The Wildest Year in Bitcoin

(Poetry Foundation)

PART I: MONEY PROBLEMS

THE SCENE: 2017

(CoinDesk)

BLOCK SIZE

Typical block size in my hometown (images.reference.com)

SEGWIT

PART II: THE AGREEMENT

THE NEW YORK AGREEMENT

Jeff Garzik (El Confidencial)
"out" : [
{
"value" : 92233720368.54277039,
"scriptPubKey" : "OP_DUP OP_HASH160 0xB7A73EB128D7EA3D388DB12418302A1CBAD5E890 OP_EQUALVERIFY OP_CHECKSIG"
},
{
"value" : 92233720368.54277039,
"scriptPubKey" : "OP_DUP OP_HASH160 0x151275508C66F89DEC2C5F43B6F9CBE0B5C4722C OP_EQUALVERIFY OP_CHECKSIG"
}
]

184,000,000,000

-21,000,000

______________

183,979,000,000

SEGWIT2X

Barry Silbert (sludgefeed.com)

CENTRALIZATION

A massive block (Cavs Nation)
(Reddit u/slorex)

POLITICAL POISON

PART III: THE DEBATE

A CASE STUDY

(Bitcoin.com YouTube)
Roger Ver (Wikipedia)
Tone Vays (Crypto Slate)

EARLY UPGRADE PROPOSALS

Quoted from Satoshi’s email to Mike Hearn in April ’09 (BitcoinTalk)

PRO 2X: LOW THROUGHPUT HURTS EVERYONE

NO 2X: LIGHTNING NETWORK

Lightning Network node map (Bitcoin Lightning)
Artwork from somebody firmly on one side of the block size debate (Medium)

NO 2X: VULNERABLE CODE

Blocks (Etsy)
else if (inv.type == MSG_THINBLOCK)
{
//irrelevant
} else {
assert(0);
}

NO 2X: HARD FORK

MOTIVES

PART IV: POWER PLAYS

REPLAY PROTECTION

A small flock (roadsendnaturalist.com)

51%

A big flock (Plants of the Nile)

PURPOSEFUL SLOWDOWNS

(Medium)

PART V: DOGFIGHT

SUMMARY SO FAR

Andreas Antonopoulos (Forbes)

AA: I think it was a misguided attempt for compromise at a time when the debate had shifted from which is the most technically efficient way of addressing scaling, to a secondary debate. A meta debate, if you like, which was who should have the power to make this decision?

AA: It was tone deaf to the level of power struggle that was going on.

I don’t think anybody who was doing SegWit2x, although I might be wrong, was trying to do some grand conspiracy to do something bad to the network. I think they were looking out for their own self interest and they wanted to make their business model succeed. They just walked straight into that one. In fact, I was invited at the time to sign on to that and I said, “You’re playing with fire, I want nothing to do with this. I am not wading into this controversy. This is not about a technical decision anymore.”

AA: Once it became a power struggle, it became very, very personal and it became acrimonious and people ascribed ulterior motives and agendas, and then nefarious agendas, and then complete conspiracy theories to explain the motivations of other people who could not see what was plainly obvious. [. . .] and at that point, surprisingly, and very interestingly, a user revolt was fomented.

UASF

Bitcoin developer Peter Todd sporting user revolt swag (Twitter @mir_btc)

AA: So SegWit effectively became the linchpin of the debate and opposition to SegWit became a mechanism for signaling something deeper about who should be making the decision.

BIP 91

James Hilliard (CoinDesk)
Sailing blocks (ravencruise.com)

BCH

PART VI: PULLING THE STRINGS

JIHAN WU

(BTCNN.com)

HONG KONG AGREEMENT

Micree Zhan, Jihan Wu, James Hilliard, Peter Todd and other HK Agreement signatories (CCN)

AA: Because if the debate had been about one megabyte, then it wouldn’t have been contentious. Just like if the debate had been about the activation of a script and transaction malleability improvement, it wouldn’t have been contentious. But that’s not what the debate was about. That was the debate in the beginning, before there was disagreement and there was no way to reach consensus.

[. . .]

It became a debate more about the means rather than the ends. Rather than about how do we scale Bitcoin, it became more about which specific techniques do we use and in which sequence? Then because there wasn’t a consensus being reached on that question, then it became a power struggle because the debate shifted into who should make that decision.

