Sunday, August 30, 2015
FinTech Digest: Bitcoin Transactions In Cuba, The Debut Of Coin 2.0, Coinbase Tests New Service In Europe
Bitmain Announces Launch of Next-Generation Antminer S7 Bitcoin Miner
Bitmain, the Bitcoin mining ASIC provider, Sunday announced the release of its next-generation Bitcoin miner, the Antminer S7, using the recently announced BM1385 ASIC.
The company argues that “this machine is not only our most efficient ever, using less than half the energy per gigahash of the S5, but it is also our most powerful miner to enter mass production.” It had released the S5+ in limited supply, which offers nearly 3,000 more GH/s than the announced S7.
“It’s true that the S5+ had a greater overall hashrate, but the S7 squeezes more juice from a smaller, more power efficient package,” said Jake Smith, Bitmain’s head of North America, in an interview with Bitcoin Magazine. “When comparing hashrate to weight, size, or power consumption, the S7 comes out ahead.”
The Antminer S7 is a denser mining rig than previous models. Whereas the S5 used 60 chips per miner, the Antminer S7 uses 162 of the BM1385 chips. Each S7 will be able to generate upwards of 4,850 GH/s while only needing approximately 0.25 J/GH of power.
Part of the reason the chip is so much stronger is because the company went away from using standard design flow methods. “From the BM1385 onwards, we’ll be using full-custom design flow,” Smith explained. While full-custom design flow is more work intensive and does have a greater margin of error, it results in greater efficiency, which is where profit can be found.
“It’s difficult to predict the how long our new chip will take to bring to market, but development on our next chip began almost as soon as this one was completed. Our next chip, the BM1387, will be our second full-custom chip, and our first chip built on a 16-nanometer process node,” Smith said.
With each new chip released miners have to weigh their options on whether to upgrade. Smith said that there has been considerable interest in the S7 by current Bitmain miners, in particular because older hardware may become obsolete. “The inevitable large deployment of S7s will cause network hashrate to rise and some older hardware to be forced offline. More recent hardware like the S5 will still be profitable, but to a lower degree than at present,” Smith said.
‘We’ll continue to make our machines available to Joe Miner …’
Bitmain has deployed a different strategy than other Bitcoin hardware companies has. Other companies have focused their development efforts on creating miners for internal use rather than widespread adoption. For example, Bitcoin Shop (BTCS) announced that it would be merging with Spondoolies-Tech, which would give BTCS access to Spondoolies’ latest miner to give it a competitive advantage. Bitmain, on the other hand, continues to sell its hardware to the general population.
“We’re very strong believers in keeping Bitcoin decentralized. Until recently, most mining was done by so-called average users and not by large mining operations,” Smith said. “It would be a real shame to see this dedicated group left without options for supporting the network in their own way, and perhaps even present a dangerous situation for the network to be secured only by large and well-capitalized firms.”
As mining does continue to get more expensive, only those companies that have the resources to create large operations will be able to survive. The fewer operations that are mining, the more likely it is that one, single source could take a majority of the hashrate, creating potential security problems.
“We will continue to make our machines available to Joe Miner for as long as we are making hardware,” Smith said. “It’s an unfortunate situation that we’re the only big ASIC manufacturer selling directly to consumers right now; we’d love to see more competition in this space and for the miners themselves to have more options available.”
Jacob Donnelly is a full-time product manager and journalist covering finance and bitcoin. He runs a weekly newsletter all about bitcoin and digital currency called Crypto Brief.
BitPay: ‘Silicon Valley is Becoming a Bitcoin Hub’
Saturday, August 29, 2015
Bitcoin Block Battle: Top Corporations Support BIP 101 as Debate Rages On
Andreas Antonopoulos Thinks Bitcoin ATMs Need to Be Completely Redesigned
Mastering Bitcoin Author Andreas Antonopoulos recently gave at talk at Harvard’s i-lab, spending much of his time in front of a small audience describing the various issues with Bitcoin as a brand. He noted many problems with the terminology[add link to bitcoin terminology is broken and wrong piece] used in Bitcoin, and he also focused on specific products or services in the Bitcoin space that seem to be doing a disservice to potential users.
