The resolution of the Bitcoin experiment – Mike’s blog

The resolution of the Bitcoin experiment

I’ve spent more than five years being a Bitcoin developer. The software I’ve written has been used by millions of users, hundreds of developers, and the talks I’ve given have led directly to the creation of several startups. I’ve talked about Bitcoin on Sky TV and Big black cock News. I have been repeatedly cited by the Economist as a Bitcoin pro and prominent developer. I have explained Bitcoin to the SEC, to bankers and to ordinary people I met at cafes.

From the commence, I’ve always said the same thing: Bitcoin is an experiment and like all experiments, it can fail. So don’t invest what you can’t afford to lose. I’ve said this in interviews, on stage at conferences, and over email. So have other well known developers like Gavin Andresen and Jeff Garzik.

But despite knowing that Bitcoin could fail all along, the now inescapable conclusion that it has failed still saddens me greatly. The fundamentals are violated and whatever happens to the price in the brief term, the long term trend should most likely be downwards. I will no longer be taking part in Bitcoin development and have sold all my coins.

Why has Bitcoin failed? It has failed because the community has failed. What was meant to be a fresh, decentralised form of money that lacked “systemically significant institutions” and “too big to fail” has become something even worse: a system fully managed by just a handful of people. Worse still, the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have cracked down, and as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.

Think about it. If you had never heard about Bitcoin before, would you care about a payments network that:

  • Couldn’t budge your existing money
  • Had insanely unpredictable fees that were high and rising quick
  • Permitted buyers to take back payments they’d made after walking out of shops, by simply pressing a button (if you aren’t aware of this “feature” that’s because Bitcoin was only just switched to permit it)
  • Is suffering large backlogs and flaky payments
  • … which is managed by China
  • … and in which the companies and people building it were in open civil war?

I’m going to hazard a guess that the response is no.

Deadlock on the blocks

In case you haven’t been keeping up with Bitcoin, here is how the network looks as of January 2016.

The block chain is utter. You may wonder how it is possible for what is essentially a series of files to be “full”. The response is that an entirely artificial capacity cap of one megabyte per block, put in place as a improvised kludge a long time ago, has not been eliminated and as a result the network’s capacity is now almost totally weary.

Here’s a graph of block sizes.

The peak level in July was reached during a denial-of-service attack in which someone flooded the network with transactions in an attempt to break things, calling it a “stress test”. So that level, about seven hundred kilobytes of transactions (or less than three payments per 2nd), is very likely about the limit of what Bitcoin can actually achieve in practice

NB: You may have read that the limit is seven payments per 2nd. That’s an old figure from two thousand eleven and Bitcoin transactions got a lot more sophisticated since then, so the true figure is a lot lower.

The reason the true limit seems to be seven hundred kilobytes instead of the theoretical one thousand is that sometimes miners produce blocks smaller than permitted and even empty blocks, despite that there are lots of transactions waiting to confirm — this seems to be most frequently caused by interference from the Chinese “Great Firewall” censorship system. More on that in a 2nd.

If you look closely, you can see that traffic has been growing since the end of the two thousand fifteen summer months. This is expected. I wrote about Bitcoin’s seasonal growth patterns back in March.

Here’s weekly average block sizes:

So the average is almost at the peak of what can be done. Not remarkably then, there are frequent periods in which Bitcoin can’t keep up with the transaction explosion being placed upon it and almost all blocks are the maximum size, even when there is a long queue of transactions waiting. You can see this in the size column (the 750kb blocks come from miners that haven’t decently adjusted their software):

When networks run out of capacity, they get truly unreliable. That’s why so many online attacks are based around simply flooding a target computer with traffic. Sure enough, just before Christmas payments began to become unreliable and at peak times backlogs are now becoming common.

Some customers contacted Chris earlier today asking why our bitcoin payouts didn’t execute … The issue is that it’s now officially unlikely to depend upon the bitcoin network anymore to know when or if your payment will be transacted, because the congestion is so bad that even minor spikes in volume create dramatic switches in network conditions. To whom is it acceptable that one could wait either sixty minutes or fourteen hours, chosen at random? It’s ludicrous that people are actually writing posts on reddit claiming that there is no crisis. People were criticizing my post yesterday on the grounds that I somehow overstated the seriousness of the situation. Do these people actually use the bitcoin network to send money everyday?

