I’ve been fairly clear about my support for Bitcoin Classic and, more importantly, raising the block size. My personal opinion is separate from OpenBazaar, as we’re officially neutral on the debate. We believe that we can make OpenBazaar work irrespective of the outcome of the block size debate.

That said… after reading their statements and conversations, it is my personal conclusion that the Core developers will never implement a version of Bitcoin that supports meaningful transaction capacity.

Despite any increase in the block size they may eventually authorize, even after deploying segregated witness, they are committed to creating a fee market by suppressing on-chain transaction capacity below market demand.

Based on their comments, I interpret that the reason for this approach is to preserve the financial incentives for miners after the block reward fails to subsidize the miners.

In other words, they want to create an environment where transaction fees are a sufficient subsidy for miners to keep mining and preserve the security of the network.

There are only two ways to achieve this:

Lower the supply of transactions below market demand to drive up fees Increase the supply of transactions and therefore fees, the value of which is lower than or equal to today’s fiat value

Bitcoin Core developers aren’t in favor of the second option, as the resources required to run a full node goes up by a non-trivial factor. For miners this can be factored as another cost of doing business. With some efficiency improvements to block propagation (thin blocks, IBLT etc), the impact may not be so bad.

But for full nodes relaying and validating transactions, who don’t get a subsidy, their situation is much worse. The cost of running a full node + validation goes up with zero benefit for them, diminishing the checks and balances in Bitcoin.

This brings us to the ostensible argument Core have given the community: larger blocks reduce the decentralization of the network.

Why is that important? Fewer miners and full nodes threaten to disrupt the low switching costs for censorship-resistant transactions, as well as general preservation of the consensus rules.

In fairness, my observation is that Classic supporters tend to minimize these concerns.

However, Classic supporters see a major problem with Core’s preferred approach of restricting transaction capacity to raise fees. By reducing the supply of on-chain transactions using the block size, the ever increasing demand over time will create an unpredictable environment to clear transactions from the mempool into the blockchain.

Over time, users will find their transactions in limbo. Incidentally, I think this will get worse, not better, with tools like replace-by-fee (in any incarnation, even first-seen-safe). Why? If the fee required to clear the transaction from the mempool into the blockchain exceeds the financial viability of the transaction’s purpose, then the sender will allow it to expire.

Uncertainty kills confidence. If it isn’t predictable, users will have a difficult time forecasting whether a transaction is viable or not.

Secondly, with the rise of the fee market we may also see the rise of the ‘fee trap’.

Fee trap: where Alice submits a transaction with a fee that should be sufficient to be included in a block, but a short term spike in transaction volume creates a bidding war in transaction fees that out-competes Alice’s transaction for entry into the blockchain for n blocks.

This brings us to the third and most devastating risk: ordinary users will be gradually priced-out of making on-chain transactions.

If ordinary users can’t make on-chain transactions, they have little reason to remain a stakeholder in Bitcoin. Yes institutions can use Bitcoin, and users can participate in Bitcoin via these institutions, but how is that any different to what they have now with fiat? The same centralization risks apply to both.