Bitcoin Not Making Smart Use of Its Block Space

Ruben Somsen (@SomsenRuben) went on a tweetstorm today about why Bitcoin was not using its block size as efficiently as it could. His points are well-taken and the community should be made aware that Bitcoin’s current limitations are within reach of being corrected. Much of the debate surrounding Bitcoin (BTC) seems to revolve around the scaling question and its block size. However, an equally important question is regarding whether or not Bitcoin is even using its current blocks most effectively. Arguing for a bigger block size is one thing, but its also important to make sure that the fundamentals in place now are being used to capacity.

How to Improve Block Efficiency

First off, wallets ‘need to get smarter,’ Somsen says. Fee estimates currently aim for the next block by default thus resulting in a bidding war that benefits no one. Alternatively, wallets can implement a replace-by-fee system with the help of under-bidding and automated fee bumps which results in cheaper confirmations. Secondly, sending coins between exchanges do not need to be done on-chain. Centralized services like exchanges can instead send funds through federated side-chains. Any transaction that does not require strong censorship resistance should opt for this option. Somsen makes the case that Lightning Network and Channel Factories will eventually provide a powerful means of minimizing on-chain transactions without forgoing trustlessness. He does, however, add a caveat to the off-chain solutions proposed:

8/9 One caveat: all off-chain solutions, whether it's third party services or Lightning, do NOT make you immune to on-chain fees. When there are issues, people have to go back on-chain. If you can't afford to pay the fee, you are stuck and won't be able to exit from misbehavior.

— Ruben Somsen 🚵‍♀️🚵‍♂️🚵🚳 (@SomsenRuben) April 10, 2019

Thirdly, by focusing on full blocks, Bitcoin will inevitably get more secure and 51 percent attackers will more easily be thwarted. Somsen argues that full blocks should be expected, and since it costs miners virtually nothing to add a transaction, block space is naturally given to the highest bidder. Given this system and the belief that blockchain data means something, block sizes can be expected to grow to capacity soon. What this all effectively means is Bitcoin needs to operate from the assumption that block sizes will be full instead of viewing it as potentially backing up the entire network. Operating from this standpoint, BTC must be made to operate most effectively within its current block size capacity. It is only then that the Bitcoin network can use every last bit of block size to its advantage. Do you agree with Somsen? Is Bitcoin currently using its block size most effectively? Let us know your thoughts below.