At one point during the presentation, Antonopoulos turned his attention to Bitcoin ATMs, asking the audience how many of them had used one of the machines in the past. While a few people raised their hands, those hands went down when Antonopoulos then asked how many of them enjoyed their experience with the Bitcoin ATM.
How Traditional ATMs Work
To explain the user experience issues with Bitcoin ATMs, Antonopoulos first talked about the setup of traditional bank ATMs:
“When you interact as a person with an ATM, 1. you have a pre-existing relationship with the bank or financial institution; 2. you have a pre-existing balance; 3. your primary objective is to get in, get cash, [and] get out. Twenty seconds is too long. Three clicks is too long.”
In other words, there is no need for long explanations or user-onboarding with traditional ATMs. Everyone who uses them already has a debit card, and they’ve already interacted with the corresponding bank in the past. The process can be simple because the user already has his or her bank account setup.
Bitcoin ATMs Have Nothing in Common with Traditional ATMs
According to Antonopoulos, many Bitcoin ATM developers have been looking too closely at how traditional bank ATMs work when designing their own machines. He noted that Bitcoin ATMs have “absolutely nothing” in common with the ATMs that are currently used by banks, and he went on to describe the experience an average person has when attempting to use a Bitcoin ATM for the first time:
“The average user of Bitcoin ATM is someone who has never seen bitcoin before. It is a person who doesn’t understand what bitcoin is, and the ATM is their first introduction to this currency. It is a person who does not have a pre-existing relationship with anyone in the Bitcoin space. It is a person who does not currently have a wallet because they didn’t know they needed one – because they don’t know what a wallet is (it’s a keychain). And so they walk up to this machine, and this machine has been designed by engineers to simulate the experience of an ATM, even though the experience shares absolutely nothing with the use case we’re putting it to. So you walk up and the ATM tries to give you bitcoin in as few clicks as possible with a minimum amount of interaction. Is that a way to build brand loyalty? Is that a way to build user experience? Is that a way to introduce new users? I mean, it just throws it at you, and you’re not ready for that. But, ‘Please open your phone and display your QR code.’ Like, what? What’s a QR code?”
In an effort to solidify the point that Bitcoin ATMs should not be operating in the same manner as traditional bank ATMs, Antonopoulos then went through a long list of questions that a user would likely have while attempting to use a Bitcoin ATM for the first time.
The Right Model for a Bitcoin ATM
After describing the problems with currently available Bitcoin ATMs, Antonopoulos explained how he would design such a device:
“If I was designing a Bitcoin ATM, first of all, I’d put it in bodegas. Secondly, it wouldn’t have a lick of English on it. It’d be all-Spanish because I’m going to really push the remittance model. Thirdly, the first function on the ATM would be ‘Send money to Mexico City.’ That’s it. Because I want people to use the bitcoin for something. [Fourthly], I’d have a big button on the front that says ‘Talk to a human.’ I’ve got an Internet-connected device with a forward-facing camera and a tablet screen, and I’m not using it to do video customer service? Are you kidding me?”
It’s clear that the device Andreas Antonopoulos is imagining is completely different from a traditional ATM. In addition to the focus on international remittances, Antonopoulos also expanded on the idea that the Bitcoin device needs to teach the user about the peer-to-peer digital cash system:
“I don’t want to interact for fifteen seconds. I want to interact for two hours . . . And it tells me where I can spend [bitcoin]. It gives me suggestions on wallets, and it can send them directly to my phone. It’s building loyalty, brand and experience. That’s not a 15-second interaction.”
This is a perfect example of how sometimes simply applying the old ways of doing things to Bitcoin will not work. The most impactful innovations in the Bitcoin space have been the ones that created something completely new rather than thinking about how things worked in the past. Developers and entrepreneurs should try to avoid simply replacing the carriage with an automobile. It’s time to get rid of the horse.