ProHashing encountered another near-miss inbetween Christmas and Fresh Year, this time because a payment from an exchange to their wallet was delayed.

Bitcoin is supposed to react to this situation with automatic fee rises to attempt and get rid of some users, and albeit the mechanisms behind it are scarcely functional that’s still sort of happening: it is rapidly becoming more and more expensive to use the Bitcoin network. Once upon a time, Bitcoin had the killer advantage of low and even zero fees, but it’s now common to be asked to pay more to miners than a credit card would charge.

Why has the capacity limit not been raised? Because the block chain is managed by Chinese miners, just two of whom control more than 50% of the hash power. At a latest conference over 95% of hashing power was managed by a handful of guys sitting on a single stage. The miners are not permitting the block chain to grow.

Why are they not permitting it to grow? Several reasons. One is that the developers of the “Bitcoin Core” software that they run have refused to implement the necessary switches. Another is that the miners turn down to switch to any contesting product, as they perceive doing so as “disloyalty” —and they’re horrified of doing anything that might make the news as a “split” and cause investor funk. They have chosen instead to disregard the problem and hope it goes away.

And the final reason is that the Chinese internet is so violated by their government’s firewall that moving data across the border slightly works at all, with speeds routinely worse than what mobile phones provide. Imagine an entire country connected to the rest of the world by cheap hotel wifi, and you’ve got the picture. Right now, the Chinese miners are able to — just about — maintain their connection to the global internet and claim the twenty five BTC prize ($11,000) that each block they create gives them. But if the Bitcoin network got more popular, they fear taking part would get too difficult and they’d lose their income stream. This gives them a perverse financial incentive to actually attempt and stop Bitcoin becoming popular.

Many Bitcoin users and observers have been assuming up until very recently that somehow these problems would all sort themselves out, and of course the block chain size limit would be raised. After all, why would the Bitcoin community … the community that has championed the block chain as the future of finance … deliberately kill itself by strangling the chain in its crib? But that’s exactly what is happening.

The resulting civil war has seen Coinbase — the largest and best known Bitcoin startup in the USA — be erased from the official Bitcoin website for picking the “wrong” side and banned from the community forums. When parts of the community are perversely turning on the people that have introduced millions of users to the currency, you know things have got truly crazy.

Nobody knows what’s going on

If you haven’t heard much about this, you aren’t alone. One of the most disturbing things that took place over the course of two thousand fifteen is that the flow of information to investors and users has dried up.

In the span of only about eight months, Bitcoin has gone from being a semitransparent and open community to one that is predominated by rampant censorship and attacks on bitcoiners by other bitcoiners. This transformation is by far the most appalling thing I have ever seen, and the result is that I no longer feel comfy being associated with the Bitcoin community.

Bitcoin is not intended to be an investment and has always been advertised pretty accurately: as an experimental currency which you shouldn’t buy more of than you can afford to lose. It is sophisticated, but that never worried me because all the information an investor might want was out there, and there’s an entire cottage industry of books, conferences, movies and websites to help people make sense of it all.

That has now switched.

Most people who own Bitcoin learn about it through the mainstream media. Whenever a story goes mainstream the Bitcoin price goes crazy, then the media report on the price rises and a bubble happens.

Stories about Bitcoin reach newspapers and magazines through a ordinary process: the news starts in a community forum, then it’s picked up by a more specialised community/tech news website, then journalists at general media outlets see the story on those sites and write their own versions. I’ve seen this happen over and over again, and frequently taken part in it by discussing stories with journalists.

In August two thousand fifteen it became clear that due to severe mismanagement, the “Bitcoin Core” project that maintains the program that runs the peer-to-peer network wasn’t going to release a version that raised the block size limit. The reasons for this are complicated and discussed below. But obviously, the community needed the capability to keep adding fresh users. So some long-term developers (including me) got together and developed the necessary code to raise the limit. That code was called BIP one hundred one and we released it in a modified version of the software that we branded Bitcoin XT. By running XT, miners could cast a vote for switching the limit. Once 75% of blocks were voting for the switch the rules would be adjusted and fatter blocks would be permitted.

