Transaction Eugenics: Bitcoin Blockspace is a Scarce Resource & Protocol Developers are Scientific Innovators

(Written June 2018, updated & published Sept 2019)

Big Blockers (BCH supporters turned BSV supporters) typically like to argue that only “mining nodes” mater… and that “non-mining full nodes” have no purpose.

Bitcoiners don’t expect all users or even most users of Bitcoin to run their own full node, rather we view the ability to operate a full node as a sovereign right of any citizen of Bitcoin; full nodes are more akin to economic nodes, the “non-mining full nodes” argument is a case for a more centralized and more corporate-controlled Bitcoin.

In 2017, the UASF movement proved that the sovereign activist Bitcoin users are in control, and the ability to run full node can be thought of as the second amendment of the bitcoin constitution, the right to bear a node.

Part of the undefined & evolving game theory of Bitcoin is that users band together as a crowd swarm immune system to resist against egotists who try to take over.

Businesses, mega miners & power hungry early-adopter charlatans have tried, and may try again, to wrestle power from the hands of the users and protocol developers for control of the future of Bitcoin that best suits their business models or corporate interests.

Why did corporations want to increase the blocksize? Fees got too high & and they didn’t want to invest the engineering resources required to optimize their inefficient usage of bitcoin, instead they wanted to continue doing business as usual and form Bitcoin to suit their needs.

Some of the largest Bitcoin corporations tried to increase the blocksize to solve the problem of fees.

It’s worth noting that most of these companies had misaligned incentives with Bitcoiners. VC backed corps like Coinbase were leeching off of the search engine traffic & network effects of Bitcoin to enrich themselves & their shareholders via increasing the value of their company equity over increasing the value of Bitcoin for every participant of the network.

The majority of the New York Agreement signatories have not, were not and still don’t contribute to the development of Bitcoin.

Increasing the blocksize is similar to the process of the bailouts that happened during the 2008/2009 housing crisis. The US government socialized the losses of banks who were taking too much risk by buying up illiquid equities & dumping the debt on the taxpayer. Future taxpayers are burdened with a bloated system and trillions of debt.

Inefficient usage of blockspace by the largest corporations is poor stewardship – blockchain bloat is a tax on the future users of bitcoin, and it hurts decentralization.

When these corporations & CEOs of the largest Bitcoin companies lost the battle, they mostly turned into “crypto” companies – refusing to implement Segwit, properly batch transactions, or outright spreading misinformation & propaganda about Bitcoin while promoting altcoins that they were able to influence & control.

This is also part of the game theory of Bitcoin. This is the market in action. Over the last 2 years since the big blockers left Bitcoin, the price of their Altcoins vs BTC has continued to drop.

Pro-Bitcoin companies like Square, BTCPayServer & Casa have emerged to grab territory in the power vacuum left behind by companies like Coinbase, Bitpay & Blockchain who turned hostile to Bitcoin.

One exception was the founder of one of the largest Bitcoin companies Xapo, who admitted he was wrong and doubled down on supporting Bitcoin afterwards;

Increasing the blocksize to fit more transactions per second actually decreases the decentralized properties of the network. As the hardware & bandwidth cost of running a node increases, it centralizes power into the hands of those who can afford expensive hardware & restrictive bandwidth costs.

Big blockers argued that Bitcoin users are attacking miner profits with Lightning Network & miners will not approve a hard fork if one is required on Bitcoin in the future.

If the swarm sentiment shifts majority towards wanting that change, then it will happen via the abstract human consensus mechanism that got us where we are now.

Sentiment definitely has hardened towards conservatism and away from out-of-consensus hard forks, so I would imagine the situation would need to be dire before the swarm shifts towards a BTC hard fork to simply raise the blocksize limit.

I would imagine that the next hard fork (if it happens) would have a lot more in it than just a blocksize increase.

I realize that quoting Satoshi Nakamoto is an appeal to authority, but when you examine Satoshi’s early writings, it was clear that he enthusiastically supported micropayments but also talked about second layers.

Satoshi foresaw users getting tyrannical about limiting blocksize increases. The crowd’s tyrannical-leaning enforcement of the blocksize limit actually forces innovation at the edges.