Photo BTC Keychain / Flickr (CC)
BIP 100 Support Grows; 21% Attack Worries Remain
Friday, August 28, 2015
Coinbase Launches Instant Exchange to Help Users Avoid Bitcoin Volatility
Coinbase users can now send bitcoin payments without being exposed to the digital currency’s volatility.
Users with a fiat wallet (must be verified in order to get it) allows use of Bitcoin’s global payment network without being exposed to the price of the digital currency. Coinbase’s Instant Exchange deducts an equal amount to the bitcoin the user wants to send, effectively exchanging the two. The service is similar to one offered by Coinbase to bitcoin-accepting merchants.
As of today, Instant Exchange is available for users with a USD, EUR, or GBP wallet. After typing the bitcoin address and chosing a fiat wallet, users can hit the “Instant Exchange” button, and then send. A bitcoin amount equal to the fiat selected will be sent instantly, without exposing the user to bitcoin’s notorious volatility. The startup’s standard conversion fee of 15 cents will be deducted from each conversion, but sending payments to other Coinbase users is free.
The bitcoin is deducted from the user’s fiat wallet and not his or her digital currency wallet, meaning it can also serve as a way for users to instantly sell their bitcoin.
A different model
Volatility is a problem all too well-known in Bitcoin and is a chief complaint among people interested in using the technology’s payment network. Many services have looked to solve this problem by offering the ability to “lock” bitcoin to the price of the American dollar, British pound, and various other fiat currencies. Users can then unlock their bitcoin when they want to send them or be exposed to the digital currency’s price.
Latin American bitcoin startup Coinapult was first to launch such a service, but now many bitcoin businesses offer it, including Bitreserve, which designed its whole service around the concept.
One issue with these services is that though it makes storing the currency safer, it does not solve the problem when sending the digital currency. Also, if bitcoin’s price goes down, these businesses offering the ability to peg bitcoin will lose money. And though the price has been more stable in recent months, bitcoin’s price has declined dramatically over the last year, meaning that many “lock” services could be feeling some pain.
Coinbase’s model avoids the potential risk of being on the strong side of a price swing by exchanging bitcoin for dollars instantly, and not operating a one-to-one reserve (peg).
Bitcoin Market Aimed at College Students, CoinBase Bitcoin Give Away
The San Francisco-based bitcoin wallet provider has successfully given away free bitcoin to more than 20,000 college students.
CyptoCoins News reported that any student signing up for Coinbase would receive $10 worth of bitcoin. Students were required to verify enrollment by signing up with an email domain ending in “edu.”
At the time Coinbase founder, Fred Ehrsam, announced the limited time offer on Twitter, it was only available to a handful of “edus.”
Now the international digital wallet has posted a list of the top 10 schools with the most signups. The University of Michigan led the way with 941 signups. The University of California, Berkeley wasn’t far behind with 939 signups, the University of Illinois had 873 and the University of Texas ranked number four with 698 signups.
Some users complained via Reddit that they were having trouble signing up. But Ehrsam quickly replied, “It’s because so many people have signed up from Berkeley today (seriously).”
@choi_kl @Berkeley it’s because so many people have signed up from Berkeley today
(seriously)
— Fred Ehrsam (@FEhrsam) May 8, 2014
Students at other colleges including Notre Dame and UCLA reported success in signing up.
Coinbase went the extra mile to ensure security by requesting students provide a phone number that could be verified.
“This extra check has greatly reduced scammers trying to take advantage of this promotion. So it allows us to keep this promotion going,” said Coinbase.
College investors
Giving away free bitcoin to college students in order to encourage investment is clever, but not new. Earlier this month, more than 4,000 MIT students enrolled in the 2014 fall semester will receive $100 worth of bitcoin.
The brains behind the program, Jeremy Rubin and Dan Elitzer, were able to launch the program after receiving nearly half a million dollars in donations from MIT alumni and the bitcoin community.