The release of Bitcoin XT somehow shoved powerful emotional buttons in a petite number of people. One of them was a fellow who is the admin of the website and top discussion forums. He had frequently permitted discussion of outright criminal activity on the forums he managed, on the grounds of freedom of speech. But when XT launched, he made a surprising decision. XT, he claimed, did not represent the “developer consensus” and was therefore not indeed Bitcoin. Voting was an abomination, he said, because:

“One of the good things about Bitcoin is its lack of democracy”

So he determined to do whatever it took to kill XT downright, embarking with censorship of Bitcoin’s primary communication channels: any post that mentioned the words “Bitcoin XT” was erased from the discussion forums he managed, XT could not be mentioned or linked to from anywhere on the official website and, of course, anyone attempting to point users to other uncensored forums was also banned. Massive numbers of users were expelled from the forums and prevented from voicing their views.

Eventually, some users found their way to a fresh uncensored forum. Reading it is a sad thing. Every day for months I have seen furious, angry posts railing against the censors, vowing that they will be defeated.

But the inability to get news about XT or the censorship itself through to users has some problematic effects.

For the very first time, investors have no visible way to get a clear picture of what’s going on. Dissenting views are being systematically suppressed. Technical criticisms of what Bitcoin Core is doing are being banned, with misleading nonsense being peddled in its place. And it’s clear that many people who casually bought into Bitcoin during one of its hype cycles have no idea that the system is about to hit an artificial limit.

This worries me a superb deal. Over the years governments have passed a large number of laws around securities and investments. Bitcoin is not a security and I do not believe it falls under those laws, but their spirit is plain enough: make sure investors are informed. When misinformed investors lose money, government attention frequently goes after.

Why is Bitcoin Core keeping the limit?

When Satoshi left, he transferred over the reins of the program we now call Bitcoin Core to Gavin Andresen, an early contributor. Gavin is a solid and experienced leader who can see the big picture. His reliable technical judgement is one of the reasons I had the confidence to abandon Google (where I had spent almost eight years) and work on Bitcoin total time. Only one little problem: Satoshi never actually asked Gavin if he desired the job, and in fact he didn’t. So the very first thing Gavin did was grant four other developers access to the code as well. These developers were chosen quickly in order to ensure the project could lightly proceed if anything happened to him. They were, essentially, whoever was around and making themselves useful at the time.

One of them, Gregory Maxwell, had an unusual set of views: he once claimed he had mathematically proven Bitcoin to be unlikely. More problematically, he did not believe in Satoshi’s original vision.

When the project was very first announced, Satoshi was asked how a block chain could scale to a large number of payments. Surely the amount of data to download would become terrific if the idea took off? This was a popular criticism of Bitcoin in the early days and Satoshi fully expected to be asked about it. He said:

The bandwidth might not be as prohibitive as you think … if the network were to get [as big as VISA], it would take several years, and by then, sending [the equivalent of] two HD movies over the Internet would very likely not seem like a big deal.

It’s a elementary argument: look at what existing payment networks treat, look at what it’d take for Bitcoin to do the same, and then point out that growth doesn’t happen overnight. The networks and computers of the future will be better than today. And indeed back-of-the-envelope calculations suggested that, as he said to me, “it never indeed hits a scale ceiling” even when looking at more factors than just bandwidth.

Maxwell did not agree with this line of thinking. From an interview in December 2014:

Problems with decentralization as bitcoin grows are not going to diminish either, according to Maxwell: “There’s an inherent tradeoff inbetween scale and decentralization when you talk about transactions on the network.” The problem, he said, is that as bitcoin transaction volume increases, larger companies will likely be the only ones running bitcoin knots because of the inherent cost.

The idea that Bitcoin is inherently fated because more users means less decentralisation is a pernicious one. It overlooks the fact that despite all the hype, real usage is low, growing leisurely and technology gets better over time. It is a belief Gavin and I have spent much time debunking. And it leads to an demonstrable but crazy conclusion: if decentralisation is what makes Bitcoin good, and growth menaces decentralisation, then Bitcoin should not be permitted to grow.

