Competitors SegWit and Extension Blocks make quick work of common threat ASICBoost

Bitcoin’s long-running block size debate has seen numerous challenges to the Bitcoin Core reference software, including Bitcoin Classic, Bitcoin XT, and Bitcoin Unlimited. Recently, a fourth contender has entered the ring, a browser-based Bitcoin node client from Purse, called bcoin.

Purse is a marketplace that allows anyone to buy bitcoins from holders who want good deals on Amazon.com purchases. “Our mission is to make Bitcoin useful,” states the company’s homepage. To that end, the company’s development team has been hard at work creating solutions for the Bitcoin ecosystem, including bcoin.

On March 13, Block #457010 was mined and attached to the bitcoin blockchain by a bcoin client. It was the first block ever created by software containing none of Satoshi Nakamoto’s code.

On April 3, Purse CEO Andrew Lee proposed a joint solution to the ongoing Bitcoin scaling debate, called Extension Blocks. Lee co-founded Purse in March 2014, after working at Bank of America where he developed strategies for modernizing their core banking platform. “Extension Blocks enable larger blocks through an opt-in second layer for true on-chain capacity increase,” Lee explained.

Four well-known developers in the Bitcoin community worked with Purse on the project. Bitpay CEO Stephen Pair, Purse CTO Christopher Jeffrey, Lightning Network developer Joseph Poon, and Paypal engineer Fedor Indutny are all named as authors of Extension Blocks.

The idea was originally proposed by Bitcoin Core developer Johnson Lau in 2013, as Auxiliary Blocks. Authors of the Purse version state that it refines many of Lau’s ideas, and “offers a much simpler method of tackling the value transfer issue.” The proposed upgrade also offers more Transactions Per Second (TPS), which would result in a faster bitcoin network with far lower fees.

“Extension Blocks (EXT-B/E-Blocks) are effectively stapled at the end of every block upon activation. The larger block includes advancements that have not yet been activated; including a transaction malleability fix paving the way for Smart Contracts on Bitcoin.”
— – Andrew Lee, Purse CEO

Lee explains that Extension Blocks are made to fill the gap between the existing one-megabyte blocks that bitcoin currently uses and a future Lightning Network. The CEO further explained that Extension Blocks include advancements that have not yet been activated, including a transaction malleability fix, “paving the way for Smart Contracts on Bitcoin.” The proposal includes a soft fork roll out, and offers further upgrade paths for future innovations such as MimbleWimble and Rootstock.

The proposal is a direct competitor to Bitcoin Core’s Segregated Witness (SegWit). The  announcement makes it clear that if SegWit fails, Extension Blocks have been designed to do much of the same job. SegWit is often referred to by developers by its project name BIP 141, and cannot be deployed at the same time as Extension Blocks.

Both software changes must be voted for by a supermajority of miners before they are adopted. Lee describes his proposal as “an opt-in for both users and businesses upon activation,” and a working testnet operation to demonstrate that the code works will be available “within weeks.”

“While it is heavily recommended for users to upgrade to enable new features and security benefits, it is opt-in meaning older clients can continue using bitcoin without an upgrade.”
— – Lee

As soon as the proposal was announced, Bitmain CEO Jihan Wu said “I love the extension block proposal. It is compitable with BU [Bitcoin Unlimited].” Wu controls one of the largest mining pools in Bitcoin, Antpool, which is currently supporting Bitcoin Unlimited.

Early Bitcoin adopter and Bitcoin.com CEO Roger Ver also offered support of the proposal. “Too many people have fallen for the Sunk Costs Fallacy when considering Segwit activation,” he said of Bitcoin Core’s supporters. “Consider this instead,” he asked, while linking to Lee’s announcement.

However, SegWit had been built over several months and tested for more than a year. Supporters fear that Extension Blocks could result in further delays to a much-needed protocol change. “SegWit already has tremendous ecosystem support while ext block discussions for years have gotten deadlocked due to problems some believe might be insurmountable,” said Core developer Eric Lombrozo.

Extension Block original creator and Core developer Johnson Lau agreed. “I am happy to see work being done on extension block ideas, but I am concerned that trying to combine segwit and extension blocks into a single proposal will lead to further development delays.” Lau clarified that  this version of his proposal has been modified to no longer be compliant with SegWit. The developer said that he would prefer to see the new plan changed before being deployed.

“Since most nodes are already upgraded to BIP141, this BIP must not be activated unless BIP141 failed to activate.”
— – Johnson Lau, Core Developer

In the meantime, Greg Maxwell released his findings of a covert mining optimization variant of ASICBoost. Maxwell discovered that mining chips have been created with ASICBoost capability, offering a 20 percent gain to miners using the technology.

Wu also controls one of the largest ASIC chip manufacturers, and confirmed that he did indeed create the ASICBoost-ready chips, but claimed he was not using them to earn more Bitcoins. With SegWit being incompatible with ASICBoost, many in the community speculated that Wu is indeed mining with the advantage and has a vested interest in blocking SegWit.

Many Core developers felt that a conspiracy was afoot, but found that proving it is extremely difficult. BitTorrent’s creator, who is also a Bitcoin Core developer, Bram Cohen, tweeted about the situation: “We’ve known for a while that the opposition to segwit had an ulterior motive because it’s such a clearly good thing.”

Soon afterward, one of the Bitcoin Unlimited developers left their team, stating that he felt Bitcoin Unlimited only exists to block SegWit adoption. The same team received a Grant for US$1.2 million directed from Wu and Ver.

Extension Block team member Fedor Indutny then revealed that Extension Blocks are compatible with ASICBoost’s optimization, while SegWit is not. Team leader Christopher Jeffrey didn’t waste any time once the word got out that his project was useful to miners with a covert advantage. The developer quickly assembled a team to patch Extension Blocks, “As of this commit "[Extension Blocks are] no longer compatible with ASICBOOST,” announced Indutny the following day. “Although it is an open question whether this kind of optimization is permissible or not, this proposal is on the same grounds with SEGWIT now.”