Bitcoin is just a tool

Image by portald from Pixabay

I have written so much about Bitcoin that sometimes I feel like I have nothing new to say, but there is always something. The reason is simple, Bitcoin represents many opportunities, but it also faces many challenges, both technical and social. After all, Bitcoin is just a tool.

Whether you like the above statement or not, it is a fact. Bitcoin is a tool and its impact (good or bad) depends on how most people use it. In the same way, it has its strong points and its weak points, some of which I will analyze in this article.

Chances are if you're a toxic maximalist (is there any other kind of maximalist?), a lot of the stuff I'm going to do is uncomfortable for you. However, my analysis is based on the characteristics of Bitcoin and its current operation. If you don't like it, you can always start a Bitcoin Improvement Proposal (BIP) to, if the community supports you, change these features.

Of course, keep in mind that improving something in Bitcoin can result in the worsening of other things and/or new problems. Perhaps among other things that is why it is so difficult to implement a major change in the BTC network.

The Social Failures of Bitcoin

Before continuing I am going to briefly explain what a BIP is. Well, the development of Bitcoin Core (the most used client for nodes in the entire Bitcoin network) occurs with BIPs. When one of these has enough support, it is formalized with the creation of a document to share the idea and obtain feedback from the Bitcoin community.

bitcoin core It is a reference on which other clients rely, which is why it carries the weight and the singing voice of the development of the Bitcoin protocol.

It is valid to clarify that each node chooses which client and which version to use. The above represents one of the keys when making decisions about the network protocol and why, unlike other networks, it is difficult for Bitcoin to have a hardfork that does not result in the creation of a new coin.

That being said, the first social failure begins, we are human beings and we generally go for the trend or the mainstream. Bitcoin Core represents 95% of all nodes connected to the network.

The positive thing is that most of the nodes speak a homogeneous protocol. The negative is that centralization on something so important and the ability to control and influence the developers of that client.

Yes, the community is decentralized in decision-making, but for some reason they have decided to centralize in a Bitcoin client the ability to decide which parts of the protocol to implement and which not. For example, if there is a very useful BIPs, but the developers consider that it is not of interest or convenience and decide not to integrate it, well, it never happens.

So while it is an open source program, that we can all review its code and propose changes, only a small group of people have control so that those changes are effective in the program. People who, like humans after all, can be tempted with offers or lobbies to direct the functionalities in one way or another, or simply direct them towards their particular interests of what it should be.

Pressures that were already evident during the block size war in 2017 that brought about a hardfork that resulted in the creation of a new cryptocurrency, the Bitcoin Cash. On this matter I invite you to read the following articles that I recommend in this tweet:

https://twitter.com/EnriqueYecier/status/1536023560463998977

- EnriqueYecier

Centralization is a real threat, even within Bitcoin, the tool that seeks to decentralize the economy.

Bitcoin Mining

This is another point where centralization attacked after the introduction of mining ASICs. New, more powerful, expensive, and energy-consuming equipment made CPU mining that could be done by any user at home with their personal computer virtually unfeasible.

Image by 3D Animation Production Company from Pixabay

Luckily, the incentives for mining are great and, although it is not possible for simple users with a pc, the proportion of miners and pools of Mining diversified enough to avoid centralization. At least it is so for now, what will happen when the block reward is not enough incentive and the fees do not cover the difference?

Everyone hopes that the price of Bitcoin will continue to increase so that even with a reward less than 1 BTC (which will happen in the next 10 years) per block it will be profitable for miners. This can happen, and it may not. Let's consider that yes, the time will still come when the fees must cover the incentive for miners to provide security to the network.

However, with the popularization of the Lightning Network, transactions on-chain could be drastically reduced, making mining unfeasible and causing the system based on Proof of Work to collapse. And it is that at a price of 1 million dollars, even the cheapest on-chain transaction would cost 1.92 USD*, encouraging ordinary users to use this second layer.

In this situation there are some possible solutions:

• Increase the block size: It is possible that it is the one that maxilamists like the least, it would be admitting that they were wrong. Increasing the block size could allow miners to process more transactions per block and therefore make more profit from the fees while keeping them relatively low. By then the storage cost per Terabyte should be so low that increasing the block size would not be a problem for a full Bitcoin node.

• Shit Tokens and NFTs to the rescue: thanks to a recent Bitcoin update it is possible to create Ordinals by signing up individual satoshis. Many maximalists reject this idea, but the fact is that it is possible and if it is possible on the Bitcoin blockchain you don't need to ask anyone's permission to do it. The creation of the Ordinals and their movements have already produced an increase in the transaction fees and could, in this scenario, and with other functionalities or use cases, serve as income for the miners as a result of the payment of the transaction fees.

• Altruistic mining: this would be a fairly decentralized solution and, depending on the mining power, effective. Each bitcoiner, in the same way that has a node or a wallet, would have an individual miner (there are already educational alternatives such as the nerd miner ). This would allow the security of the network to be maintained by users contributing to the network not for economic purposes, not for rewards but to provide security for their network assets. The cost would be minimal since it could work with solar energy (there are already portable solar panels and batteries). Who knows, if this option becomes popular, perhaps in the future onchain transactions will be fee-free (it is valid to dream).

Lightning Network

The Lightning Network (LN) works by creating payment channels between people, the more payment channels a node has created, the easier it will be to make instant payments and low (or no) commissions. The problem is that this network tends to be centralized. Opening a payment channel requires paying the corresponding commission in the blockchain, yes, when opening and closing a channel you have to register it in the blockchain and that costs, in addition to having liquidity to block it.

So ordinary people prefer to open a single payment channel with a Hub (large centralized entities, with many open payment channels and a lot of liquidity) than open 10 or more channels with other people. Or, use non-custodial applications to work with the Lightning Network, this is currently for convenience, but it may be the case in the future that it is also due to the high cost to pay in fees when opening or closing a channel.

These situations weaken the resistance to censorship of this second layer, but do not extinguish it since users have the power to create channels between them in the event that one of these HUBs censors them.

Another detail is that the LN nodes have to be online all the time. The risk of not doing so is that a channel can be closed unilaterally and this makes it possible for one of the channel's members to do so with the intention of stealing funds (fraudulent closure).

While it is not that serious because there is a period of time to contest this shutdown, it can be fatal if the node is offline for a long time.

Final notes

As I said at the beginning, Bitcoin is just a tool, and as such it will be good or bad to the extent that its users use it and to the extent that they can perfect it. A good solution to Bitcoin's social failures is to avoid the radicalism promoted by early adopters. Ignoring defects, avoiding debates or denying solutions will not bring Bitcoin anything good and may lead to new hardforks that weaken it or migration to less toxic chains.

*In on-chain transactions, the average input weighs 158 Bytes and the output weighs 34 Bytes. Therefore, a transaction with 1 input and 1 output would have 192 Bytes and at a rate of 1 sat per bit the fee would be 0.00000192 BTC.

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*Originally posted in Hive