It looks like Chinese Bitcoin miners are eyeing a huge profit in bigger-block blockchain.
It was not entirely an idle joke when one speaker at China’s first miner conference quipped that if the audience decided to launch a 51% attack against the bitcoin network, they would probably be able to pull it off.
Over a foggy weekend, around 250 people (the majority being miners gathered in Chengdu) filled a rather spacious conference hall to its capacity for an event called China’s Miners’ Conference, a mostly promotional event organized by major miner Bitmain. But, they came for more than the province’s famous spicy food.
As of late, Sichuan has acquired the reputation of being the center of bitcoin mining. Its hydroelectric power (which faces a serious oversupply issue) has attracted hordes of miners, there to set up data center-sized mining farms.
But miners are not the only people you were likely to meet at the event. Some were there to pass business cards and tell you that they have access to cheap power or can help you build large mining farms in more cost-efficient ways, eager to profit from the miners.
Others didn’t have products to sell. Rather, Huang Shiliang, the popular bitcoin writer, was here with an idea that holds the same promise, supposedly, to help miners increase their margins.
Onstage, Huang is an orator with a penchant to making extraordinary claims, and his comments on scaling the bitcoin blockchain would likely strike foreign listeners as unusual given the perception in the West that new technical solutions have quelled the debate.
In his talk, Huang spoke at length about how he first became interested in bitcoin. But, he returned to a common theme – profit.
“In 2014, I bought a lot of bitcoins – back then, those old hands told me that in 10 years, one bitcoin will be worth $10,000. I figured that if that is true, I would be rich by then,” he said.
He also proved himself adept at sirring up the crowd.
“Today, I came with a question. How long do you want to mine?” Huang said.
From the audience shouts ring out: ‘Forever!’ ‘For life!’.
“My answer is 8 years,” he said, pausing to let the suspense sink in.
When addressing an audience of miners, it seems, there is no better way to open than asking how long they intend to be in the business.
Huang’s most notable comments addressed the issue of scaling, or how the bitcoin blockchain might be upgraded for more transactions.
Rather than focus on incremental solutions (like Segregated Witness, introduced in the latest bitcoin software update), he took an opposite approach. His talk saw him arguing for the aggressive on-chain scaling tactics that have earned a notable minority of enthusiasts.
When Huang took up the subject, he suggested miners “pretty much determine” how the bitcoin network will scale. He then turned to the projector screen where charts pulled from bitcoin data service Blockchain.info were on display.
“This chart shows the recent two years transaction volume – it had been on a upward trend until hitting a hard limit and since then it hasn’t show growth for half year. Why no growth? Because blocks are full. Look at this chart, it shows that blocks are all full in the past 90 days,” he said.
Huang positioned this technical limitation as one that should be considered from an economic perspective. Limited space, he said, would lead to higher fees, turning away potential bitcoin users.
“Many people are advocating this. Let’s raise the fee and price out those who refuse to pay higher fee. Can this be done? Very hard. The higher the fee, the less users, the smaller the amount of transactions, the total amount of fees will decrease – and there is no reason that people have to use bitcoin,” he said.
Huang said other alternative cryptocurrencies, like litecoin or ethereum, could maybe gain traction in this environment.
In the face of this, Huang discussed how the current 1MB limit on transactions per block would be raised to 2MB, 8MB or “removed completely”.
He argued that bigger blocks would be better for miners, and more lucrative.
“Here is the reasoning – if block size grows larger, how will miners be affected? Eight years from now, suppose the block size is eight gigabits – bear in mind this is purely hypothetical, then the daily transaction fee will be 1,000 times of today’s 59 BTC, which is 59,000 BTC. If you still own 1/100 of the total hashrate, you will have 500 BTC, that will be a huge amount – this is the mathematical proof that large blocks will earn you more transaction fees,” he said.
Huang continued this thinking, arguing that larger blocks would give mining hardware more longevity. Certainly, it’s an issue close to the wallets of many miners.
“If we pass a law limiting that the entire world can only process three tons of steel, obviously the most advanced equipment will eliminate the old one,” Huang said.
He later called on attendees to envision an Internet that was limited in how it could provide data confirmation.
After some even more elaboration, he revealed his solution – bigger blocks.
“This is controversial and I may be a bit extreme but I will say it anyway, that is switching your hashrate to those pools supportive of scaling.”
Of note, is that his remarks, while illustrative of conversation in China, have since been criticized by bitcoin developers.
Following the talk, they cited research that suggests comments made by Huang are misguided due to how the value of bitcoins are determined through a broad consensus of participants.
Bitcoin Core developers cited the work of Princeton researchers that found bitcoin to be unstable without a valuable block subsidy, a finding that would seem to contradict that a fee market could power bitcoin alone.
Further, developers assert that miners would not able to unilaterally switch to a new blockchain through a hard fork, as they would need the consent of full nodes and consumers, who would need to want to use the blockchain for commerce.
This would then carry the risk that two chains emerge, substantially devaluing the currency.
But, it remains to be seen whether technical arguments will be able to sway miners to back a more incremental alternative that would scale the protocol by way of a soft fork.
Miners are now able to flag support for SegWit, but the technical upgrade requires that 95% of miners show support for the change for two weeks before it can be activated.
Images via Eric Mu for CoinDesk