OP-ED: Ethereum echoes the Blocksize Wars (why Bitcoin doesn’t need coffee)

Kyle Torpey
The market will eventually reject Ethereum for reasons similar to why Bitcoin hard forks failed in the Blocksize Wars, argues Kyle Torpey.

Bitcoin maximalists are misunderstood. They’re often labelled rude or downright toxic, but in many cases the reality is Bitcoin maximalists are the only ones willing to point out your ideas — such as paying for coffee with on-chain transactions — are stupid (like a real friend). 

Most people don’t want to hear that. Sure, there’s plenty of instances where Bitcoin maximalists are overly mean on the internet. You’ll find that in any sufficiently-large online community.

Indeed, toxic altcoin maximalists and toxic US dollar maximalists have also popped up as Bitcoin has continued to grow over the years.

Bitcoin maximalists see the blockchain as a mostly monetary phenomenon.

Those who think the Bitcoin asset (BTC) is a Ponzi scheme of sorts (nocoiners), or folks that believe there’s room for many competing cryptocurrencies (multicoiners), tend to be more interested in the blockchain as a technological invention. 

The failure of ‘blockchain not Bitcoin’

Early in Bitcoin’s history, a common theme from those involved in finance went that BTC would fail. 

They’d later clarify by claiming the blockchain technology behind it may prove valuable. A lot of money has been sunk into these “blockchain not Bitcoin” projects, but they haven’t amounted to much of anything. 

Similar to how the market has mostly refused the “blockchain not Bitcoin” meme, the market also rejected various attempts at increasing Bitcoin’s block size limit with hard forks. 

Ethereum (ETH) has gained attention recently with its non-fungible tokens, centralized stablecoins, and decentralized finance (DeFi) apps — which are usually decentralized in name only. 

Likely, the market will eventually reject ETH, like all other altcoins, for reasons similar to why those Bitcoin hard fork attempts were unsuccessful (remember: the previous ETH bubble built around initial coin offerings ultimately popped).

Ethereum’s ICO craze drove its price beyond $1,400 in early 2018.

Read more: [Crypto goon gets 5 years in prison for $4M ‘decentralized bank’ ICO scam]

It should be noted that even blatant Ponzi schemes can do well in the cryptocurrency market over the short term in a low-liquidity environment, so it may take some time for this thesis to play out. Additionally, ETH may never completely go to zero. 

That said, it would be difficult to see how Ethereum could perform well once the crypto asset market is less frothy and Bitcoin’s layer 2 networks (in addition to many other types of Ethereum competitors) are further developed. 

For example, making the case that Ethereum does things that Bitcoin cannot is more difficult now that Bitcoin’s RSK sidechain already exists with DeFi apps like Sovryn and Money On Chain

Additionally, a continuation of the nation state-level Bitcoin trend started by El Salvador — as well as greater BTC adoption by the 1.3 billion people living under double-digit or higher annual inflation — would help better illustrate the underlying value proposition of BTC versus altcoins and fiat currencies.

Lessons from the Blocksize Wars

If you want to know the complete history of Bitcoin’s battle over its block size, The Blocksize War by Jonathon Bier is highly recommended. 

To summarize (and risk overgeneralizing this part of Bitcoin’s history), some Bitcoin users back in the day wanted to retain the low-cost, on-chain transaction fees that had been associated with the network up to that point.

They pushed to raise the block size limit (the amount of data and thereby number of transactions that can fit into a single Bitcoin block) via a hard fork

Another segment of users did not want to implement a hard-forking block size increase, as it could potentially harm Bitcoin’s credibility in terms of neutrality and decentralization. 

Anti-hard forkers pointed out that low-value payments could still be built out on secondary protocol layers, such as the Lightning Network or a federated sidechain (a permissioned blockchain operated by a multi-sig federation that has a two-way peg to BTC), in a way that also retained base layer decentralization. 

In other words, it was possible to get the best of both worlds without splitting Bitcoin into two incompatible networks.

The hard fork proposals associated with Bitcoin XT, Bitcoin Classic, and Bitcoin Unlimited failed to gain sufficient traction. So, a number of large Bitcoin companies banded together under the infamous New York Agreement, and pitched the SegWit2x software client. 

Their idea was to activate block-stretching tech Segregated Witness (SegWit) while hard forking to increase the block size limit, supposedly a compromise. 

While SegWit activation on the Bitcoin network was confirmed in the summer of 2017, the hard fork that was scheduled months later eventually fell apart due to a lack of consensus over the change. 

The fact that the hard fork and SegWit weren’t coded to trigger simultaneously points to the possibility that some may have signed onto the agreement with the sole intention of getting SegWit activated.

Many Bitcoin users view SegWit2x’s failure as the most bullish event in the network’s history, as they believe the protocol proved resistant to an attempted coup by the largest companies in the ecosystem. 

Large crypto companies seemed more interested in lowering fees for their customers (coffee payments were the common meme of the era), and replacing the open-source developers working on the base Bitcoin protocol, in spite of the potential harm of splitting the userbase and damaging the system’s neutrality via an attempted hard fork.

At least until their bluff was called.

The market buried the Bitcoin forks

In the end, the market determined Bitcoin’s neutral store-of-value use case more valuable than the need to preserve cheap, on-chain coffee payments, or large companies (relative to the industry) overruling a group of open-source developers. 

Bitcoin Cash, which was the first and most successful Bitcoin hard-forking block size increase attempt to go live, has also been abandoned by the market over the past four years.

A failed Bitcoin hard fork attempt is mostly indistinguishable from any other altcoin. 

As a result of the block size wars, Bitcoin companies were incentivized to use the Bitcoin blockchain more efficiently and not waste precious block space.

We’ve also seen layer 2 protocols like the Lightning Network, Liquid, and RSK grow and develop, which allows lower-cost, BTC-denominated transfers with different security tradeoffs than the base chain.

Read more: [Bitcoin SV rocked by fifth 51% attack, serial culprit attempts double spends]

Disagreements abound over whether attempts to boost Bitcoin’s block size with hard forks were outright attacks or just bad ideas.

At the end of the day, Bitcoin is an extremely complex topic, which means lousy ideas and blatant scams are often indistinguishable, even to those who have been in the space for a long time. 

This helps explain why the blockchain and cryptocurrency industry is such a hotbed of scamming activity. Around this time in Bitcoin’s history, plenty of conspiracy theories questioned the intentions of hard fork detractors, specifically Blockstream. 

Whether big blockers were motivated by malice or naivety doesn’t necessarily matter as much as the fact that the market rejected those projects. 

Bitcoin makes its case in the market, not in any sort of political arena. Cypherpunks write code

The incentives of protecting Bitcoin’s block size led to a Schelling point of preserving the network’s neutrality over sacrificing it for on-chain coffee payments or any other potential use cases.

Thank you for reading part one in this series. Part two will cover how Ethereum is making many of the same mistakes made by Bitcoin block size hard fork proponents.

Join our newsletter and get crypto news in your inbox

Newsletter

© 2021 Protos