Late economist Julian Simon, in “The Ultimate Resource 2” talks about finite resources, scarcity & how humans solve problems.

He gives us 2 important lessons that we can apply to Bitcoin scaling & blocksize.

Malthusian Theory suggests that uncapped population growth will outstrip finite resources (food, minerals, land).

Neo-Malthusians advocate for eugencis to control population.

(Re: Bitcoin think people = transactions, resources = blockspace & eugenics = 1MB cap.)

Alarmists might read that and think that I am advocating eugenics. The philosophy of eugenics is a radical social movement that argues it is possible to improve the human race by encouraging reproduction by people with desireable traits and discouraging reproduction of people with undesireable qualities.

When you apply this theory to people, there’s moral issues & fundamental problems that make it an absurd violation of human rights. However when you think about it as an abstract theory towards transactions, it is a more interesting thought exercise.

I also understand the countering logic that code is speech, transactions are free speech, and by performing transaction eugenics, you are limiting free speech. However in a reality of limited blockspace, optimizing transactions & blockspace usage can be thought of as a form of voluntary transaction eugenics.

Simon explains in his book that more people = more wealth = increased demand for resources = equals higher prices for scarce resources.

Higher prices, in this case higher fees, is an opportunity – but for who? He shows that higher prices provide greater opportunities for corporations to profit & for scientists to make discoveries.

Humanity is always better off when a solution is found for a problem, than if the problem had never existed.

Translating this into the world of Bitcoin, if you see high fees as a problem, then increasing the blocksize is the equivalent of corporations seizing the opportunity to profit.

Optimizing the blockspace is equated to scientists making discoveries & solving problems for humanity.

There’s 2 ways this solves problems for humanity;

1) Bitcoin itself has the potential to be great for humanity by reaching world reserve currency status – the sought after ‘hyperbitcoinization’ where BTC has been mass adopted as an apolitical, decentralized, uncensorable, unseizable store of value, medium of exchange & unit of account.

2) The bitcoin motivated innovations that engineers & scientists discover related to encryption technology, power efficiency, networking & compression technology that will be discovered should have broader applications for humanity beyond just bitcoin improvement.

In Ultimate Resource 2, Simon provides data to show that with human creativity & ingenuity, scarce resources can be made abundant to create a prosperous future.

In early 2018, shortly after the big block corporations split away from Bitcoin to focus on raising block limit, the engineers & cryptographers in Bitcoin confronted with scarcity (1MB cap) resulted in a 2.1 MB block.

The world’s most accomplished cryptographers & protocol developers are working on Bitcoin, using the most abundant resource, human creativity, to create the most valuable scarce resource, blockspace.

The developers on the BTC side are working with constraints at the protocol level to innovate on compression & propagation technology, that feels more interesting to me.

When humans are faced with a problem, typically we innovate out way out of it. Raising blocksize feels like the lazy way out — and that’s probably the number 1 reason that world class protocol developers are mostly working on Bitcoin not BCH or altcoins.

BCH, like ETH, has a lot of young app devs – but as far as I can see, the experienced protocol devs are still majority attracted to Bitcoin.

The free rider problem exists in Bitcoin as Naval Ravikant explains, but financial gain is only one incentive.

HODLers can be considered free riders by financially incentivized developers. These developers are expected to work on Bitcoin, while the HODLers don’t work, so some developers are incentivized to work on competing coins or launch their own coin.

Naval isn’t saying Bitcoin Maximalists are freeloaders, he’s just pointing out a very real part of the game theory of Bitcoin that pits some developers against the economic nodes & HODLers.

In ‘Drive’ Dan Pink explains that most superstar developers are motivated by autonomy, mastery & purpose. Most of these class A developers only get to choose 2. Working on bitcoin can satisfy all 3.

To circle back & close the argument – miners may try to stop a future hard fork just like they stalled Segwit adoption, but the success of UASF and the rejection of S2X has shown that the users & developers matter more.

Miners are rewarded handsomely for securing the Bitcoin blockchain & processing transactions, but they are not in control of Bitcoin. If miners stand in the way, they will be purged by the Bitcoin immune system.