bitcoin Cash and the adoption of SegWit.