The Amish approach to Bitcoin: End technological progress

In the 1800s everyone looked very Amish. We all plowed our fields with horses, used candles to light the house, and there were no computers in sight. But at some point, as steam engines and electricity became widespread, Amish communities decided to stop. That’s it, we’re stopping here. We will not change anymore from this point, forever. They refused to drive cars or connect to the power grid. When computers and the internet came around, they were off-limits, too. Why? Why declare that now, at this point in history, we have learned all we can, progressed all we can? The Amish increasingly looked backwards, to their traditions, instead of forwards, to what the world might become.

But what does this have to do with Bitcoin? First some background on a long-running debate within the Bitcoin community.

The MBA’s and CEO’s naive solution

For the last year or two a number of different groups have debated how to increase Bitcoin’s transaction bandwidth. Some of these groups have attempted to enforce their solution on the entire network, while others have gotten fed up and seceded. One such secession–the technical term is “fork” as in a “fork in the road”–is called Bitcoin Cash (Bcash for short). Bcash has decided to adopt the most simple, and I will argue, most naive, solution for increasing transaction bandwidth.

It sometimes feels like they want to end all progress, just like the Amish. No segregated witness, no lightning network. Bcashhas increased their transaction bandwidth simply by increasing the size of blocks. With the current Bitcoin size limit of 1 Mb blocks, and a technical minimum size for transactions, there is a fundamental limit on transactions per block. Since blocks come in ten minute intervals this also implies a limit to the number of transactions per second, i.e., the Bitcoin network bandwidth. Advocates of increasing the block size say, “Hey, it’s simple. 1 Mb is very small in today’s world, and 1 Mb / minute is a very small bandwidth. Let’s just increase that block size limit every time we get close to it. Let’s increase it by a factor of 8 right now.” That’s what Bcash did in August. So the Bcash blockchain now accepts blocks up to 8 Mb, while the original Bitcoin blockchain still has a 1 Mb limit.

Selling your birthright for a hamburger

The problem with the Bcash approach is it will lead to exponential growth in the size of the blockchain. (If people actually start using it, which is not yet happening.) The blockchain stores every single transaction in history. In time, the resources required for an individual to verify all bitcoin transactions, and so retain their financial sovereignty, will just be too much for most people. Right now a cheap laptop can easily store the entire Bitcoin blockchain. As technology improves, I hope that we will one day be able to store the entire blockchain on our smart phones. (Or perhaps even on chips the size of credit cards.) Imagine doing an “Apple pay” transaction where you did not need to use Apple’s servers, visa, or any other centralized business. Transaction fees would plummet as those middlemen are removed. We would also regain our privacy since they could no longer analyze our purchase history (and sell that history to others).

Bcash sacrifices that vision of financial sovereignty for quick relief on transaction fees. This would allow you to immediately use bitcoin to purchase your Big Mac…what a breakthrough! Remember how Esau sold his birthright to Jacob in exchange for fresh cooked goat meat? It was done in a moment of weakness. If Esau was not so famished he would not have done it. Yet his patience was so weak, and his appetite so uncontrollable, that he was unable to give up a small good now for a far, far greater good in the future. Big blockers are understandably hungry. It is difficult to use Bitcoin right now because transaction fees are so high. You can’t buy a hamburger with bitcoin because the transaction fee may be larger than the price of hamburger!

Dial-up phone lines vs. Fiber optic cable

Yet these are only growing pains. The technology is maturing. One day Bitcoin will again be usable for small transactions like buying a hamburger. Bitcoin is not Visa, it is not a transaction on demand service with a fixed fee. It is a miniature economy. And within that economy, the demand for bitcoin transactions is high right now, while supply is fixed. The result is predictable: high prices. But supply is only inelastic to a point. Even now lightning networks are being tested. These will allow numerous (still trustless and decentralized) transactions to happen almost instantly. But this more advanced technology will take time to develop and test.

When the internet (Arpanet at the time) began it was run on phone lines. Later other means of transmission were tested: radio, delivered by ground relay stations or satellites, coaxial cables, and eventually fiber optics. Today fiber optic lines are the standard for high speed data transmission. It took time to develop the fiber optic technology, but once developed it was much more effective. What Bcash is doing now reminds me of an alternate universe where we just continued running more and more telephone lines to improve internet bandwidths, rather than taking the time to develop fiber optic technology.

Traditions can inhibit progress

Part of what bothers me about Bcash is the rhetoric its supporters use. They speak about “Satoshi’s vision” and being “the original Bitcoin.” These are the sort of arguments churches make when they try to show why their particular interpretation of the Bible is correct. I think it is a valid argument when dealing with ancient texts: what was the author’s intent when they wrote the text? But it’s not an effective argument approach to technological development or research. Satoshi Nakamoto, whoever he was, was brilliant. But when he wrote the Bitcoin white paper he did not have the experience that we now have. Based on our experiences using and developing Bitcoin for 8 years, we have learned a lot. New ideas for improving it have come up along the way. To refuse to try those new ideas, insisting they weren’t a part of “Satoshi’s original vision,” is to stop all progress. That’s why I call Bcash the “Amish bitcoin.”

Information bandwidth and trust bandwidth

Let’s step back and understand transaction speeds more deeply. Today we can easily have a real-time video chat with someone on the other side of the world. Information passes between continents at essentially the speed of light. With internet speeds like that, why do Bitcoin transactions have such a large backlog? Why does someone else’s video chat mean that I have to wait my turn? Isn’t the internet bandwidth large enough to handle all our transactions at once? Yes, it is. Indeed, each Bitcoin transaction travels around the world almost instantaneously. Every Bitcoin node on the network is immediately aware of it, regardless of the fee paid for that transaction. Then what’s the problem? How can the information be there yet not there?

Unlike normal internet data, Bitcoin transactions are not just information. Financial transactions are composed of information plus trust:

transaction = information + trust.

So even though the information in that transaction has propagated around the world, the trust in that transaction has not. The question is not how to speed up information bandwidth: we’ve been doing that for decades. Instead, we need to ask, “How can we speed up trust bandwidth?”

Bcash attempts to do so by increasing the block size. It’s an easy, yet naive solution. What’s worse is that Bcash still uses the 10 minute block time. So their solution is still much slower than ideal. On the other hand, Bitcoin is attempting to speed up trust bandwidth by developing a new technology, the lightning network, which is custom built for this purpose. (This three-part series by Aaron van Wirdum explains how the lightning network will work in practice. There is also a really good description of the lightning network in Andreas Antonopoulos’ book “Mastering Bitcoin.”) Telephone lines (dial-up!) versus fiber optic cable. There is a reason why Bitcoin programmers are so tired of this debate. It’s pretty crazy there is even a debate about this.

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