“Giving students access to cryptocurrencies is analogous to providing them with internet access at the dawn of the internet era,” said Rubin.
While many are excited about the giveaway, some are curious about what will happen if they try signing up with a school that’s not yet listed.
Others say the promotion could be taken advantage of by non-students creating an email account with the domain “edu,” which some experts say is relatively easy to do. Drew Cordell of CyptoCoins News wrote, “If the promotion is meant to have a long duration, it will need to be refined significantly in order to prevent abuse and provide full access.”
Despite Ehrsam’s reassurance that abuse will be prevented, Cordell argued, “It is very simple to create an .edu email address for free in minutes. Creating false email accounts could allow users to abuse the system and continually claim the $10 bonus if the system is not well regulated.”
By offering young people a chance to invest in Bitcoin, companies like Coinbase could be key players in expanding the market for digital currencies. This could potentially ensure monetary freedom for the future by allowing bitcoin into the hands of our youth.
Coinbase currently has over one million consumer wallets, 30,000 merchants, 5,000 API applications and U.S. bank integration. They also have a remote team consisting of 35 contractors.
CardCash Adds Bitcoin Payments for Gift Cards at Thousands of US Retail Stores
CardCash, an American online company that buys and sells discounted gift cards from thousands of national retailers, has begun to accept bitcoin payments. CardCash joins companies like Gyft and Fold that provide ways for Bitcoin users to interact with the massive gift card industry.
“We saw that bitcoin was getting a lot of traction and growing in legitimacy,” CardCash CEO Elliot Bohm said in an interview with Bitcoin Magazine, “but it was slow in getting acceptance in popular brands.” He pointed out that while consumers could use bitcoin to shop at Overstock and Dell, they couldn’t spend their bitcoin at Macy’s, for example.
“We can easily be the bridge,” said Bohm. “People can use bitcoin and save money at the same time.”
In September, CardCash expects to roll out its mobile app that will allow people with a bitcoin wallet to buy gift cards online instantly. “You’ll be able to walk into Wal-Mart, go shopping, go on the app while you’re in line, and buy a gift card right there on your phone,” said Bohm. “When you get to the checkout, you just show them the barcode.”
In a press statement, Steven Weldler, VP of Online Marketing for CardCash, said, “CardCash.com is always looking to bring our service to as many people as possible, especially to the unbanked and people who can use help financially.”
Bohm noted that the Bitcoin community is very savvy when it comes to saving money and is always mindful of conversion rates. Since CardCash customers can get a discount of between 5 and 20 percent on their purchases, he said that connecting CardCash and bitcoiners made a lot of sense.
“We’ve been looking into bitcoin for a long time now,” said Bohm, “but we wanted to do it properly.” CardCash has stringent AML-compliance polices and fraud-prevention measures. Every card is verified and comes with a 45-day balance guarantee. Seller identities are authenticated, and a $10,000 per day purchase limit is in place to prevent money laundering. The company uses BitPay to process their bitcoin transactions and immediately converts to fiat; they also wanted to be sure that their banking partners were comfortable with them allowing bitcoin transactions.
So far, CardCash serves only U.S-.based customers, buying and selling gift cards that can be redeemed in the United States. But there are plans currently in the works, thanks to bitcoin, that will allow international customers to tap into the discounted gift-card scene.
Founded in 2008, CardCash has been included in the Forbes’ list of America’s Most Promising Companies for the last three years, as well as in the Inc. 500 list of the fastest growing private companies in America for the past four years.
Photo LaniElderts / Flickr (CC)
Investors Weight Bitcoin’s Prospects as Fear Levels Rise Across Global Markets
As weak economic data from China hit asset prices globally, Bitcoin Magazine spoke to a number of experts to assess the impact on the price of bitcoin.
Since its introduction in 2009, soon after the outbreak of the Great Recession, bitcoin has been championed as a more reliable store of long-term value than fiat money given bitcoin’s capped supply and the continued printing of fiat currencies by various central banks, which many fear will continue to cause financial crises across the globe.
