If you're familiar with the Bitcoin community, then you're likely aware that August 1 is Bitcoin Independence Day.
For many in the Bitcoin ecosystem, August 1, 2017 marked the end of the block size wars, a contentious period of Bitcoin's history where community members and developers disagreed over the what the optimal block size limit for Bitcoin should be. But while the block size wars may have technically ended, discussions and debates about Bitcoin's block size have not. In fact, recent developments in the Bitcoin network have only added fuel to the fire, so to speak, and forced the Bitcoin community to revisit age-old debates about one of the most fundamental aspects of Bitcoin.
So on this Bitcoin Independence Day, Trust Machines is looking back at the history of the block size wars and laying out how events that took place years ago still influence the Bitcoin space today. From SegWit to Bitcoin Cash, we'll dive into how some of the biggest developments on Bitcoin came to be.
The Origin of Bitcoin Independence Day: SegWit Activation
By 2017, Bitcoin was growing at an exponential rate and capturing mainstream attention and increasing acceptance. While builders remained dedicated to creating on-chain solutions to help Bitcoin scale, bitcoin as a digital currency was the talk of the town. Media outlets constantly touted the momentum Bitcoin was gaining in the market during trading, with rally after rally making headlines interspersed with images of price charts of upward predictions and trends on every financial platform.
But despite the excitement around Bitcoin, crypto and blockchain technology as a whole, the original Bitcoin block size of 1MB had been seen as a barrier to its scalability and therefore mass adoption. At the time, there were two main factions who disagreed on what Bitcoin’s future should be.
One group, known as the Big Blockers, wanted larger blocks to accommodate more transactions, while the other group, Small Blockers, saw Segregated Witness (SegWit) as the solution instead. This software upgrade would allow more transactions to fit into each block, increasing the block weight and paving the way for future upgrades such as the Lightning Network. It would do so by removing the signature data from the transaction data.
But critics of SegWit were concerned about a number of things. Some of their biggest arguments against SegWit's implementation included its possible impact on Bitcoin mining operations and possible security vulnerabilities that they believed could arise (including skepticism about off-chain solutions, which SegWit facilitated).
Nevertheless, SegWit was activated on August 1, 2017 as a user-activated soft fork on Bitcoin. The Big Blockers, however, also implemented their own solution on the same day via a hard fork.
The Creation of Bitcoin Cash
Through this process, Bitcoin Cash was created. The Big Blockers wanted to see a wider adoption of Bitcoin and an increase in throughput, but the approach they were advocating for required a hard fork, a change to Bitcoin's protocol and potentially a chain split.
Bitcoin Cash ultimately increased the block size limit to 8 megabytes with the goal of providing faster and cheaper transactions compared to Bitcoin. It was intended to be a peer-to-peer cash electronic cash system with a focus on usability for everyday payments,
The Small Blockers initially opposed a hard fork as they felt that larger block sizes could lead to the increased centralization of Bitcoin. This argument tapped right into the philosophy of Bitcoin, namely its emphasis on Bitcoin's decentralized nature and its goal of giving individual users control over their own assets, for payments or other common uses.
However, Bitcoin Cash is still a subject of ongoing debate and is seen as contentious now only in the Bitcoin community, but in the wider crypto community as well. To this day, Bitcoin Cash still hasn't seen the widespread adoption that its supporters sought upon its creation, though the cryptocurrency still has a community that continues to develop the digital asset's protocols.
The Bitcoin Block Size Debate today
As we mentioned before, the block size wars may be over, but attempts to address Bitcoin's block size are still ongoing.
In fact, many of the developments that have emerged on the Bitcoin blockchain in recent years have not only attempted to address Bitcoin's block size limit. They have also helped keep the discussion around Bitcoin block size alive.
Ultimately, creations like SegWit and Bitcoin Cash were intended to help Bitcoin scale. While Bitcoin L2s and other scaling solutions may not deal with Bitcoin's block size directly, they do emphasize the need for Bitcoin scalability. Faster and more efficient transactions on the Bitcoin main chain translates to additional use cases for the world's oldest blockchain, which could potentially give Bitcoin users the ability to develop and interact with a wide range of dApps, much like what you see on newer blockchains like Ethereum.
And though 2023 has really been the Year of Bitcoin, new innovations like Ordinals and Bitcoin Stamps have also revived the block size debates in their own ways. Critics of Ordinals, for example, are still concerned about the amount of block space needed for Ordinal inscriptions. Because arbitrary data is being inscribed as digital artifacts directly on the Bitcoin blockchain, that data is also directly utilizing block space with some creations taking up almost the 4MB allotted thanks to SegWit. Recursive inscriptions have seemingly addressed some initial concerns about Ordinals' impact on block space, but their true future impact on the block space debate remains to be seen.
Meanwhile, Bitcoin Stamps, which are akin to semi-fungible tokens or digital collectibles, store their encoded image data right in those transaction outputs on the Bitcoin blockchain. That means every Bitcoin node out there has to download all that data to keep the blockchain going strong. However, they are stored directly on Bitcoin’s unspent transaction outputs (UTXOs) – records of unspent Bitcoin when transactions between two addresses are made – rather than in the witness data like Ordinals.
Bitcoin Ordinals and Stamps are just two protocols that have explored the how arbitrary data can be used and handled on the Bitcoin main chain. As a result, critics of those protocols worry that they may, ultimately, congest the Bitcoin network. A congested network could mean longer block times, and that translates to possible delays for anyone waiting on confirmations. Plus, there's a risk of increased centralization if only the most advanced nodes can handle the load.
The Legacy of Bitcoin Independence Day
Regardless of how you celebrate BTC Independence Day, whether it’s with pizza (a very historically important food for the Bitcoin community) or minting your own Ordinal inscriptions, you're ultimately reminded of how far Bitcoin has come and the community's dedication to improving the blockchain network. But ultimately, it's also a reminder that there is still so much to be built on Bitcoin, and it's a day where you, too, might just dedicate some time to imagining all the possibilities that exist on the blockchain. The journey is far from over.
At the end of the day, it’s important to remember that the most avid debates in the wider crypto community have led to some of the most creative and innovative solutions. In this case, the continued debates about Bitcoin's block size and how we use its block space has led to scaling solutions that have also maintained Bitcoin’s core assets. There are undoubtedly more forks in the road ahead, and the seeds for some of the biggest innovations on Bitcoin in the next few years are already being planted.
Here's to a brilliant BTC Independence Day!