Segregated Witness, Part 3: How a Soft Fork Might Establish a Block-Size Truce (or Not)

By December 29, 2015Bitcoin Business

If one proposal excited attendees at the recent Scaling Bitcoin workshop in Hong Kong, Bitcoin Core and Blockstream developer Dr. Pieter Wuille’s Segregated Witness was it. Praised by many within the technical community, Segregated Witness is expected to improve Bitcoin’s performance in a number of ways, while some even hope it might be the scaling solution that helps bring some peace back to the Bitcoin community.

The first and second partsof our three-part Segregated Witness series covered how it works and what it does. In this final part we explore what it means for the block-size dispute.

What is the block-size dispute again?

To see what Segregated Witness means for the block-size dispute, let’s first recap what the block-size dispute is. (Note that this is not an analysis of the arguments; just an explanation of them. If you’re well aware of these arguments, feel free to skip to the next section.)

In essence, the block-size dispute represents a trade-off between throughput and decentralization – with a touch of economics involved. The current 1 megabyte block-size limit allows the Bitcoin network to process up to seven transactions per second. “Block-size Progressives” consider this much too low; as on oft-cited comparison, Visa can process thousands of transactions per second.

Undersized blocks, progressives fear, could limit Bitcoin’s potential and increase the cost of transacting on the blockchain to the point where only centralized services will utilize it, or lead to users moving to alternative payments systems, or perhaps even cause a total failure of the system.

On the other end of the spectrum, Bitcoin’s “ Decentralists ” fear that increasing the block size too much could further centralize Bitcoin on a protocol level in several ways. For one, larger blocks take longer to propagate from one node to the next, and take longer for each individual […]

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