Instead, Maxwell concluded, Bitcoin should become a sort of settlement layer for some vaguely defined, as yet un-created non-blockchain based system.

The death spiral commences

In a company, someone who did not share the goals of the organisation would be dealt with in a elementary way: by firing him.

But Bitcoin Core is an open source project, not a company. Once the five developers with commit access to the code had been chosen and Gavin had determined he did not want to be the leader, there was no procedure in place to ever liquidate one. And there was no interview or screening process to ensure they actually agreed with the project’s goals.

As Bitcoin became more popular and traffic began approaching the 1mb limit, the topic of raising the block size limit was from time to time brought up inbetween the developers. But it quickly became an emotionally charged subject. Accusations were thrown around that raising the limit was too risky, that it was against decentralisation, and so on. Like many puny groups, people choose to avoid conflict. The can was kicked down the road.

Complicating things further, Maxwell founded a company that then hired several other developers. Not remarkably, their views then embarked to switch to align with that of their fresh boss.

Co-ordinating software upgrades takes time, and so in May two thousand fifteen Gavin determined the subject must be tackled once and for all, whilst there was still about eight months remaining. He began writing articles that worked through the arguments against raising the limit, one at a time.

But it quickly became apparent that the Bitcoin Core developers were hopelessly at loggerheads. Maxwell and the developers he had hired refused to contemplate any increase in the limit whatsoever. They were slightly even willing to talk about the issue. They insisted that nothing be done without “consensus”. And the developer who was responsible for making the releases was so afraid of conflict that he determined any controversial topic in which one side might “win” simply could not be touched at all, and refused to get involved.

Thus despite the fact that exchanges, users, wallet developers, and miners were all expecting a rise, and indeed, had been building entire businesses around the assumption that it would happen, three of the five developers refused to touch the limit.

Meantime, the clock was ticking.

Massive DDoS attacks on XT users

Despite the news blockade, within a few days of launching Bitcoin XT around 15% of all network knots were running it, and at least one mining pool had embarked suggesting BIP101 voting to miners.

That’s when the denial of service attacks began. The attacks were so large that they disconnected entire regions from the internet:

“I was DDos’d. It was a massive DDoS that took down my entire (rural) ISP. Everyone in five towns lost their internet service for several hours last summer because of these criminals. It undoubtedly discouraged me from hosting knots.”

In other cases, entire datacenters were disconnected from the internet until the single XT knot inwards them was stopped. About a third of the knots were attacked and liquidated from the internet in this way.

Worse, the mining pool that had been suggesting BIP101 was also attacked and coerced to stop. The message was clear: anyone who supported thicker blocks, or even permitted other people to vote for them, would be assaulted.

The attackers are still out there. When Coinbase, months after the launch, announced they had eventually lost patience with Core and would run XT, they too were coerced offline for a while.

Bogus conferences

Despite the DoS attacks and censorship, XT was gaining momentum. That posed a threat to Core, so a few of its developers determined to organise a series of conferences named “Scaling Bitcoin”: one in August and one in December. The aim, it was claimed, was to reach “consensus” on what should be done. Everyone likes a consensus of experts, don’t they?

It was instantly clear to me that people who refused to even talk about raising the limit would not have a switch of heart because they attended a conference, and moreover, with the begin of the winter growth season there remained only a few months to get the network upgraded. Wasting those precious months waiting for conferences would put the stability of the entire network at risk. The fact that the very first conference actually banned discussion of concrete proposals didn’t help.

Unluckily, this tactic was devastatingly effective. The community fell for it entirely. When talking to miners and startups, “we are waiting for Core to raise the limit in December” was one of the most commonly cited reasons for refusing to run XT. They were horrified of any media stories about a community split that might hurt the Bitcoin price and thus, their earnings.

Now the last conference has come and gone with no plan to raise the limit, some companies (like Coinbase and BTCC) have woken up to the fact that they got played. But too late. Whilst the community was waiting, organic growth added another 100,000 transactions per day.

A non-roadmap

Jeff Garzik and Gavin Andresen, the two of five Bitcoin Core committers who support a block size increase (and the two who have been around the longest), both have a stellar reputation within the community. They recently wrote a joint article titled “Bitcoin is Being Hot-Wired for Settlement”.

