Bitcoin’s Blocksize wars: Store of value or medium of exchange?

Photo by Bermix Studio on Unsplash

On August 18th, 2008 the domain name was registered. This, as far as anyone knows, is the first public appearance of the word ‘bitcoin’. On October 31st of 2008, a whitepaper was published in this entry

In this whitepaper, Satoshi Nakamoto lays out the groundwork for an immutable distributed public ledger (blockchain) that solves the at the time infamous double-spending problem. We won’t go into the minutiae here, as that’s not the purpose of this article, but the fundamental contention is this: given that there is some processing time for a cryptocurrency algorithm to record a transaction, what’s to stop a clever bad actor from spending the same crypto twice?

What are blocks?

Blocks are batches of transactions which are confirmed and subsequently shared on bitcoin’s public ledger, the blockchain.

The origin of the Blocksize Wars started in 2015. A bigger Blocksize would have meant that Bitcoin was able to store and record more transactions per second on the Blockchain.

This would enable Bitcoin to compete with Fiat Currency payment processors like Visa, Mastercard and PayPal.

This new proposal created a civil war within the BTC community. The conflict in its simplest form focuses on what seems like a relatively incidental technical feature: how big should bitcoin blocks be? But as it turns out, this apparent technical discussion is a proxy for much deeper questions of governance, political control, and the very nature of the protocol.

What is Bitcoin? What should it be? How should it develop? How should it change? In the end, this debate raged from 2015 to 2019 or so. Hundreds of millions or billions of dollars were spent fighting it.

The primary concern that raising the block size limit will mean fewer full nodes due to the increased data storage costs involved, which could dissuade users to operate full nodes and centralize the system around entities capable of handling bigger blocks. This, some opponents of bigger blocks say, would go against bitcoin’s distributed, censorship-resistant nature.

Since blocks contained all the transaction records, size of the block impacted the performance. Satoshi placed 1MB limit as he didn’t want someone to place a high block size to clog up the system. As more users came online payment times became longer and fees became higher. Today, 7 transactions per second. PYPL does 15 and Visa 2000.

In essence, ‘Small blockers’ see BTC as a store of value — slow and secure. Antimonopoly to avoid big companies controlling the mining of a big block that can support high transaction rate. ‘Big blockers’ saw BTC as type of cash and required higher transaction rate and prioritized efficiency.

The proposals to increase the block size:

  1. The first BTC split — Bitcoin XT

Gavin Anderson and Mike Hearn formulated and proposed — 2MB blocksize that can support 24 transaction/sec. Strongly opposed by small blockers. There were DDOS attacks on these new XT nodes.

2. Segwit aka Segregated witness — activated in 2017, stores transaction data in a more efficient way off the chain by removing the cryptographic signature only leaving the receiver and sender information. This gave more room to store transactions on the block to scale.

3. Bitcoin Cash: In August 2017 the hard forkers that weren’t happy with Segwey created BCH. These new BCH supporters believed it to be the legitimate continuation of the Bitcoin project as peer-to-peer electronic cash. All Bitcoin holders at the time of the fork (block 478,558) automatically became owners of Bitcoin Cash. Bitcoin, which was invented by the pseudonymous Satoshi Nakomoto remained a separate cryptocurrency.

As of November 2020, Bitcoin Cash has a block size of 32MB.

4. In 2018 Dr. Craig S. Wright started Bitcoin SV (Satoshi Vision) who strongly believes BTC is a form of currency. It currently has reached a block size of 638 MB and can support >2k transactions/sec. A single entity, Coingeek controls >52% blocks by mining pool. This can lead to manipulation causing the SV protocol to capitulate.

How decentralized is BTC though?

Blockstream was founded in 2014 to build financial infrastructure and applications based upon Bitcoin. Blockstream’s original intention was to release stress on BTC network and perform transactions separately on side-chains to improve scalability. This was done by selling sidechains to enterprises, charging a fixed monthly fee and taking the transaction fees. This middle-man like participation is questioned in the BTC community. Blockstream's interest to keep BTC slow while remaining a for profit organization is questionable. Critics have asserted that Blockstream could be a threat to Bitcoin’s decentralized nature, while others have argued that it is necessary as it provides a source of funding for its bitcoin developers.

The argument is that the 1MB block size is kept intentionally. High fees and long waits taken into consideration, their solution is lightning hubs aka banking industry. They received $55M insurance from AXA — an insurance company which doesn’t help with their narrative.


Ultimately, if we replace the word Cash with Gold in the BTC White paper it becomes clear why the Blocksize wars did not result in a change of the Bitcoin Protocol.

To increase the Bitcoin Blocksize, would have gone against the fundamental essence of Bitcoin by violating the most vital principles of the Consensus Algorithm which require Bitcoin to transmit Debt Free Value across a Decentralised Network architecture.

Where does this bring us to solve the scaling issue?

The Flippening.

The Flippening” refers to the possible future event when Ethereum(ETH) overtakes Bitcoin to become the most valuable cryptocurrency in terms of market capitalization. Personally I believe, ETH has the potential to become to ‘the internet’ in the post FIAT world where it empowers individuals and organizations to provide value by solving real-world problems while BTC remains a pristine store of value like gold — a deflationary hedge. With ETH killers like Cardano, Solana, Polkadot experiencing a rise in the 2021 bull market, the flippening is delayed, although inevitable.


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Bitcoin’s Blocksize wars: Store of value or medium of exchange? was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.