Bitcoin May Have Just Solved Its Scaling Problem

Bitcoin may have just pulled itself back from a dangerous ledge Thursday night after users overwhelmingly voted in favor of implementing a code improvement.

Bitcoiners hope that the vote will prevent the cryptocurrency from splitting in two on August 1 while also allowing bitcoin to scale up to worldwide adoption. The changes were largely technical and fraught with in-fighting, so strap in for some blockchain politics and light cryptomath.

Thursday's milestone was a response to what may be bitcoin's biggest problem: it's slow as hell. The bitcoin network simply wasn't designed to be able to handle the kind of volume it is experiencing as more people are beginning to use the currency, and the 1 megabyte "blocks" of transaction data that get uploaded to the blockchain are full.

This has created a massive backlog of unconfirmed bitcoin transactions that might take hours or even days before they're confirmed on the blockchain (this normally takes 10 minutes), unless a user wants to pay a higher fee to push their transaction through faster.

Bitcoin developers have been aware of this problem for years. But implementing a solution has been an acrimonious debate that some describe as a "civil war" among bitcoin developers and users. This war may finally have come to an end Thursday night, however, with the adoption of a solution to bitcoin's scaling woes known as "Bitcoin Improvement Plan 91," or BIP 91.

For BIPs to be adopted, enough miners—the people who process blocks of bitcoin transaction data—have to "signal" their intent to go along with the plan by adding special signal data to mined blocks. On Thursday night, over 90 percent of the network's hash power had signalled in favour of the proposal.

BIP 91 is a way to encourage the activation of a code change called Segregated Witness, or segwit, which promises to speed up the bitcoin network. In addition to implementing segwit, BIP 91 also incorporates a doubling of the block size from one to two megabytes, known as "segwit2x." However, the main goal of BIP 91 was to sidestep the very real threat of splitting the currency into two versions come August 1.

A chain split would occur on this date if another leading proposal called BIP 148, which would forcibly implement segwit whether or not everybody has agreed on it, were adopted without BIP 91. Bitcoiners who advocate for BIP148 have taken to calling August 1 their "independence day."

BIP 148 presents the risk of forking the bitcoin blockchain into two versions (segwit adopters on one, and holdouts on the other.) BIP 91 is a mechanism to force segwit adoption before that date so that BIP 148 passes with no effect.

Here's how it works: Once BIP 91 is locked-in, the blocks of miners who fail to signal support for segwit will be abandoned by the network. Thus, BIP 91 creates a strong incentive for miners to signal support for segwit. The proposal is timed so that this will all take place before August 1, so that the entire network should be in total consensus before BIP 148 kicks off and splits the blockchain.

Implementing segwit would increase size of blocks of bitcoin data by changing the way cryptographic signatures are recorded in the block. Right now, when you want to send somebody some bitcoin, you "sign" the transaction with the private key associated with your wallet address, as well as the public key of the recipient. These signatures account for the bulk of data (about 60 percent) in a given block on the bitcoin blockchain, which currently have a maximum amount of space of 1 megabyte per block.

Over the past few months, segwit has been slowly adopted by bitcoin miners through BIP 141, the original proposal for segwit. However, no more than 40 percent of the miners on the bitcoin network ever signaled support for the proposal. In other words, segwit implementation had stalled out.

This left many bitcoin users frustrated, and their response was BIP 148, which was essentially a threat to miners: get in line, or get off the network. However, this approach raised the specter of a chain split. When bitcoin's popular cousin ethereum forked last year, it created an alternate currency now called ethereum classic. In this scenario, bitcoin might have its own version of bitcoin classic.

BIP 91, now that it's reached the consensus threshold, promises to avoid this. Some bitcoiners are not sold on the idea that BIP 91 will ensure miners will adopt segwit, however. Bitcoin developer Peter Todd pointed out on Reddit that very few users are running nodes that actually enforce the BIP 91 rules. Miners could still renege on their intent to implement segwit despite signalling for BIP 91, and so some bitcoiners are holding fast to the threat of a fork in BIP 148 as a form of insurance.

Still, the mood on bitcoin forums and Twitter was understandably jubilant as the BIP 91 was locked-in Thursday night. The possibility of a bitcoin split had many crypto investors wringing their hands at what a coin split could do to the network and price of the currency.

Whether the upgrade to the bitcoin network will ever allow you to use the cryptocurrency to buy a cup of coffee, however, remains to be seen.

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