Jeff and Gavin are generally softer in their treatment than I am. I’m more of a tell-it-like-I-see-it kinda man, or as Gavin has gently put it, “honest to a fault”. So the strong language in their joint letter is unusual. They don’t pull any punches:

The proposed roadmap presently being discussed in the bitcoin community has some good points in that it does have a plan to accommodate more transactions, but it fails to speak plainly to bitcoin users and acknowledge key downsides. Core block size does not switch; there has been zero compromise on that issue. In an optimal, translucent, open source environment, a BIP would be produced … this has not happened One of the explicit goals of the Scaling Bitcoin workshops was to funnel the chaotic core block size debate into an orderly decision making process. That did not occur. In hindsight, Scaling Bitcoin stalled a block size decision while transaction fee price and block space pressure proceed to increase.

Failing to speak plainly, as they put it, has become more and more common. As an example, the plan Gavin and Jeff refer to was announced at the “Scaling Bitcoin” conferences but doesn’t involve making anything more efficient, and manages an anemic 60% capacity increase only through an accounting trick (not counting some of the bytes in each transaction). It requires making ample switches to almost every chunk of Bitcoin-related software. Instead of doing a elementary thing and raising the limit, it chooses to do an exceptionally complicated thing that might buy months at most, assuming a thick coordinated effort.

Substitute by fee

One problem with using fees to control congestion is that the fee to get to the front of the queue might switch after you made a payment. Bitcoin Core has a brilliant solution to this problem — permit people to mark their payments as changeable after they’ve been sent, up until they emerge in the block chain. The stated intention is to let people adjust the fee paid, but in fact their switch also permits people to switch the payment to point back to themselves, thus reversing it.

At a stroke, this makes using Bitcoin worthless for actually buying things, as you’d have to wait for a buyer’s transaction to emerge in the block chain … which from now on can take hours rather than minutes, due to the congestion.

Core’s reasoning for why this is OK goes like this: it’s no big loss because if you hadn’t been waiting for a block before, there was a theoretical risk of payment fraud, which means you weren’t using Bitcoin decently. Thus, making that risk a 100% certainty doesn’t truly switch anything.

In other words, they don’t recognise that risk management exists and so perceive this switch as zero cost.

This protocol switch will be released with the next version of Core (0.12), so will activate when the miners upgrade. It was massively condemned by the entire Bitcoin community but the remaining Bitcoin Core developers don’t care what other people think, so the switch will happen.

If that didn’t coax you Bitcoin has serious problems, nothing will. How many people would think bitcoins are worth hundreds of dollars each when you soon won’t be able to use them in actual shops?


Bitcoin has entered exceptionally dangerous waters. Previous crises, like the bankruptcy of Mt Gox, were all to do with the services and companies that sprung up around the ecosystem. But this one is different: it is a crisis of the core system, the block chain itself.

More fundamentally, it is a crisis that reflects deep philosophical differences in how people view the world: either as one that should be ruled by a “consensus of experts”, or through ordinary people picking whatever policies make sense to them.

Even if a fresh team was built to substitute Bitcoin Core, the problem of mining power being concentrated behind the Fine Firewall would remain. Bitcoin has no future whilst it’s managed by fewer than ten people. And there’s no solution in look for this problem: nobody even has any suggestions. For a community that has always worried about the block chain being taken over by an oppressive government, it is a rich irony.

Still, all is not yet lost. Despite everything that has happened, in the past few weeks more members of the community have embarked picking things up from where I am putting them down. Where making an alternative to Core was once seen as renegade, there are now two more forks vying for attention (Bitcoin Classic and Bitcoin Unlimited). So far they’ve hit the same problems as XT but it’s possible a fresh set of faces could find a way to make progress.

There are many talented and spirited people working in the Bitcoin space, and in the past five years I’ve had the pleasure of getting to know many of them. Their entrepreneurial spirit and alternative perspectives on money, economics and politics were fascinating to practice, and despite how it’s all gone down I don’t regret my time with the project. I woke up this morning to find people wishing me well in the uncensored forum and asking me to stay, but I’m afraid I’ve moved on to other things. To those people I say: good luck, stay strong, and I wish you the best.

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