Lao Liu: Why I support Bitcoin Cash

The charm of Bitcoin

I first came into contact with Bitcoin in 2011. After learning about its working principle, as a technician, I was deeply impressed by its exquisite design. Since then, I have started to learn about various knowledge and news about Bitcoin, and tried mining, currency speculation, and various Bitcoin-related applications.

At that time, whenever a website or merchant supported Bitcoin payment, Bitcoin enthusiasts including me would be excited. Of course, the price of Bitcoin was also exciting. In the context of globalization, we often imagine that more and more merchants will accept Bitcoin and more and more people will use Bitcoin. We feel that we are in the midst of a world-class wave of change. As early participants, promoting and witnessing this wave sweeping the world has become an obsession for many enthusiasts. I myself quit my original job and devoted myself to this industry.

The actual development is just as the enthusiasts imagined, with more and more Bitcoin users. However, things are not always smooth sailing.

Development bottleneck

As the number of Bitcoin users increases, a problem that restricts the development of Bitcoin has emerged: capacity bottleneck.

If the Bitcoin blockchain is a ledger, then the block is a page in the ledger. The page is too small and there are too many entries, so the entries cannot be recorded. From the above figure, we can see that the number of transfers in Bitcoin has reached a bottleneck since 2016 and cannot be increased any further.

As shown in the figure above, the first problem caused by insufficient capacity is that the confirmation time becomes longer, that is, the time interval from the initiation of a transfer to its being written into the ledger becomes longer. The long wait makes Bitcoin difficult to use.

If you don't want to wait a long time, you can only speed up the confirmation time by paying a higher transfer fee. As shown in the figure above, the transfer fee is getting higher and higher. As of now (about November 2017), a normal transfer requires at least 30 yuan in fees to be confirmed at a normal speed. You know, I only spend a few dozen yuan to buy a game on Steam (I buy games on Steam with Bitcoin). Some small Bitcoin accounts simply can't even transfer money because the balance is not enough to pay the fee.

In recent days, there has been a joke about the high handling fee of Bitcoin:

A female classmate who I hadn't contacted for a long time asked me about Bitcoin and wanted to buy some to try. After I taught her to download the wallet, she sent me 100 yuan via WeChat. I transferred her 100 yuan worth of Bitcoin, including the handling fee. She found that the Bitcoin she received was only worth 51 yuan and asked me what happened. I said it was the handling fee. She was very dissatisfied and wanted to return all the Bitcoin to me. After I received the Bitcoin, I transferred 2 yuan to her via WeChat. Then she blocked me.

High transaction fees have made Bitcoin lose its advantage in small transfers. Therefore, those small payment application scenarios that were once very suitable for Bitcoin, such as buying games, buying domain names, buying VPNs, renting hosts, etc., are no longer suitable for Bitcoin.

Some arguments such as "Bitcoin should be used for value storage like gold, and should not be used for payment, especially small amount payment" have begun to appear online. This idea is completely self-deceptive. If a new currency that can meet both value storage requirements and various payment requirements emerges, Bitcoin will completely lose its competitive advantage due to its incomplete functions and be replaced by the new currency. It's like: with WeChat's QR code scanning function, who would still install a dedicated QR code scanning software on their mobile phone?

If Bitcoin wants to continue to lead the competition, it must reduce the transfer fee. In fact, in the past two years, the market value of Bitcoin has gradually decreased as a percentage of the total market value of cryptographic digital assets. The expansion problem is imminent and is even determining the survival of Bitcoin.

Expansion plan

There are currently three main Bitcoin expansion solutions:

1. Segregated Witness (SW)

2. Lightning Network (LN)

3. Blockchain expansion Bitcoin Cash (BCH, also known as BCC) and Bitcoin SW2X (SW2X)

Let's analyze these three solutions:
01
Segregated Witness

Segregated Witness was proposed to solve the problem of Bitcoin's "transaction malleability". It puts the signature part of each transfer after the transfer data. Since this part of the data is not included in the 1M block size, it can achieve the effect of capacity expansion. In other words, the main function of the Segregated Witness technology is not capacity expansion, but capacity expansion is only a side effect. Therefore, the capacity expansion effect achieved by Segregated Witness will not be very obvious in theory, and in an ideal state, it can only achieve an expansion effect of about 2M. However, in actual applications, the proportion of SW transfers only accounts for about 10% of the entire network, and the effect is greatly reduced.

From the original design intention of not targeting expansion to the low penetration rate of actual applications, the expansion effect of SW is very limited. In addition, SW technology has brought higher complexity and systemic risks to Bitcoin, and these two problems may have a profound negative impact on future development.

It is worth mentioning that the development team of SW and Bitcoin Core clients and the company behind them, Blockstream, are very opposed to directly increasing the block size. In other words, the leaders of SW technology are opposed to directly increasing the block capacity.

In summary, the actual effect of SW, the increased system complexity, the potential security risks, and the supporters' incredible rejection of the technology to increase block capacity make it impossible for me to trust this plan and I will not support it.

02
Lightning Network

Lightning Network is an off-chain expansion method. It is still under research and development, and many details of the solution are not yet perfected. It has not been used on a large scale in a formal environment. If the community is given more time, it may develop into a good layered expansion solution. But Bitcoin has no time to wait. For the imminent problem of expansion, distant water cannot quench the thirst of the immediate.

03
SW2X

This solution also has the same problems as the “isolated witness” solution. At the same time, this is a product of compromise. Under the premise that everyone and every company has their own clear inclinations, I doubt how many people will firmly support this compromise solution in the long run.

04
BCH

Compared with the above solutions, BCH's solution is very simple: directly expand the block capacity to 8M and eliminate solutions with security risks such as SW and RBF. In fact, this is exactly Satoshi Nakamoto's original solution. The 1M block size was added in the early stage to prevent dust attacks. This restriction needs to be lifted after the network develops.
The solution is simple, does not increase the complexity of the system, and achieves very good expected results:

– BTC fee: 0.0015 BTC/KB
– BCH fee: 0.0002 BCH/KB

In fact, the current block capacity of the BCH network is large enough that as long as a small fee is paid, confirmation can be obtained quickly. The effect of reducing the fee by expanding the capacity is very obvious.

The above advantages are also the reasons why I support BCH.

I want to say a little more here. Such a logical and simple solution has gone through so many twists and turns before it can be realized. I think a very important part of the reason here is the fear of Bitcoin hard forks. Before BCH appeared, I was also worried that Bitcoin's hard fork would lead to community division and make Bitcoin users lose confidence. I also urged everyone to compromise and reach a consensus. Later, Bitcoin hard forked BCH to prove that my worries and those of many people were unnecessary. I reflected on this hard fork and realized that compromise will not help Bitcoin develop, but competition will! Just like the evolution of organisms, diverse genes can allow species to continue and will not be eliminated in a larger competitive environment.

Back to the original intention

My idea: Bitcoin will be popularized around the world with its efficient transfer speed and low cost. The development concept of Bitcoin Cash is most in line with my original intention, and Bitcoin Cash is what I think Bitcoin is.