However as the CBOE Volatility Index (VIX), often referred to as the ‘Fear Index’, recently trebled from 13.02 to 40.74, and global markets posted their worst week of the year, the U.S. dollar price of a bitcoin fell almost 20 percent from $256.98 to $209.13, suggesting investors are yet to be convinced of the investment case for bitcoin in times of economic turmoil.
“World markets are in commotion with the next leg in The Great Credit Contraction coming from Greece, Puerto Rico, China and anticipated Fed rate hikes despite a strengthening dollar,” Bitcoin investor Trace Mayer explained in an email to Bitcoin Magazine. Mayer believes that while it offers “a potential solution to this intractable global problem … (bitcoin) is not currently viewed as such by the majority of the investment community.
P. Bart Stephens, co-founder and managing partner of Blockchain Capital LLC, believes it is too early in the evolution of Bitcoin for it to be considered a safe haven for investors in times of panic.
“The recent drop in global stock prices is being driven by macro-economic factors … namely, the slowing Chinese economy and Chinese policymakers’ quixotic responses stock market volatility,” he said. “This puts investors in ‘risk off’ mode and causes a flight to safety”.
Furthermore, Stephens argued, at roughly $3 billion, the entire Bitcoin market is about the size of one small cap tech stock and therefore a small amount of selling in the Bitcoin market can cause dramatic moves in price. As a result, “Bitcoin is still seen as a high-risk investment,” he said.
David Ripley at digital wallet provider Glidera believes it is difficult to predict how weakening markets might affect the Bitcoin ecosystem: “On one hand, a downturn may lead individuals to feel they have less money available to obtain an alternative investment such as Bitcoin. On the other hand, some individuals may actually view Bitcoin as a better alternative investment to the traditional economic system, which could be facing challenging times”, he said
Prominent Bitcoin investor Roger Ver believes that the fall in the price of Bitcoin might even be a symptom of improving adoption.
“I think the price has dropped because people can now spend bitcoins at tens of thousands of locations, but most of the merchants are converting it to their local currency”, Ver told Bitcoin Magazine. “Bitcoin wasn’t (previously) spendable at many places, but more people were just holding it as a speculative instrument.”
Ver’s comments echoed those made by Tim Draper of Draper Fisher Jurvetson that the bitcoin price was bound to come under short-term pressure as miners get more bitcoin, causing selling pressure and less demand to buy as the use cases evolve.
Stephens agrees that the near-term might see further weakness in the bitcoin price.
“Bitcoin is in a bear market and has been for almost two years. … More recently this summer, the weakness in the price is due to the divisions in the Bitcoin development community”, he said. “Markets, and this includes bitcoin, dislike uncertainty”.
However, looking further ahead, Stephens is more buoyant.
“Over the intermediate to long term, we think bitcoin will perform very well, especially in a macro-economic environment characterized by fiat currency wars and currency volatility”, he said.
Despite the concerns around the short-term outlook, the Bitcoin community appears unanimous in its optimism for the longer-term prospects for the digital currency.
“Every time we are reminded of the difficulty of central banks and governments trying to manage currencies, economies or markets, we are reminded of the potential value of an alternative, truly free-market approach to currency and financial transactions,” said Ed Boyle, CEO at payments processing platform Blade Payments.
“Large negative stock market swings remind everyone that volatility is not limited to bitcoin,” Boyle continued. “To the extent that Bitcoin transactions continue to grow as strongly as they have been … bitcoin itself will become more and more stable and more and more valuable.”
A Closer Look at BIP100: The Block Size Proposal Bitcoin Miners are Rallying Behind
The block-size limit debate has taken a turn now that some of Bitcoin’s biggest mining pools are publicly endorsing BIP 100 (Bitcoin Improvement Proposal 100) instead of backing a Bitcoin XT blockchain fork. So far, F2Pool, BTCChina, BitFury, KnCMiner, 21 Inc. and several smaller pools have come out in support of this alternative proposal. Combined, this represents well over half of all hashing power on the Bitcoin network.
