We tried to explain the block size debate with simple words so that everybody could understand. Enjoy and don't hesitate to send us some feedbacks!
Click on the link to see the blog article
https://gatecoin.com/blog/2015/08/what-the-hell-is-happening-to-bitcoin/ or read below
Why is everyone talking about a fork?The Bitcoin community has been divided for some time about whether to increase blocks' size on the blockchain. While some say block size increase needs to happen this year - due to a lengthy adoption process of the new protocol, detractors say it is not urgent - with some of them even stating that it should never happen. Both sides claim to be more faithful to Bitcoin's mission.
This disagreement has reached deadlock and may result in a hard fork of the Bitcoin protocol.
Consensus is broken? Let’s vote!After months of lively discussions, one of the two camps has decided to act. Mike Hearn and Gavin Andresen (Bitcoin Foundation’s chief scientist) made the full release of their alternative Bitcoin protocol, called Bitcoin XT on 15th August. Bitcoin XT is very close to the protocol people currently use, called Bitcoin Core. Its main exclusive feature is an increase in block size from 1Mb to 8Mb (BIP 101)
Bitcoin XT is a hardfork of the protocol, meaning that the two version of the software will eventually be incompatible with each other. The main idea behind the release is not to enforce a new version of the Bitcoin protocol now, but rather to bring voting back into the decision process. In fact, Bitcoin XT full version will only be implemented if 75% of the miners adopt it.
"By mining with Bitcoin XT you will produce blocks with a new version number. This indicates to the rest of the network that you support larger blocks. When 75% of the blocks are new-version blocks, a decision has been reached to start building larger blocks that will be rejected by Bitcoin Core nodes." Mike Hearn told Coindesk in an interview.
If this happens, miners using Bitcoin Core will have two weeks to convert to Bitcoin XT before being condemned to work on an outdated blockchain.
Why such a rush?The discussion could have lasted for years had there not been a categorical need for action.
Here’s the problem. Transactions are expected to grow as Bitcoin usage becomes mainstream. We do not how big it will grow, but we do know how big it can grow within its current shape. The Bitcoin protocol currently limits block size to 1Mb, with a block being produced every 10 minutes on average. This allows the network to verify about 7 transactions per second. Compare this to Visa’s daily peak rate at more than 5000tps, and you will get an idea of how far Bitcoin is from rivaling established systems in capacity.
At current growth rate, Mike Hearn, a Bitcoin Core developer and network capacity specialist, expects capacity limit to be reached by end of 2016, at the latest. This can yet happen sooner due to a change in Bitcoin’s adoption rate. The network needs to prepare for this by increasing its capacity.
We can’t just wait for capacity limit to be reachedSome of Bitcoin XT’s detractors argue that reaching the limit should only create a market for fees, with highest bidders having their transactions executed within minutes, and lowest bidders having to wait for days. The first consequence of such a scenario will be a sharp increase in fees. Moreover, transactions are probably more likely to keep on growing even when capacity limit is reached. Thus, some transactions might be pending for a very long time, making double-spending attacks much more likely.
An imperfect, but life-saving solutionIncreasing the block size requires very few changes in the Bitcoin protocol code, so it’s quite easy to do. However, releasing Bitcoin XT basically consists in kicking the can down the road. What will happen when we reach Bitcoin XT’s capacity limit? Even a dynamic capacity limit isn’t a sustainable solution, for mainstream adoption requires a different scale.
Bitcoin XT is also expected to increase the cost of mining and thus, centralization. Centralization is one of the things Bitcoin has always stood against.
Everybody nonetheless agrees that something needs to be done to change the Network capacity. Scalability solutions that don’t require high capacity full nodes include side chains and the Lightning Network. But none is available right now.
So yes, Bitcoin XT is a bit of a default option. But it works, and it’s the only available solution we have.
Is this the reason why Bitcoin price is going down?
Bitcoin price experienced a sharp drop over the past few days. There is, of course, an anxiety factor coming from this fork story, which makes the price slowly slide downwards as investors lighten their positions. But the big dive of 19th August was mainly triggered by Bitfinex’ Flash Crash. The price in other exchanges like us was impacted by it because of arbitrage.
To sum it up
Miners are currently voting for or against Bitcoin XT. There is no schedule as far as the results are concerned. However, Bitcoin XT final version - with the 8Mb block size limit - will not be implemented before January 2016, independently of the outcome. For the moment, both Bitcoin Core and Bitcoin XT miners are verifying the same transactions and working on the same blockchain, because their software is compatible.
This whole block size saga highlights the absence of a charismatic Bitcoin leader, who would show us the way. But Bitcoin was never meant to be someone’s property. Bitcoin is an open source protocol, meaning improvement should be carried out in a highly democratic way by its users. Bitcoin XT’s voting proposal aims at re-injecting that very logic into the current decision mechanism.
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