Scaling Bitcoin Tel Aviv & the State of Bitcoin

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Scaling Bitcoin 2019 was another good opportunity to analyze the technical status of Bitcoin, which is why we traveled to Tel Aviv to attend the Scaling Bitcoin workshops. We (Bitonic) were also a sponsor because we want to support the scientific and technical developments of the Bitcoin protocol. After all, Bitonic exists through the Bitcoin protocol and we strive for a healthy ecosystem based on science & technical expertise where Bitcoin can grow into the monetary system of the future. Bitcoin is based on mathematics and physics and therefore the developments are of a very complex level.

Scaling Bitcoin Workshops

The Scaling Bitcoin workshops are set up to bring scientists and engineers together and discuss the scalability of the Bitcoin network. Scalability, next to privacy, is Bitcoin’s biggest technical challenge. In recent years, the pressure on the Bitcoin network has become a lot less, partly due to innovations such as Segregated Witness and Layer 2 solutions such as the Lightning Network. Segregated Witness (SegWit) was first presented as a soft fork at Scaling Bitcoin Honk Kong. This is therefore a good example of why these conferences actually contribute to a positive development of the protocol.

The pressure on the blockchain has therefore decreased due to more efficient techniques and optimizations that have been implemented in recent years. Bitcoin is currently scaling well and through the Lightning Network tens of thousands of transactions can take place per second with virtually no transaction costs. The blockchain therefore continues to grow and the pressure on hardware therefore continues to increase. So scalability is a topic that has an impact on all fronts of the Bitcoin network.

Scaling Bitcoin also organizes technical boot camps (Bitcoin Edge) in addition to the conference. The aim of these boot camps is to train talented engineers to become Bitcoin developers.

Scalability in context

To understand why the subject is so complex, the analogy to Internet protocols such as TCP/IP, HTTP(S) & FTP provides a historical insight into scaling computer networks. For example, nowadays we can stream movies on our phone through WiFi (or even 4G). However, to reach these unprecedented speeds, the internet and the development of the protocols have had to undergo a lot of research and innovation to reach the current level. Hardware plays a crucial role in this, such as storage, processors (CPU), memory (RAM), routers, (network) cables (bandwidth). It is therefore essential that there is a balance between hardware development and the capacity required to synchronize the Bitcoin network in an efficient and secure manner. Speed is essential, delays can create security problems and efficiency through centralization is the effect of setting up a P2P network incorrectly. The truth (transactions) must be synchronized across the entire network (worldwide) within seconds.

Scaling Bitcoin Tel Aviv

The focus of the lectures at Tel Aviv University was therefore on optimizations. Optimization is a broad concept, but the studies and results focused on keeping full nodes scalable in the peer-to-peer network, the most important factor in keeping the Bitcoin network decentralized.

Erlay protocol highlighted, by Gleb Naumenko (Chaincode)

Gleb Naumenko’s presentation illustrates well where the focus is to enable innovations in Bitcoin. Innovations are mainly focused on performance optimizations to balance the pressure on hardware and software.

In summary, Geleb Naumenko explained Erlay, a proposal he co-authored with other researchers; Bandwidth-Efficient Transaction Relay for Bitcoin (Gleb Naumenko (Chaincode Labs), Gregory Maxwell (Independent Researcher), Pieter Wuille (Blockstream), Alexandra Fedorova, Ivan Beschastnikh (The University of British Columbia)).

The upgrade that Erlay creates is the more efficient use of bandwidth to improve the spread of transactions over the P2P network. This allows full nodes to connect better to the network and synchronize faster. These kinds of optimizations are essential to limit the pressure on full nodes and increase the robustness of the network. One of the most important properties of a full node is that it is scalable, also from an economic point of view. This means that in areas where internet speed/bandwidth is moderate it should still be possible to maintain a full node to also contribute to censorship resistance network. When a full node becomes too expensive for an average participant in the network, the result is that full nodes are only maintained by parties with sufficient financial resources and with the effect that it is very centralized. Everyone should be able to maintain a full node to prevent centralization. Centralization of full nodes is a major danger as it makes the P2P network vulnerable to all kinds of attacks.

Segregated Witness (SegWit)

Due to the arrival of Segregated Witness, the blocks are almost always above 1,000KB. This therefore means that due to this optimization more transactions fit in a Block than before the SegWit era. In the image below you can see that the blocks can accept more than 1.0 MB and this actually shows that the scalability of the Bitcoin network is growing positively without compromising on decentralization and security.

Blocks of an average of 1250KB

Grow Segregated Witness transactions in the Bitcoin network

Lightning Network

The Lightning Network is the Layer 2 solution that is being talked about a lot. With this off-chain network of payment channels it is possible to have a very large number of transactions per second without burdening the Bitcoin blockchain. This makes all kinds of new use cases possible, for example based on microtransactions. Via the Lightning Network it is possible to send one hundred thousandth of a cent (0.000001?????) over the internet, for example from the Netherlands to China in less than a microsecond. This is not possible with any payment network in the world.

Despite this, the Lightning protocol is still under development. A critical vulnerability was recently found in the protocol that could put assets at risk. The Lightning protocol still has growing pains that are being solved by new technical innovations.

The second day of Scaling Bitcoin Tel Aviv therefore focused on techniques that improve the Lightning Network. A lot of research is being done into P2P / routing techniques that are the foundation for payment channels. Among other things, attention was paid to Eltoo, Watchtowers & Sphinx routing

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