In the ongoing debate regarding Bitcoin's block size limit, Bitcoin Core developer Pieter “sipa” Wuille has published a Bitcoin Improvement Proposal (BIP) to increase the maximum block size by 17.7% per year, starting in January 2017. However, like previous proposals, it seems unlikely Wuille's BIP 103 will reach a consensus within Bitcoin's development community.

In a proposal dubbed “Block size following technological growth,” Wuille argues that his suggested maximum block size limit growth is tailored to stay in check with hardware and other technological improvements. This is needed, the Core developer and Blockstream co-founder argues, because the Bitcoin ecosystem faces risks of centralization if technology cannot keep up with protocol requirements.

If blocks on Bitcoin's blockchain are too big to handle for many of its users, it could drastically decrease the number of full nodes on the network in general, and further centralize Bitcoin mining specifically, Wuille fears.

He argues:

“Bitcoin's advantage over other systems does not lie in scalability. Well-designed centralized systems can trivially compete with Bitcoin's on-chain transactions in terms of cost, speed, reliability, convenience, and scale. Its power lies in transparency, lack of need for trust in network peers, miners, and those who influence or control the system. Wanting to increase the scale of the system is in conflict with all of those.”

Bandwidth

Most importantly, the Core developer and Blockstream co-founder explains that he has taken the projected increase of bandwidth over the next decades into account. He believes this is probably the biggest bottleneck Bitcoin faces in order to scale while remaining decentralized.

Wuille proposes to increase the block size limit with 4.4% by January 2017 and automatically repeat this process every 97 days, more or less. This allows for a yearly block size growth rate of 17.7%. According to Wuille, this is consistent with the average growth rate of bandwidth over the past years. The increases of the block size limit will then continue up until July 2063. At that rate, the maximum block size will reach 2MB by 2021, 8 MB by 2030, and eventually end up at slightly less than 2GB in 2063.

Explaining his rationale, Wuille wrote:

“Waiting 1.5 years before the hard fork takes place should provide ample time to minimize the risk of a hard fork, if found uncontroversial. Because every increase (including the first) is only 4.4%, risk from large market or technological changes is minimized. The growth rate of 17.7% growth per year is consistent with the average growth rate of bandwidth the last years, which seems to be the bottleneck. If over time, this growth factor is beyond what the actual technology offers, the intention should be to soft fork a tighter limit.”

No White Smoke

Wuille's rationale regarding the maximum block size increase is somewhat similar to that of Gavin Andresen, Bitcoin's former lead developer and main proponent of increasing the block size. A big difference between the two proposals, however, is the preferred growth rate. Wuille's proposed growth rate is far more conservative than Andresen's.

Andresen initially suggested a one-of increase of the block size limit to 20MB. This was later scaled down to an increase to 8MB, but combined with a yearly growth of 40%. The choice for 8MB was made primarily in consultation with the Chinese mining community, while Andresen said the yearly 40% increase was based on long-term growth trends for CPU power, storage, and Internet bandwidth. Perhaps unsurprisingly, therefore, Andresen indicated that he considered Wuille's growth rate too conservative. As such, the former lead developer effectively ruled out the possibility of a consensus on BIP 103 among Core developers.

Commenting on BIP 103 on the developers mailing list, Andresen wrote:

“I think that [reaching 2 MB blocks by 2021] is much too conservative, and the most likely effect of being that conservative is that the main blockchain becomes a settlement network, affordable only for large-value transactions.”

Adding:

“I don't think [the] proposal strikes the right balance between centralization of payments (a future where only people running payment hubs, big merchants, exchanges, and wallet providers settle on the blockchain) and centralization of mining.”

Previous BIPs

It is widely agreed that at some point an increase of the block size limit will be needed to allow the Bitcoin network to handle more than 7 transactions per second. The Bitcoin Core development team, however, has so far not been able to reach consensus on the correct timing and strategy to accomplish this.

Wuille's BIP 103 is the fourth BIP drafted to increase Bitcoin's block size limit. The first BIP designed to raise this maximum was Core developer Jeff Garzik's BIP 100, which would effectively hand the power to determine the block size limit over to Bitcoin miners. The second proposal was Andresen's BIP 101, which would increase the limit to 8MB in combination with a 40% automated yearly growth. Only two weeks ago, Garzik drafted the alternative BIP 102, which would bump the limit to 2MB as a temporary measure.

If no consensus will be found on the block size limit, Andresen has indicated to implement BIP 101 in Mike Hearn's alternative Bitcoin implementation Bitcoin XT. If this alternative Bitcoin implementation garners enough support among Bitcoin miners, Bitcoin XT will activate BIP 101, hence forcing a hard fork and subverting the current stalemate among the Bitcoin Core development team.