bitcoin decision point - april 2017

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www.bloq.com Bitcoin Decision Point Bitcoin Wednesday - Amsterdam April 2017

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Page 1: Bitcoin Decision Point - April 2017

www.bloq.com

Bitcoin Decision Point Bitcoin Wednesday - Amsterdam

April 2017

Page 2: Bitcoin Decision Point - April 2017

Enterprise ThinkStrategic architecting and consulting

Innovation workshops, research and education

Rapid prototype design and development

Sponsored by…

RouterDevWalletViewOra

BLOQ SUPPORTS BITCOIN

Page 3: Bitcoin Decision Point - April 2017

Approach and Point-of-View

•User centric: What do wallet users experience?

•Kepner-Tregoe method: List data points, advantages & disadvantages

POV• Field Experience - Data from actual users in the field is given more weight.

Page 4: Bitcoin Decision Point - April 2017

TECHNOLOGY EVOLUTION

PC INTERNET MOBILE SOCIAL BLOCKCHAIN

SemiconductorTechnology

SupercomputerIn Your Pocket

TCP/IP Protocol

BitcoinProtocol

Collaboration/Networks

Page 5: Bitcoin Decision Point - April 2017
Page 6: Bitcoin Decision Point - April 2017

Bitcoin: Global, Decentralized, Leader-less

Page 7: Bitcoin Decision Point - April 2017

Consensus Rules = Bitcoin’s Constitution• 21,000,000 BTC money supply limit• 10 minutes per block• Self-adjustment every 2016 blocks• Bitcoin smart contract rules• ….

Page 8: Bitcoin Decision Point - April 2017

All Bitcoin Transactions Are Filtered

Only transactions valid within Current Consensus Rules pass filter.

Miners:Decentralized Filter

Page 9: Bitcoin Decision Point - April 2017

Considering Network Upgrades (forks)

•Consensus rules: Rules everyone on network must follow.

•Process of meta-consensus

•How to change consensus rules?

•Akin to U.S Constitution

• Hard and Soft forks can both:

• Remove existing rules, that users may be following today.

• Add new rules, that users must follow into the future.

Page 10: Bitcoin Decision Point - April 2017

Soft Forks

•Miners agree to filter network in new way.

•Backwards compatible upgrade

•Changes require minimal approval

•More features, faster

•Asymmetric: Difficult to reverse

• Rule by tiny, few technocratic elite

• Repeated SF = Repeated collusion

• Increased software complexity

• Not opt-in — Entire network locked-in

• Asymmetric: Difficult to challenge

• User node security reduced

• Trust, reliance on miners increased

• Ethereum example

BENEFITS AND RISKS

Page 11: Bitcoin Decision Point - April 2017

Soft Fork: Miners Collectively Upgrade Filter

DecentralizedFilter v2.0

Key point: No user consent

Page 12: Bitcoin Decision Point - April 2017

Soft fork: Constitution Auto-Update• Soft fork = Enabling Auto-Update for

the Constitution.• No user consent• User transactions subject to new

consensus rules (=new filter)• Users may be kicked off network• Examples: BIP66, OP_CAT)

• Full node security down-graded

Vitalik Buterin:Soft forks are coercive, anti-market…http://bit.ly/2nXlT4B

Page 13: Bitcoin Decision Point - April 2017

Soft Forks - tl;dr

Backwards compatibility vs. Governance

Power imbalance: Tiny group of miners or devs set economic policy for all

Page 14: Bitcoin Decision Point - April 2017

Hard Forks

•High user consent

•Clear upgrade path, rules.

•Reduced software complexity

• Fewer software changes req’d;Fewer potential bugs.

•Clear user choice + market path.

• Requires long lead time (est. 3-6mo)

• Disruptive: Not backward compatible;upgrade [probably] required.

• On-going network partition

• Users confused

• Ethereum/ETC example - rushed fork

BENEFITS AND RISKS

Page 15: Bitcoin Decision Point - April 2017

Segregated Witness

•Messaging: “A capacity increase”

•Major

• In general: Foundational

•Solves transaction malleability

•Addresses UTXO cost

•Powerful upgradeable script vector

• Lightning enabler

• First economic soft fork; New precedents

• Voluntary upgrade — Long transition

• Capacity unlikely before January 2017

• Little user-visible benefit vs. complexity

• Transitional complexity: Wallet/exchange/up-layer software must know two txid’s, two addressing paths, and more.

• Economic complexity: “Two buckets”, new pricing, new fee bidding.

BENEFITS AND RISKS

Page 16: Bitcoin Decision Point - April 2017

Segregated Witness: economic changes

•Base block space size augmented by

• Extended block space size

•UTXO discount (75%)

•Analogy: Two buckets of different size, each filled with water at different rates, prices.

Page 17: Bitcoin Decision Point - April 2017

Segregated Witness vs. Predictability

Attribute Predictable?

Block period Yes

Block reward, BTC Yes

Block space (1M) Yes

BIP109 Block space Yes

SegWit capacity, bytes No

SegWit capacity, calendar date No

Page 18: Bitcoin Decision Point - April 2017

Technology Readiness - Is it out of the lab?• TRL: Technology Readiness Level metric • NASA normally works with unproven tech • System to evaluate tech maturity • Time required to climb each level • Where is SegWit on this chart? • Lightning? • Bitcoin Unlimited?

Page 19: Bitcoin Decision Point - April 2017

Time Marches Forward - Mind The Gap• Be pragmatic and realistic about technology readiness• Base Block Size hard fork: Months, at most.• SegWit: Many-year effort.• Lightning: Many-year effort, on top of many-year effort.• The gap: Users left with poor UX, no payment options, high fees until hoped-for

future finally arrives.

Page 20: Bitcoin Decision Point - April 2017

Conclusions•Be pragmatic. Mind The Gap.

•A tiny few graybeards choosing bitcoin economics is anti bitcoin’s ethos.

•Soft forks are neither opt-in nor risk-free.

•Soft forks introduce layers of long term complexity, as multiple systems (old & new) must co-exist in router (bitcoind) and upper layer (wallet/exchange/db) for years.

• Time has real costs: Consider the impact of failing to increase capacity on existing users, businesses.

Page 21: Bitcoin Decision Point - April 2017

Thank You!

Jeff Garzik Co-Founder | [email protected]/WeChat: @JGarzik

Matthew Roszak Co-Founder | [email protected]

Twitter/WeChat: @MatthewRoszak

Blockchain Solutions for Enterprise