While these endorsements are just a show of support, and do not trigger a change of the block-size limit or a blockchain hard fork as Bitcoin XT is programmed to do, the mining endorsements do mandate a closer look at BIP 100.
What is BIP 100?
Over the past weeks most of the attention regarding the block-size issue has gone to BIP 101 and the Bitcoin XT fork, but BIP 100 was really the first BIP to offer a solution for the block-size limit. Drafted and published as a PDF by Bitcoin Core developer and BitPay employee Jeff Garzik in June, BIP 100 does not set any specific block-size limit or program in any sort of predetermined growth. Instead, Garzik’s proposal – which does not exist as code quite yet – allows miners to vote what the limit should be.
The intended purpose of BIP 100, as described by Garzik, is to take the power to set the block-size limit away from the Bitcoin developer community and, instead, hand it to the free market. The Core developer does not believe such a responsibility over the Bitcoin protocol belongs to any select group of people, and argues that the only sensible solution would be to let the broader mining community decide.
In the BIP 100 draft, Garzik writes:
“Economic actors that wish to see the speed limit [block-size limit] at X or Y – thus dictating the free market – will lobby the Chief Scientist and other ‘core’ developers, individually, in private, in public, with carrots, and with sticks. When [the] Bitcoin market cap [grows 10 times] or more, the lobbying [will be] even more intense. Yet there is no single human or commitment on the planet capable of picking a good speed limit.”
Voting procedure
While the details of the voting process are not set in stone yet, the PDF as well as Garzik’s comments suggest it works as follows: First, 90 percent of hashing power on the Bitcoin network needs to accept BIP 100 for it to activate. This is a one-time thing that will trigger a hard fork. Once BIP 100 is activated, miners can include a public message in a newly mined block indicating how big (or small) they want the block size limit to be. For every 12,000 blocks (some three months’ worth), the bottom 20 percent of all votes is discarded, after which the minimum is chosen.
Importantly, however, the block-size limit can be only doubled or halved at most. Thus, if more than 20 percent of blocks vote to lower the limit, the maximum block size is decreased to whatever is the lowest suggestion – apart from the bottom 20 percent. If more than 80 percent votes to raise the limit, the maximum block size is also raised to the lowest suggestion – again disregarding the bottom 20 percent. But miners cannot vote the block-size limit up indefinitely. BIP100 has a hard limit of 32 megabytes, meaning the maximum can be reached in five doublings from 1 megabyte. Whether Garzik’s proposal includes a minimum block-size limit remains unclear for now.
‘21% attack’
While relatively simple, some say that the voting procedure as described above has some flaws. (But note that it is not yet completely certain that this is how BIP 100 will actually function.) One issue that was raised on Reddit is the so-called “21% attack.” This refers to the ability of 21 percent of miners (possibly a single pool) to vote the block-size limit down as much as they want.
There is some logic behind Garzik’s rule, however. It is generally believed that bigger blocks are disadvantageous for smaller pools. Most Bitcoin developers worry, therefore, that left to their own devices, big pools could keep voting the limit upward – indirectly putting smaller pools out of business and further centralizing mining. This is why Garzik proposed the threshold; he believes the block size should be raised only if a supermajority of miners (81 percent) agree. Or put differently: he believes that smaller mining pools representing 21 percent of hashing power should have “veto power” to keep the limit low.
Whether a “21% attack” is really a feature or a bug, therefore, is a matter of perspective. While “block-size conservatives” consider it an important restraint on the power of big mining pools, proponents of bigger blocks – such as Mike Hearn – feel that a minority of miners can hold the rest of the network back.
One last option that should be mentioned, and which is probably why the option has been dubbed a “21% attack,” is that the voting process could allow any entity that controls more than 20 percent of hashing power to decrease the block size so much that is essentially destroys Bitcoin. While this would not be in the self-interest of this entity from a bitcoin-profit maximizing perspective, it does mean the Bitcoin network would be less resilient against outside attacks.
