Bitcoin’s Next Civil War

By Pantera1 | The Future of Finance | 5 Dec 2023


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We can observe a growing discontent between various factions in the Bitcoin community lately.

Core/Blockstream was the side that won the blocksize debate (2015) by pushing sidechains like LN and Liquid as a solution to scalability while sustaining a low blocksize limit, that (as expected) reversed adoption as a method of payment and initiated a new narrative of “digital gold”.

In 2017, Bitcoin split with Bitcoin Cash increasing the blocksize via a hard fork (upgrade) to ensure scalability and follow the target of mass adoption as P2P Electronic Cash.

Years later, more camps in the Bitcoin community are raising concerns about the approach Bitcoin is taking and the monopolization of developments by Core, with most of them having already publicly recognized their mistake of not supporting the side of the big blockers in 2015.

As the Lightning Network failed massively, voices against Core/Blockstream are increasing.

Bitcoin is again a subject of internal conflict, and a new community split is highly likely.

We examine these three factions and the new candidates that will most likely be forced to proceed on separate paths (blockchains) from Bitcoin (BTC), but first, we take a dive into Bitcoin’s history and examine the camps and the effect of the first civil war.

The First Bitcoin Civil War (2015–2017)

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To know where we’re going, we must know where we are coming from.

A hard fork is an upgrade (not backward-compatible) that requires the broad support of the community.

Blockstream is the leading Bitcoin development company created by Adam Back and the devs of the Core implementation, while it was also funded by financial institutions that Bitcoin was actually created to compete with, such as Mastercard and AXA.

The first civil war in 2017 was fought between Blockstream (small blockers, Segwit, LN) and Bitcoin Cash (big blockers, 8MB blocks, on-chain scalability).

The 2015 blocksize debate and the takeover of developments by Blockstream (which revoked the commit access of Gavin Andresen and forced other devs like Mike Hearn to quit) led to the 2017 schism.

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When consensus is not achieved, but the upgrade still proceeds, the allocation of the hash rate ultimately decides which side of the fork gets to be Bitcoin. The miners are the decisive factor, although their power is not absolute either.

The consensus mechanism plays a crucial role in deciding which side gets to keep the original Bitcoin (brand) in case of a split and involves several strong players such as miners, exchanges, developers, top businesses, and wallets. The miners alone will be the final sign that makes mathematical sense and provides definite proof with their allocation of hash rate to support one of the two sides of the fork.

It is also worth noting that users and small stakeholders do not have a say in this matter.

Despite claims by BTC maximalists, non-mining full nodes had zero participation during the 2017 split or the 2015 blocksize debate. Non-mining full nodes are necessary for businesses and exchanges to validate transactions faster and independently, but they do not get to vote on upcoming changes.

The hash rate is always the decisive factor.

In August 2017, Bitcoin Cash proceeded with the planned blocksize upgrade, and the chain split into Bitcoin (BTC) and Bitcoin Cash (BCH).

Bitcoin Cash upgraded the blocksize limit to 8MB (now 32MB) following directions by Satoshi Nakamoto and the intentions of the whitepaper and the early community.

Hashpower ultimately decided which side got to be Bitcoin (it was the side of Core/Blockstream) although previous commitments and meetings between top Bitcoin companies, miners, exchanges, and Blockstream executives (Adam Back and Samson Mow) had already determined the outcome.

Bitcoin (BTC) proceeded with SegWit, a controversial upgrade advertised as a solution to scaling that solved a bug in the software called transaction malleability, necessary for the Lightning Network.

However, Lightning requires additional conditions to function properly.

Surprisingly, the Lightning Network whitepaper underlines the demands for 133MB block size for the sidechain to be operable.

Bitcoin’s blocksize did not increase (in the BTC version), although Segwit also contained a trick that virtually expanded blocks up to 4MB (still not even close to LN demands).

It is also interesting to note that even though Lightning required much larger blocks, the group that advocated for Lightning’s adoption was the same group that vehemently opposed increasing the block size.

The current centralized version of Lightning Network (with custodial wallets and various security issues) is a complete disaster, a failure that the Bitcoin Cash side had accurately predicted as early as 2016.

Here’s a video explanation of the 2017 Bitcoin civil war and community split:

The Three Camps Of The Next Bitcoin Civil War

One side will be Core/Blockstream again.

This time, two different camps emerge that directly contest Blockstream’s rule of Bitcoin developments.

These are Ordinals and Drivechain.

Ordinals

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Inscriptions/Ordinals were made possible with the upgrade that Bitcoin Core (and Blockstream) pushed, yet it also created an unforeseen situation for Core developers.

In 2010, Satoshi installed the 1MB block limit to avoid the potential of spamming the network with images and other non-financial data. (Satoshi also left instructions on how to increase the limit to ensure scalability, something that Core/Blockstream fiercely opposes).

