August 1 is Bitcoin Independence Day : a day when we look back at the first User Activated Soft Fork (UASF) that took place on the same day in 2017. During the UASF, users seized control of the network; the denouement of a long internal battle within the Bitcoin community between the small and big blockers .

Scale up

Bitcoin is not yet fast enough to serve the entire world, opinions are hardly divided on that. With a block time of 10 minutes and limited space per block, the transaction capacity is simply too low to function as a payment network for billions of users.

That is why we have been working hard for years to improve the transaction speed and capacity so that the network can be scaled up. However, this does not always go smoothly and in 2017 it led to a real civil war within the Bitcoin community.

The trigger was a new scalability solution called Segregated Witness, or SegWit, which was originally proposed by Pieter Wuille in 2015 and has been part of Bitcoin Core since 2016. SegWit, however, was not activated for a long time.

SegWhite

SegWit was an innovative way to use the limited space per block more efficiently by separating the signature data from the transaction data. Although the space per block is in principle still just as limited, SegWit does allow more transactions to fit in a block because they take up less space per block.

In addition, SegWit opened the doors to new technology opportunities such as the Lightning Network, Taproot, and Schnorr Signatures. These technologies also improve the scalability of Bitcoin and also offer new possibilities and improved privacy.

The conflict

SegWit seemed like a no-brainer , but it met with resistance: the miners did not agree. Originally they were supposed to activate SegWit, but only a handful of smaller mining pools rallied behind the initiative.

The larger mining pools at the time, such as Antpool and F2Pool, were strongly opposed. Initially, this seemed to mainly concern mining income. The busier the network and the fuller the blocks are, the more users have to bid against each other via the miner’s fee in order to secure a spot in the next block for their transaction. And the higher the miner’s fees, the more the miners earn.

The more efficient SegWit would increase the transaction capacity, which would reduce the crowds, resulting in lower fees. Miners would process more transactions for less money.

Big blocks vs small blocks

The miners, led by mining manufacturer Bitmain, preferred to see a doubling of the block size to increase the transaction capacity: twice as much space per block for transactions. And therefore twice as many opportunities to collect miner’s fees. This group was also referred to as the big blockers .

But ‘big blocks’ are controversial: when the block size doubles, the rate at which the size of the blockchain grows also doubles. Since every Bitcoin node has to download and store the entire blockchain in order to verify it, it quickly becomes unfeasible for normal users to run their own node when the size of the blockchain increases too quickly. At the time, the blockchain was already tens of gigabytes in size (now more than 200 GB).

The fear arose that this would have a centralizing influence and would lead to the Bitcoin network eventually no longer being in the hands of normal users, but would run exclusively on high-end servers in large server farms; exactly like the ‘old’ internet.

Moreover, an increase in the block size does not solve the fundamental problem, opponents argued, because larger blocks also become full in the long run and then the block size would have to be increased again; an endless spiral towards further centralization of the network. Since decentralization is the distinguishing feature that makes Bitcoin interesting, that was unacceptable to them.

They thought it would be better to solve the problem with smart cryptography and by scaling up the network via a second network layer. For example, via the Lightning Network, which is made possible by Segwit. In that case, the blocksize does not have to be increased and it is not at the expense of decentralization. They were called ‘small blockers’ .

This created an impasse within the Bitcoin community between the ‘big blockers’ and the ‘small blockers’. For a while, it seemed that the network’s progress was stagnating.

Escalation

Meanwhile, something else turned out to be going on. News leaked that mining manufacturer Bitmain’s bitcoin miners secretly contain AsicBoost; a special feature that took advantage of a vulnerability in the mining algorithm to mine about 20% more efficiently than the competition.

The introduction of SegWit would wipe out AsicBoost and many small blockers saw this as the real reason why the miners led by Bitmain were so resistant: they were not about to give up their competitive advantage without a fight.

New York Agreement

In April 2017, the conflict flared up further when delegates from major Bitcoin companies gathered in New York to jointly find a solution. They included exchanges, mining companies, mining equipment manufacturers and wallet providers; a total of 58 bitcoin companies that collectively represented more than 80% of the bitcoin hashrate.

This resulted in the so-called New York Agreement: an agreement to introduce SegWit2X. SegWit2X was supposed to be a compromise that included SegWit as well as doubling the blocksize.

However, SegWit2X was not backwards compatible with existing Bitcoin network protocol rules and required a hard fork . Network participants who do not upgrade would be left out, with the likely result that two Bitcoin networks would emerge in parallel: one based on the old protocol rules and one based on SegWit2X.

Another nagging point: if Bitcoin is decentralized, how is it possible that a select group of individuals can sit around the table to determine what should be done with the decentralized network? Are they in charge of the network? Or are the miners? The exchanges?

There was a growing realization that the New York Agreement and SegWit2X was not a compromise or a solution, but an attack on the network; a power grab by influential parties who tried to steer the development of the network in a certain direction.

The resistance

The resistance came in the form of the User Activated Soft Fork (UASF). This meant that users would no longer wait for the miners to introduce SegWit, but that they would enforce this by switching to the new protocol as users.

Unlike SegWit2X, the UASF only required a soft fork . The difference with a hard fork is that a soft fork is optional and that users who do not want to upgrade can continue according to the old protocol rules.

However, it created a stalemate for the miners. By activating the UASF on their wallets and nodes, the users forced an ultimatum: activate SegWit or we will reject your blocks. This would encourage miners to activate SegWit, otherwise they risk losing revenue. Even with a slim majority, the UASF would provide enough economic incentives to motivate miners to support it.

The plan turned out to work. So good, in fact, that in most cases the mere threat from the UASF was enough. Shortly after August 1, more than 95% of the hashrate supported SegWit and some time later, SegWit on the bitcoin network was finally a reality.

Some big blockers who did not agree with this then went their own way via various hard forks, which resulted in various Bitcoin clones with a larger block size.

Independence Day

The UASF on August 1, 2017 is seen by many as a key moment in Bitcoin history: the day when the decentralized network resisted an organized takeover of power. But also the moment when it became clear that it is not the miners, exchanges or Bitcoin companies that have power over the network, but the users.

That’s why we celebrate Bitcoin Independence Day on August 1 ; the day the battle for the independence of the Bitcoin network was won.

This article first appeared on bitcoin.nl on July 31, 2020.