Bitcoins new block size limit solidifying at 8 megabytes

As Bitcoin grows in popularity, the number of transactions that are recorded in each 10-minute block on the blockchain, are increasing rapidly. Every now and then the one-megabyte limit on blocks is reached, which can create slower transactions that have to wait for the next block in order to be recorded.

Satoshi set this block size limit at one megabyte knowing that it would need to be raised one day, and even told the other coders how to implement the upgrade. Today’s developers are convinced that the time has come to finally do so, and the topic is constantly being talked about by head developers like Gavin Andresen, Mike Hearn, and Jeff Garzik.

Garzik’s solution to the problem, known as BIP100, (the 100th official Bitcoin Improvement Proposal) calls for a floating block limit size that could be anywhere above one megabyte and below 32 megabytes. Unneeded complication is generally blamed for that proposal not gaining acceptance, but it is considered high up on the short list of contenders for a solution.

A more popular plan has been presented and discussed constantly since early May of this year by Gavin Andresen. Through dozens of blog and Reddit posts, he has been building a case forraising the block size to 20 megabytes, and he made many good arguments for that case. The trade-off, however, is that miners with more bandwidth restrictions may find it harder to compete for each larger block.

Chinese miners, in particular, have been worried about larger block sizes for a while, and the issue finally came to a head early this week. Given the fact that Chinese mining pools currently make up more than half of the overall hashing power of the bitcoin network, they have an extremely powerful voice in this discussion and perhaps even the power to dictate the terms of such matters if they unite and put their foot down.

On 11 June, it appears they did exactly that. A consortium of the five largest Chinese mining pools, including F2pool, BW, BTCChina, Huobi, and Antpool got together in Beijing and have published an agreement about how they want Bitcoin mining to strengthen, including a call for an 8 megabyte block size limit.

"After undergoing deep consideration and discussion, the five pools agree that while the block size does need to be increased, a compromise should be made to increase the network max block size to 8 megabytes. … We believe that this is a realistic short term adjustment that remains fair to all miners and node operators worldwide."
— – Chinese mining pool consortium

The consortium listed three arguments against Andresen’s proposal to raise the block size limit to 20 megabytes:

1. "Chinese Internet bandwidth infrastructure is not built out to the same level as that of other countries."
2. "Chinese outbound Internet bandwidth is restricted, which causes increased latency in connections to Europe and the United States."
3. "Not all Chinese mining pools are ready for the jump to 20 MB blocks. Because of this, they fear that an increase to the large size could lead to a high rate of orphaned blocks."
   — – Chinese mining pool consortium

They go on to state that 8 megabytes would be a good trade-off although they admit that in time it may still need to be raised further.

About the same time they released this document, they were also in contact with Andresen and seem to have convinced him to change his call for 20-megabyte blocks down to the 8 megabytes they have requested. Gavin has already stated that he is "happy to tweak the parameters" and is now stress-testing an 8-megabyte block size limit that doubles every two years, so 16MB in 2018. This is subject to change if "there is a soft fork before then because 16MB could be too much".

In order to implement the new block size limit, bitcoin developers like Andresen will be testing it for the rest of the year and then sometime after March of next year which will result in a “hard fork” of the Bitcoin blockchain in accordance to upgrading the blocks.

A hard fork is a coder’s term to express a change in the protocol that is not backwards-compatible. It is generally always considered risky and requires all users to upgrade to a new version of the protocol or their application will no longer work as planned.

Hard forking the Bitcoin blockchain sounds quite scary, but it has been done before, and successfully, under emergency conditions. In March 2013  a version upgrade of the core bitcoin wallet was rolled out with some broken code in it, resulting in a broken bitcoin blockchain for the afternoon… But within a few hours the Bitcoin developer community rolled out a fix and Bitcoin was fixed just as quickly as it was broken. With a year to plan for Andresen’s proposed hard fork, few people expect any complications and no transaction data should be lost at all.

"It will be very difficult for anybody to lose money.[…] Ordinary, SVP-using users will follow the longest chain, and since at least 75% of hashing power will be on the bigger-block chain, there is no chance of them losing money. The big-block-rejecting-chain will very, very quickly be left behind and ignored.”
— – Andresen

Regardless of the number of megabytes that the Bitcoin block limit upgrades to next year, the current structure of limited block sizes will continue to constrain Bitcoin’s on-blockchain transaction speeds to those smaller than needed. To scale up to that level of commerce, more improvements to the Bitcoin protocol will be needed, such as sidechains or the lightning network. Thankfully,  few developers feel that it is an unobtainable goal in the long run.