UAHF

A reliable voting bloc (The Nation)
(cointimes.com)

PART VII: THE BIG PLAY

COVERT ASICBOOST

AA: ASICBoost is an efficiency improvement, let’s call it, that I first heard about from Sergio Lerner.

AA: To my great shame, I initially ignored him because he was talking about a backdoor that makes SHA256 more efficient. If you’re in this space, you hear a lot of stuff like that all the time. It seemed like the perpetual energy machine, nut job rant and I ignored him. I had to mea culpa myself afterwards.

AA: This efficiency basically allows a pre-calculation of the mid-state of SHA in such a way that you can reduce the energy consumption by about 20% on the calculation of the end state of SHA.

One of many diagrams from Sergio and Timo’s patent (PatentScope)
Greg Maxwell (Pinterest)

THE CONSPIRACY

AA: The conspiracy comes in from the fact that the way SegWit was introduced as a soft fork, actually ended up changing the usable space in the Coinbase transaction in such a way that it broke the use of ASICBoost in a covert way.

AA: We now know that Bitmain and potentially other ASIC mining farms and mining producers were using this on their own mining farms primarily. And eventually, they started giving it out as part of the equipment and were using this to gain a significant advantage over the competitors, which at the time resulted in a big enough edge that they were able to generate literally billions of dollars in profit. This was a lot of money on the table.

[. . .]

I don’t think it’s far fetched to think that when you have an organization that has for years perhaps at that point, made the sustainable 20% advantage in a marketplace that is cutthroat competitive and where there are billions of dollars on the table, would take that into very serious consideration. The conspiracy really isn’t in whether this was to their advantage or not, or whether they would make decisions based on their own profit motive. The conspiracy is whether those incentives that were invisible to everyone else and affected their decision were hidden on purpose so as to not tip their hand on ASICBoost.

Antminer S9 (StaticFlickr.com)

THE FORK

Starting block (Wikipedia)
(u/finalhedge)

CONCLUSION

AA: To me, consensus is an emergent phenomenon that comes from the interplay of various participants in the system. The participants are the developers who write the software, but can’t force anyone to run that software and who can write down the consensus rules, but those consensus rules are meaningless if no one’s running that software. Then it’s the miners who effectively use those consensus rules to adjudicate and sequence transactions and secure the network.

Those are the two primary players, the most obvious ones, but then none of this all matters unless you take into consideration the economic activity of the network. Because if you’re building software that nobody uses, or if you’re mining blocks that have no economic value, it’s all meaningless. It’s moot. The economic interest constituencies are primarily the users who choose which wallets, which chain to run on and by extension choose the consensus rules they’re participating in. Some of them run nodes and become node operators, in which case they explicitly choose the consensus rules and can even run blockades, as we saw with user activated soft forks. Then the other two big economic interests, which are effectively users but on a different scale, are the exchanges that are not only price makers or price discovery mechanism and market makers, but they’re also the on ramps, off ramps.

[. . .]

and merchants who run all of the eCommerce, retail and business to business transaction processing on behalf of users, if users need bigger scale.

[. . .]

These five constituencies each have power only if they agree with the other four. Anytime any one of them tries to step ahead of that agreement, they lose badly. That’s how consensus keeps everyone in line. And during this entire debate, what we saw is each and every one of these constituencies trying to step up and say “it’s our decision,” and then face plant shortly thereafter when their bravado roar of “we have the power” landed on deaf ears.

AA: You can even look at all of this arguing and drama and consider the fact that several multi-hundred-millionaires attempted to hijack the system and failed. Look at that and say: in the end, this is a system in which the participant who has almost nothing, and the participant who has multi-hundred-million are playing on a level playing field that unless changed by overwhelming consensus, maintains the status quo and gives you predictable neutral rules that work for everyone. That is the beauty of this system. No other system of commerce, no other industry is such that a billionaire can’t walk in and change the rules to suit them. In Bitcoin, as proven in 2017, you can’t. That’s really the amazing thing about the decentralization of power and that’s what makes this system tick.

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Tech writer.

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Nate Nelson

Nate Nelson

Tech writer.

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