Yet, Taproot (which was developed by Core) enabled exactly this (spam of the network with non-financial transactions) as Ordinals allowed the creation and transfer of NFTs on the Bitcoin blockchain.

The irony in this case reaches surreal levels, and one may also start questioning the abilities of the developers who have been leading the Bitcoin project since 2015.

And this was the second time Core made a spectacular blunder, with the previous one being an inflation bug they unknowingly approved without consistent and professional research.

The catastrophic inflation bug was discovered by a Bitcoin Cash developer (!) who immediately informed Core about it, and a fix was released. Top Core developers created and approved this bug without properly auditing and testing the code, and the same developers produced Taproot, which led to another fine mess!

I feel necessary to state my personal opinion on the matter:

I’m interested in knowing the thoughts of the major Bitcoin stakeholders about these two astonishing blunders Bitcoin Core made.

If I were one of them, I wouldn’t feel that confident about the project for this and several more reasons, but let’s only consider this one: The foresight and ability of Core to handle developments appropriately.

Furthermore, I don’t expect Bitcoin Cash developers would ever back me with this statement as this is not the thoughts of a programmer but an administrative and investing opinion.

The biggest danger to Bitcoin may lie within its own ecosystem due to the low capabilities of the current team in control of Bitcoin’s developments.

Apparently, Core, Blockstream, and the laser-eyed part of the BTC maximalists did not anticipate such a twist with Ordinals with what they thought was a harmless soft fork that wouldn’t change anything.

Now, hard-core maximalists demand censorship of Ordinals and proceed with the announcement of a mining pool that will filter out any transactions that utilize the blockchain in such an approach.

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Jack Dorsey and Core developer Luke-Jr announced the creation of a new mining pool called Ocean Mining, with Dorsey funding this new project with $6.2 million!

The pool was advertised as being decentralized, but it has become evident that this is not the case. Apparently, this pool will be censoring Ordinals, which is exactly what Adam Back suggested one year ago.

Ocean Mining is not a new development either! Luke Dashjr will just revive an old pool he had launched years ago (with little success).

A war against Ordinals was declared.

Although indications of a potential split because of Originals are valid, even more factors contribute to the latest tension within the Bitcoin community.

Drivechain

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Drivechain, an upgrade proposal by Paul Sztorc’s team, is the second front against Core/Blockstream.

Sztorc was under the impression that Blockstream’s leaders (Adam Back and Core devs) would not block BIP300+301, an upgrade that could enable vast functionality on top of the Bitcoin blockchain.

However, despite the initial support Blockstream exhibited, it appears there was no actual intention to proceed with this upgrade.

Once again, we find Luke Dashjr involved, who was paid to work on Drivechain, yet he doesn’t seem to endorse this Bitcoin upgrade despite his work and revenue from it.

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Perhaps Paul Sztorc was thinking this way he could influence Blockstream into accepting his proposal by hiring Adam Back’s right hand.

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Apparently, this public debate does not go as planned, and Drivechain is far from achieving consensus (meaning Blockstream will never approve it).

Perhaps the only viable approach for all this development and work into Drivechain is a hard fork that will lead to a chain split, with Paul’s side adopting the upgrade and building everything from the bottom up (including security).

The incentives may be much better in this sense, although the security model would require centralization to be sustainable. Nonetheless, Drivechain was creating miner-federated sidechains to BTC, so decentralization was not available anyway.

Furthermore, Blockstream’s own federated sidechain, Liquid, would find a new competitor, so apparently the company will never accept this proposal.

Based on the available information, it seems reasonable to suggest that a fork and a split from the BTC chain may be the most viable option for Drivechain.

Discontent Keeps Growing

Meanwhile, Theymos continues his reign of terror (censorship) on Bitcointalk by blocking content related to privacy-enhancing tools (mixers).

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Eventually, privacy-oriented developers will have no choice but to quit BTC and apply their products on other blockchains.

The signs are there since we have witnessed several Bitocin-privacy teams lambasting Core/Blockstream decisions for several months.

Conclusion

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A network that remains undeveloped, stagnated, and unable to accommodate mass adoption certainly has serious design flaws and development issues.

Developers (probably intentionally) weakened the potential of Bitcoin and proceeded with several obscure developments as solutions to a problem they created.

While for Core devs and Blockstream, the elimination of scalability was profitable, for the potential of Bitcoin as a global P2P Cash network, it was catastrophic.

The incentives to fork, together with the opportunity cost of not forking are enough for both these two camps to begin a new civil war any time soon.

 

 

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Cover (background) on Pixabay, additional avatar on Pixabay

My LinkTree@panterabch

Subscribe to my YouTube Channel: @panteraCrypto

Originally Published at: Medium

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