Bitcoin Core (BTC) has been a pioneer in the blockchain space. However, its decision to limit block sizes to 1MB has stirred numerous debates. The world needs a better option which offers unbounded scaling and incredibly low transaction fees – the BSV blockchain. The repercussions of limited block sizes in BTC are unpacked in more detail in the new eBook – The next era in miner economics: Embracing coopetition and infrastructure.
The ebook was written by Bryan Daugherty (Global Public Policy Director at BSV Association), Gregory Ward ( Chief Development Officer at SmartLedger), and Kurt Wuckert Jr. (Chief Bitcoin Historian at Coingeek).
Repercussions of limited Bitcoin block sizes
Bitcoin Core (BTC) has played a pioneering role in the blockchain arena. However, its controversial decision to restrict block sizes to 1MB has ignited intense debates. Detractors argue that this strategy has artificially constrained the supply, curbing its practicality, driving up transaction fees, and resulting in an expensive and unpredictable user experience.
Moreover, for miners, the restricted block sizes impose a ceiling on their earnings from transaction fees. With diminishing block subsidies, miners increasingly depend on these fees for profitability. Nevertheless, the constrained block sizes inherently limit the number of transactions that can be accommodated in each block, effectively capping the potential fee revenue.
This dilemma becomes especially significant as block subsidies eventually dwindle. Will the transaction fees generated by these limited blocks suffice to motivate miners to uphold the network’s security? And what consequences will this have on transaction fees for users?
BTC got it wrong
Secure, instant transactions at a consistently low cost have always been a fundamental goal of Bitcoin’s design. Right from the start, Bitcoin was conceived with scalability as a core consideration. To evolve into a system capable of handling global demand, it made some unconventional design decisions. These decisions govern how tokens are tracked on the network, how they function during transactions, and more.
Factors like the low-level scripting language, reminiscent of an early assembly-like language called Forth, non-intuitive data formats, and innovative economic assumptions have made mastering the technology a challenging and demanding task.
As a consequence, Bitcoin’s unique design choices have often been misunderstood, leading to mistaken beliefs, such as its inability to scale without additional layers or its perceived inflexibility in supporting features like smart contracts.
Safe, instant transactions at a predictably low cost
Dependably low fees are a hallmark of the BSV blockchain. It is engineered to handle at least ten times more transactions than typical demand requires, eliminating market-driven fee pressure, as seen on other blockchain networks. This enables miners to establish low, stable transaction fees for users. Bitcoin was always intended to scale limitlessly, and this scalability fosters a positive user experience and a sustainable block reward.
As the network processes increasing transaction volume, miner fee revenue grows, and competitive pressures ensure that more capable nodes offer transaction processing at the most favourable rates.
This competition guarantees that as the network accommodates more volume and fees decrease, a broader range of use cases becomes economically viable at lower fee rates. Consequently, transaction volume rises, rewarding the more capable nodes that facilitate cheaper transactions.
This synergy of supply and demand, coupled with economies of scale, means that as network throughput expands, more use cases will emerge, and society will enjoy numerous benefits from enhanced efficiency in interoperability, accountability, and value capture.