It's Possible to Increase Bitcoin's Block Size Without a Hard Fork: Blockstream Co-Founder

Mark Friedenbach, a bitcoin developer and co-founder of the popular Blockstream company, has recently revealed a scaling approach he called “forward blocks,” which could essentially help increase BTC’s block size without a hard fork.

Currently, bitcoin can accommodate a small number of transactions per second, and is unable to compete with traditional payment networks such as that of Visa. While some believe the cryptocurrency should scale through a block size increase – which would require a hard fork - others argue this approach will lead to centralization, and prefer other solutions.

A hard fork is essentially a change to the network that isn’t backwards-compatible, meaning all of the cryptocurrency’s users need to upgrade to keep up with the change. A soft fork, on the other hand, can be backwards-compatible.

Friedenbach’s approach, according to a transcript of his presentation at the Scaling Bitcoin workshop, would be able to boost the flagship cryptocurrency’s on-chain transaction capacity through a Proof-of-Work (PoW) alternation achieved through soft forks and “privacy-enhancing alternative ledgers (side chains).”

According to Friedenbach, a former space apps developer at NASA, the forward blocks approach could ultimately help increase the cryptocurrency’s “settlement transactions volume to 3584x current levels,” while improving censorship resistance via sharding.

Here, the developer refers to sharding as a change to the PoW system and a series of developments that would see bitcoin’s blockchain scale. Most cryptocurrency users refer to sharding when mentioning Ethereum’s scaling solution, which would see multiple network computers divide transaction workload between them to scale the blockchain. These two, per Friedenbach, are “largely not” the same.

Speaking to CoinDesk, the former NASA employee noted his approach could help with the scaling debate, as the community often opposes hard forks because of how hard it can be to do them safely. He was quoted as saying:

Forward blocks makes that whole argument pointless. We don't need a hard-fork to scale bitcoin, if and when we decide to do so. It can be accomplished as a soft fork, like SegWit was.

SegWit, as CryptoGlobe covered, was launched one year ago and recently saw its usage go over 50%. During his presentation, he further suggested it could be good to replace bitcoin’s current halving mechanism, which halves block rewards every four years. To him, a more linear approach could be more beneficial to the cryptocurrency, as it wouldn’t suddenly affect the ecosystem.

Notably, Friedenbach reportedly got to his forward blocks approach by starting out thinking about a “development of a dual PoW change where you introduce a new PoW with a soft fork.” While he noted this wasn’t a proposal, it’s a “good place” to start thinking about the solution.

 

A Controversial Solution

While some could look at the former NASA contractor’s approach as revolutionary, CoinDesk reports not everyone is excited about it. Pseudonymous bitcoin developer “Shinobimonkey” was quoted as saying it was a “network attack being called an upgrade.”

Blockstream’s CEO Adam Back noted that “it’s OK,” as discovering mechanisms “can be useful and separate from whether it would be practical technically and in terms of user consensus.” To him, it’s so far just another tool.

Per the news outlet, Friedenbach isn’t advocating to use forward blocks on bitcoin either, but is merely trying to put the option out there. He’s reportedly set to test it on “Freicoin,” an altcoin he created.

Bitcoin (BTC) Has Effectively Served as A Hedge Against Macroeconomic Shocks: Grayscale

The management at Grayscale Investments, a New York-based financial services firm focused on providing asset management solutions for cryptocurrencies, has published a report which shows that bitcoin (BTC) could potentially be used as a hedge against global liquidity crises.

Grayscale’s report notes that bitcoin, the world’s most dominant cryptocurrency, may be used to enter a strategic position - as part of a long-term investment portfolio. This, as bitcoin has key characteristics which would allow it to effectively serve as a hedge against global economic uncertainty. These unique characteristics include transparency and the immutable nature of the decentralized Bitcoin ledger, Grayscale’s report mentions.

Bitcoin As A Hedge Against Underperforming Traditional Investments

As detailed by Grayscale’s researchers, bitcoin may act as a hedge against underperforming traditional investments and a certain (percentage) allocation of the pseudonymous cryptocurrency in a portfolio could also potentially increase the overall return on investment (ROI).

Grayscale’s report further mentions that changes in global monetary, trade, and fiscal policies has made it quite challenging for government officials to manage their economies. Due to these issues, individual investors must take greater control of their investments and assume responsibility for ensuring their financial wellbeing.

Cryptoassets Outperform Traditional Financial Assets After Macroeconomic Shocks

Five different macroeconomic shocks were examined carefully in Grayscale’s report, in order to analyze how cryptoassets were able to outperform traditional investments during periods of political and economic uncertainty. Notably, the report’s authors studied the long-term effects of several global events including Brexit, Grexit, structural devaluation of the Chinese yuan (CNY), and two of the most impactful economic shocks - which have been attributed to actions taken by the Trump administration.

As confirmed in Grayscale’s report, a certain allocation of bitcoin in an investment portfolio could serve as a hedge from the potential devaluation of traditional financial assets - due to various macroeconomic shocks (including those listed above).

Grayscale’s study also found that bitcoin’s price increased significantly while world governments attempted to address problems related to Grexit (an abbreviation for "Greek exit" that is commonly used to refer to Greece's potential withdrawal from the eurozone).

Bitcoin Price Surges During "Liquidity Freeze" Due to Grexit-related Events

As noted in Grayscale’s report, “during the liquidity freeze [due to tensions and various events in Greece], bitcoin emerged as one of the only means by which to transfer value in or out of Greece, reinforcing this new asset’s ability to return the power of control to the individual who holds it.”

After the resolution of the Grexit crisis in July 2015, Bitcoin’s value appreciated by 28% against an average of around -1.7% for 20 other traditional financial markets and major fiat currencies.

Moreover, Bitcoin performed quite well following the structural devaluation of the Renminbi due to policy changes introduced by the Chinese government between August 2015 and December 2016. As mentioned in Grayscale’s report:

Between the day of the announcement and the trough of the drawdown, Bitcoin largely outperformed the following major markets and currencies, producing a cumulative return of 53.6 percent versus an average return of -10.1 percent.