‘51% voting attack’
But, at the same time, the significance of the “21% attack” (or “21% veto”) has been questioned by Bitcoin developers for wholly different reasons. This is because colluding miners can simply ignore any opposition as long as they control any majority of hashing power.
“It would be trivial for any majority of miners to skew the vote,” Bitcoin Core developer Peter Todd told Bitcoin Magazine. “Once a group of miners is convinced they control at least 51 percent of hashing power on the network, they could simply refuse to mine on top of any block that doesn’t vote along with them. They can do that in subtle ways, for instance by just discarding – orphaning – a subset of blocks, something that naturally happens in the protocol anyways. In reality, therefore, miners controlling 51 percent of hashing power would have complete control over the block size under BIP 100.”
Furthermore, Todd argued that a miner vote could – and probably would – be bought by non-mining entities. Payment processors could, for instance, enter into contracts with pools to vote for bigger blocks. And since this would add overhead costs to the equation – lawyers need to be paid – Todd believes it would, again, disadvantage smaller pools, particularly in non-U.S. jurisdictions.
Todd himself offered a solution for this problem:
“If we ever get to the point that BIP 100 does get implemented, these contracts should be programmed onto the blockchain. This would both reduce overhead costs for everyone, creating a more level playing field, and make the vote-buying transparent at the same time.”
32MB Issues
Another point of critique on BIP 100 is that the 32-megabyte limit might be too small in the long run. Proponents of a bigger block size in particular – including Bitcoin XT developers Gavin Andresen and Hearn – believe this is much too low. If Bitcoin becomes widely used, a 32-megabyte limit is expected to be reached sooner or later, which probably means the block-size debate would need to be held all over again – not something they look forward to.
Garzik, on the other hand, believes this upper limit would be a good safety net.
“The 32-megabyte limit is a check-and-balance, to ensure that the system does not ‘go off the rails,'” Garzik said. “It would require a second user ‘vote’ – a second hard fork – to ensure everybody is on board with the levels of decentralization so far, and comfortable with increasing it further. My personal preference is to remove all upper limits, as the system and the free market will naturally find an equilibrium size based on individual miner choices. The 32-megabyte limit is a compromise.”
On the opposite side of the debate, developers who favor a conservative block-size approach worry that the block-size limit could actually be increased much too fast under BIP 100. From the moment of activation, it could take as little as a year and three months to reach the maximum of 32 megabytes. This is much faster than other BIPs would allow, and too fast according to several Core developers.
“BIP100 is somewhat ambiguous, and perhaps the details are still subject to change, but as-is the text allows for up to four doublings per year,” Bitcoin Core developer Pieter Wuille told Bitcoin Magazine. “It’s hard to predict the future, but the ecosystem should not allow such near-unbounded growth.”
Economics
Another problem is that BIP 100 might hand over too much economic power to Bitcoin miners. This issue was first raised by Israeli mathematician and Bitcoin expert Meni Rosenfeld, and later echoed by Hearn.
“The Bitcoin economy is composed of several groups, and no single group should be given complete power over the protocol. Miner interests are not completely aligned with those of users and node operators,” Rosenfeld told Bitcoin Magazine. “Users want transactions to be cheap and plentiful, nodes want blocks to be small and manageable, and miners could want either big or small blocks – whatever maximizes profits. If given the power to vote on the block-size limit, miners are likely to abuse it, disregarding the other groups. In every single market, giving producers the power to artificially limit supply and competition can lead to disastrous consequences, and Bitcoin is no different. ”
Garzik, however, contends that miners will ultimately have an interest to keep Bitcoin users content. The Core developer argues that the mining community would be unwise to abuse its powers, as it would effectively mean that the market would respond. In other words: Users would sell their bitcoin.
“Miner income is in the long-run aligned with users in a cooperative market relationship, even if short-term counter-incentives exist,” Garzik writes. “Users signal economically via the market – or directly via email and social media! – their views on miner behavior, which must be signaled up front, months in advance of any change. While imperfect, miner voting works; it has been field tested.”
