Needham's assesment of the scaling issues

…on scaling & protocol conservatism

As Bitcoin transaction volume has approached its upper limits, there has been much debate within the Bitcoin community as to how best to move forward in terms of scaling Bitcoin. Nearly everyone actually wants to scale bitcoin—the debate is mainly regarding the pace and method for doing so. At least one subset of users is lobbying to scale bitcoin by conducting a hard-fork in order to raise the 1MB block-size limit, which would allow more transactions per block and thereby increase network throughout. Another subset of users sees raising the block size limit as problematic because increasing block size risks compromising one of Bitcoin’s most critical features—its decentralization—because at some level bigger blocks require more specialized equipment that fewer can afford to support the network. Moreover, were adoption to continue growing after raising the limit, the network would inevitably be faced with the same decision again down the road, and already the precedent would have been set that raising the limit is an acceptable response. This side of the debate sees this “blocksize raising as a scaling solution” path as a slippery slope that risks greatly increasing Bitcoin centralization over time and consequently undermining what might be Bitcoin’s most critical feature. Raising the block size limit would also require a “hard-fork” of Bitcoin. While a hard fork and raising the block size limit may ultimately be inevitable longer term, recent events highlight the risk of such an event: Ethereum (the second most popular blockchain/cryptocurrency by market cap) conducted a hard-fork that was supposedly not contentious yet nonetheless resulted in two chains that are now competing against one another. Ethereum addresses a different use case but given that Bitcoin is used as both a payment network and as a “digital gold,” the negative effects of two competing chains would likely be worse for Bitcoin than the negative effects observed in Ethereum. Ultimately, a similar split of Bitcoin into two competing chains would diminish Bitcoin’s network effect—which is critical to Bitcoin’s value as a digital gold and as a payment network. Instead, the loose-knit group of developers (“Core”) that contribute code to the main Bitcoin reference client have, in our opinion, been prudently “conservative” with regard to protocol changes. Many updates from Core over the past 18+ months have laid the groundwork for second-layer technologies (such as lightning networks and sidechains) to be built on top of Bitcoin while also helping alleviate some short-term scaling pressure (segregated witness + Schnorr signatures could scale Bitcoin throughput by ~2x+ without introducing a hard fork). Needham & Company, LLC September 22, 2016 Bitcoin Investment Trust Page 24 of 31 25 We see this “conservatism” as prudent given the high stakes involved (Bitcoin market cap > $9B) and because for Bitcoin to be used as a digital gold and as a payment network users need to be reasonably confident that there won’t be potentially jeopardizing changes at the protocol level. Instead, the focus appears to be on shifting innovating to the future “edges” of the network (i.e., lightning networks, payment channels, sidechains). In this sense, we’re supportive and encouraged by these efforts that focus on creating a highly stable base protocol that won’t be critically jeopardized even if higher layers fail.

Source: http://bit.ly/2cZaxsN

Submitted September 27, 2016 at 07:19AM by messiano84 http://bit.ly/2dnCcpZ