Bitcoin Cash Myth Busting - Block Size and Decentralization

The myth that Bitcoin's decentralization will be destroyed by an increase in block size is one of the most pervasive in the cryptocurrency space, and it has been one of the most most significant in slowing the development of peer-to-peer electronic cash. It's also blatantly false.

This myth was not always so popular. When the anonymous developer Satoshi Nakamoto first added the 1 MB block size limit in 2010, they did it as a temporary measure while every user had to run their own node. It was not expected to be a long-lasting feature; Satoshi thought it could be increased as needed with a single line of code. And, in theory, it could. The problem was, when the time came in around 2015 that an increase in the block size limit was needed, a new set of powerful people had come to replace Satoshi in leading Bitcoin's development. And unlike Satoshi, these people had a motive beyond just the success of the Bitcoin project.

They were motivated by profit, even if it came at the expense of Bitcoin's utility. This new group of developers with control over Bitcoin Core work to serve their for-profit company called Blockstream. This company has a stated business model of selling side chains where people can make transactions faster and with lower fees than on the base Bitcoin network. The problem for them was the lack of any need for a sidechain if the Bitcoin network could easily handle the amount of transactions people wanted to make. So if Bitcoin could scale, Blockstream wouldn't make money.

If their business was to succeed, Blockstream needed to find a way to keep Bitcoin from scaling on its own. A daunting task, considering the vast majority of the Bitcoin community tended to agree with Satoshi and support a block size increase. Fortunately for Blockstream, they had the power of censorship and propaganda on their side.

Enter the myths

Due to the decentralized nature of the Bitcoin network, in order to stop a block size increase from happening, they had to get an economic majority on their side. So they came up with a myth. They told the Bitcoin community that any increase in the block size would cause the network to become too centralized because the increase in hardware requirements would prevent users from running nodes. Of course, this was all bullshit, as anyone who needs to run a node easily can with significantly higher block sizes. And the Bitcoin community knew this. So, of course, the solution was to get rid of the Bitcoin community.

While the Bitcoin network is decentralized, its discussion platforms are generally not. I won't go into too much detail here since it's a very long story, but basically a single Blockstream supporter going by the username theymos controls many major Bitcoin forums and websites, and they are willing to censor anyone who disagrees with them. You can read more about how exactly that started to happen here. As time went on and more and more of the Bitcoin community was banned for disagreeing with Blockstream, the apparent consensus of the Bitcoin community shifted to favor the myth that small blocks were necessary. Even though this meticulously curated collection of viewpoints did not represent the true Bitcoin community, anyone who joined would not know this. They would only be exposed to the Blockstream myth, and nobody would be there to show them how clearly wrong it was. So as millions of new people joined the Bitcoin community in the speculative wave of 2017, small-blocker nonsense became the dominant belief system of the largest cryptocurrency discussion platforms.

Here, though, we are able to address these myths without our voices being censored. So now that I've written probably way too much about the background for this myth, I'll explain in more detain the technical reasons that a significant increase in block size will result in no significant increase in centralization. This is the technical side of the block size debate that most people never get to see, and it's the argument for Bitcoin cash.

In order for Bitcoin to work as a currency at any significant scale, the block size limit must be increased beyond BTC's current million vByte (approximately 2 MB at best) limit. This has become abundantly clear over the past few years, as the increase in BTC usage has come with continual backlogs and median fees of several dollars, while the lightning network has yet to achieve a trustless solution that offers any real competition to Bitcoin Cash. This has become so clear, in fact, that most BTC and Blockstream proponents have given up on trying to say BTC is a currency, instead saying it's better off as a store of value without any real utility. (Of course, the headlines on pro-Blockstream bitcoin.org and r/bitcoin still call it a currency, since that tends to sound better than a pure speculative bubble to Bitcoin noobs.)

Whether or not a cryptocurrency as a pure store of value has any promise, this concept comes from the false premise that a network has to choose one or the other, a secure store of value or an easily usable medium of exchange. This of course comes from Blockstream's myth that increasing the block size to become a medium of exchange will cause a dangerous degree of centralization in the network. A myth entirely unsupported by mathematical and scientific analysis and the structure of the Bitcoin network.

The biggest argument used to attack any increase in the block size is that small blocks are needed so that most users of the network can run their own nodes. Small-blockers claim that increasing the block size limit will stop typical users from running their nodes on low-end hardware. Now, this argument falls flat on its face when you compare the ten thousand BTC nodes to the tens of millions of BTC holders (considered users in a digital gold model). Whatever the hardware requirements are, most people just won't run a full node, and for good reason: they simply don't need to. While full nodes do have some benefits, they don't really apply to a typical user. The most important benefit of a node is the ability to watch for double spends of fast payments. This can be quite useful for a merchant accepting high volumes of 0-conf payments, but it's unnecessary for a hodler or user who rarely takes payments that need to be accepted or denied quickly. Full nodes can also relay transactions to miners to get transactions confirmed in blocks, but miners can collect transactions on their own using their own full nodes. And if no miner will accept your payment, it's not getting into the blockchain whether or not you consider it valid on your node.

The idea that most users don't need to run a full node has been around for a long time, with Satoshi predicting that in the future there would be a limited amount of nodes run on high-end hardware, even including in the whitepaper an explanation of how most people can use Bitcoin without a full node. The basic design of the Bitcoin network, as outlined in the whitepaper, shows a system where miners are incentivized to act honestly and there is no need to rely on altruistic users running nodes without incentives.

And even if most users don't need to run their own nodes, they still can, even with very large block sizes. Storage requirements are negligible, since to run a node, one does not need to store all transactions, only those with unspent outputs (UTXOs). Currently, after 12 years, the Bitcoin network has produced about 4 GB of UTXOs, which has recently been increasing at a rate of 1 GB per year of full 1-2 MB blocks on BTC. This is a miniscule amount of data for the amount of time it takes to generate - with continuous full 32 MB blocks, you would need to replace a cheap SSD because of its age long before the UTXO set filled it up.

Bandwidth requirements are a bit more complicated to determine because they require some assessment of the network topology, but more in-depth analysis has also shown that an increase in the block size can easily be supported by the Bitcoin network. This article looked at the network in 2016, finding that an increase to 4 MB blocks would allow at least 90% of the nodes to continue operating, making the assumption that each node has to download entire blocks whenever they are found. In reality, nodes will already have most of the data, so using technologies like graphene and xthinner, large blocks can be compressed by about 99.8%, greatly increasing block propagation speeds and allowing for nodes to process large blocks even with poor internet connection. For example, using the average internet speed in Venezuela of about 4 Mbps, one can download a 99.8% compressed 32 MB block in about 1/8 of a second and upload it in 1/4 of a second.

As for the computing power necessary to process large amounts of transactions, Reddit user u/mtrycz was able to handle hundreds of transactions per second and 256 MB blocks using their Raspberry Pi.

So anyone who needs to run a node (and most people who don't) easily can, even with low-end hardware and large block sizes. The myth that hardware requirements make blockchains unable to scale is just that: a myth, and perpetuating it serves only to enrich those trying to exploit the Bitcoin network at the expense of those who need it most.