Bitcoin's seven megabyte block size cap is creating anxiety among network participants. The issue isn't new. Longtime developer Mike Hearn abandoned the project entirely after the network rejected his
Bitcoin's seven megabyte block size cap is creating anxiety among network participants. The issue isn't new. Longtime developer Mike Hearn abandoned the project entirely after the network rejected his proposed solution to congestion. He declared Bitcoin a failure in a blog post last January. "The block chain is full," he wrote.
The network has suffered transaction backlogs several times over the past year. Blocks are filling up to capacity.
Block space is dwindling fast. Blockchair lead developer Nikita Zhavoronkov tallied the data. Early 2016 offered about 300 megabytes of unused space each week—space for roughly 1.4 million additional transactions at an average of 225 bytes each. By the first week of 2017, that buffer had shrunk to about 60 megabytes. That allows roughly 40,000 extra transactions per day. In early January, average block size topped 984 kilobytes for four straight days.
Miners sometimes forge empty blocks, blocks containing nothing but the mining reward. This occurs when a miner builds atop a previous block header without knowing which transactions to include. Empty block creation has declined since November 2015, when it hit peak levels, but still consumes some of the remaining space.
Hearn painted a dire picture of perpetual full blocks. Bitcoin would become "the MySpace of digital currencies," he warned. He referenced Dave Hudson, software architecture vice president at PeerNova, who had modeled the scenario.
Hudson walked us through what would happen. Those paying top fees would see no change. The rest would face delays. "I'm pretty confident that's how it plays out," Hudson said.
He sees merit and drawback to the full-block scenario. "There are competing considerations," Hudson said. "Mining needs to shift from block rewards to transaction fees for the network's long-term health. But that also means people will feel the true cost of transactions in their wallets instead of subsidized rates."
Mining subsidies mask the real transaction cost. That subsidy is shrinking. Today, a Bitcoin transaction costs about five to six dollars when accounting for the mining subsidy.
The next block halving would reduce miner revenue by 900 bitcoin per day. If transaction volume stays around 300,000 daily, miners would require an extra 0.003 bitcoin per transaction to maintain revenue. At $800 per bitcoin, that's $2.40 per transaction. "Those fee levels push Bitcoin's main blockchain away from its original purpose as digital cash for everyday use," Hudson noted.
Hudson's forecast diverges from Hearn's doomsday scenario. "Full blocks don't necessarily mean crash and burn," Hudson said. "A serious downturn could happen if something else goes wrong too. But I think full blocks will change what people choose to put in blocks."
Hudson likened the scenario to a restaurant shedding customers due to overcrowding. Fees will rise as available space depletes. That mechanism keeps confirmations fast.