Rosenfeld, however, is not convinced.
“Committees and discussions where all groups are represented, though slow and inefficient, are much more likely to result in a decision that is good for the Bitcoin economy as a whole,” Rosenfeld said.
Bitcoin Businesses Take Steps to Prepare for CoinWallet’s September Stress Test
CoinWallet.eu, the U.K.-based Bitcoin mining and wallet business has said it will be running another “stress test” in early September to test the Bitcoin network, according to International Business Times.
The company told the international journal that this round of “test” or “spam” attacks “will likely render most standard wallet software worthless and create nearly a 30-day backlog” in the system.
Bitcoin Magazine reached out to CoinWallet to learn more about the company’s plans but received no response by time of publication.
Stress Test will hammer the Bitcoin network
Much like its previous stress test in early July of this year, CoinWallet’s so-called “dust attack” will flood the network with thousands of small, spam-like bitcoin transactions that are large in data but small in value.
A backlog of thousands of transactions with almost no value (such as 0.0001 bitcoin) waiting to be confirmed can potentially tie up the network for hours.
Making it clear which side of the ongoing blocksize debate it’s on, CoinWallet said that it need to demonstrate that the current Bitcoin blocksize is inadequate and does not meet the needs of a growing bitcoin market.
Bitcoin companies take steps to prepare
As reported previously, exchanges and wallet companies are developing strategies including BitGo’s “surge pricing” to deal with these nuisance attacks and may even at some level appreciate that testing may show the strength of the network.
Mycelium Community Manager Dmitry Murashchik told Bitcoin Magazine:
“Mycelium was hit pretty hard by the last stress test, but we have implemented changes to deal with it. On our back-end we moved to a faster database and linked our nodes so they communicate transactions directly to each other to stay in sync.
“We changed our wallet to automatically connect to another node if the current one fails, added the option to rebroadcast unconfirmed transactions in case some nodes didn’t hear them, and added dynamic fees calculated based on how clogged up the network is to make sure your transaction still gets included in the next block,” Murashchik added.
Alena Vranova, CEO of SatoshiLabs, says that they are fully prepared for the tests and are also gearing up for an increased blocksize noting, “Some companies attempt to cast fear, uncertainty or doubt on their competitor’s products. Let’s wait for the stress test in practice to judge its impact.”
Vranova sees this exercise as just as much about a political statement as about testing the network:
“We strongly feel that the bitcoin community deserves a free and fair debate on the subject: there should be zero censorship around BIP 101 discussions in any forum, including online discussion boards such as BitcoinTalk, /r/Bitcoin, or anywhere else. We stand against any sort of information censorship. A genuinely open approach, with full public access to all available information, is the best way for Bitcoin to proceed.”
QuadrigaCX CEO Gerald Cotten is not really bothered by the upcoming test.
“We use BitGo for our hot wallet, a third-party multi-signature wallet solution,” he told Bitcoin Magazine. One of the ways that we handle this type of thing is that we use a dynamic fee structure which changes based on the network load. Usually, the fee we pay on outgoing transaction is about $0.03. However, when ‘spam attacks’ are taking place we often increase it automatically to as much as $1 per transaction. Basically, we pay whatever is needed to ensure that the transaction will be confirmed within the next few blocks.”
Mycelium’s Murashchik is taking a positive view of all this saying:
“[A]lthough the first stress test was painful, it has shown us whatever weaknesses we may have had, which we have since patched, and we are looking forward to the next stress test to see how well those things we implemented will work. We believe we’re ready for it.”
BitPay also released an updated version of their Copay wallet that includes dynamic transaction fees to ensure that transactions are confirmed quickly, even during transaction backlogs. “Now Copay users can count on their wallet to scale fee levels based on the bitcoin network load, ensuring their transactions aren’t delayed,” the company said in a statement.
Photo sara marlowe / Flickr (CC)
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