Scaling Bitcoin: Reflections from the DCG Portfolio

Compiled by Meltem Demirors — Director of Development at DCG. Note that edits were made on Sun, Feb. 12 following feedback, and adding quotes to highlight that these were individual comments and quotes aggregated as a whole. A part 2 is coming — thanks to everyone for their feedback.

Over the last few weeks, I’ve been speaking to executives from our DCG portfolio about their feelings on SegWit. After speaking to many of the executives who are building their companies and products on top of the open, public bitcoin blockchain, it felt like many were frustrated by the lack of progress in implementing solutions to help resolve scaling challenges, and wanted to share their sentiments about why SegWit was important to them and their business.

I put together an initial draft, and it was followed by an intense and illuminating discussion on our internal DCG Slack community, where the bitcoin and blockchain companies that are part of the DCG family communicate and collaborate. The overwhelming response?

It’s difficult to know what to support and how to contribute to Bitcoin scaling. We want to break out of this current template.

Following a few days of chatter, we all agreed it would be beneficial to take these discussions, piece them into a more structured narrative, and share with the broader community in the hopes of fostering a more open, pragmatic dialogue about how to break out of this current pattern of stalemate, which seems to be affecting everyone in different, but overall negative, ways.

Note: the below comments use the collective “we” to reflect the diverse set of opinions that may or not be shared by all participants in the discussion.

Frustration with Network Congestion

  • “We (as most if not all of you) are affected by network congestion and it’s difficult to know how to push bitcoin forward from a scaling perspective.”
  • One company notes, “Last year we got on the Bitcoin Classic bandwagon out of desperation. Our stance was: Segwit sounds complex and Classic seems easy and buys us time. Today, a year after, it’s difficult to know what to support and how to contribute to Bitcoin scaling.”
  • Another company said “We took risks and built _on bitcoin_ with our current project — not generic “blockchain” but real public-blockchain BTC… simply demoing to prospective customers has been an exercise in frustration due to simple user experience issues with the network confirming transactions. e.g. we pay an above-average fee and sometimes still takes multiple blocks to confirm.”
  • “Its been particularly bad last few days, some users sending to [our exchange] were sending over 100 satoshis/byte and still waiting for over 12 hours for a confirm.”
  • “It’s really bad right now. Bitcoin is starting to make SWIFT look attractive. If this isn’t fixed, I expect we’ll see the non-speculative use cases migrate to other chains.”
  • One company noted that “the capacity increases with SegWit along with deployment of Lightning could help address these issues.” This will be covered in more detail in Part 2 of this post.

Can’t we just Ask Miners to Activate?

  • “The current situation is that a Bitcoin node code revision has been put forward (by Core), and it has not secured sufficient ‘votes’ from miners to be ‘adopted’ by the network. Why is this?”
  • “We might conclude that miners do not feel that this revision is in their best interest (i.e. it is considered too risky, or not risky enough / doesn’t solve pressing issues).”
  • “Here we should underline the distinction between miners and mining pools. It should be the case that mining pools are incentivized to offer a choice of node options to miners (otherwise miners may switch pool to get what they want). Mining pool operators should not be, and indeed should not be motivated to be, making decisions about mining node selection.”
  • “So how do we cross this impasse before it’s too late? There have been quite a number of attempts to secure agreement on the best path, and yet here we are, no further forward. Why is this?”
  • “It’s because the people who really count when it comes to change (the miners, not mining pool operators) remain unconvinced. On the other hand, they too must be beginning to think that their massive investments in equipment may never be recouped. They must be seeking a solution.”
  • One of the companies noted it was “important for the developers and businesses to reach out to miners,” and several have invested significant time and resources to do so.

This led to a broader discussion which highlighted the complexities of governance and consensus in a system as complex as bitcoin.

Why SegWit is a Challenging Network Upgrade

  • “SegWit, is at its core, a technical issue. For entrepreneurs who are busy running their company and trying to keep their products and platforms running for the paying customers, it can be challenging to also try to focus on making serious changes to the core bitcoin protocol.”
  • “Our summary of SegWit is not “bad” but “complex” — in all senses of the word. SegWit is a good “lego block” foundation advancing the ecosystem. It is also very complex, technically, governance-wise, from a technical readiness standpoint, and more. This is why we’re working on a “SegWit for CTOs” style document.”
  • Multiple companies noted that “SegWit provides a much-needed malleability fix that enables more advanced functionality and their companies are dependent on it.”
  • “We’ve been asked by a number of people now to endorse it (whatever that means), and while we like it conceptually, I don’t think it would be responsible to endorse it unless we’ve performed rigorous analysis and testing ourselves.” Note this was said by one company, and that many of our companies have in fact tested SegWit and this will be featured in our second post on the topic.
  • “Testnet has been SegWit-active for a while now, but little testing has been done by major bitcoin network players. Several larger players are waiting for lib updates to go to production before beginning their own testing.”
  • “Our understanding is its only been tested by core devs on testnet… the main worry would be that this testing may not match what enterprises actually need on a production level”

And Perhaps There are Other Ways We Could Review Readiness

  • Some of us feel that SegWit and Lightning are both in the “exciting, but still in the lab” category — and that nuance is often lost in the SegWit / Lightning excitement.
  • Other companies noted they have been testing SegWit for nearly a year. There are many companies in the industry who have already tested it as well, which can be found here.
  • We don’t want to be anti-SegWit or pro-SegWit, just pro-pragmatism. One company noted “There seems to be a disconnect between what the devs are developing, and what business actually need and want, which is a bigger problem about how resources are directed.”
  • Other companies in our portfolio are building technologies and products that are dependent upon SegWit — again, Part 2 of this post will highlight such examples
  • “In general, the bigger problem is the pursuit of niche projects over business & user needs that could actually change the the user experience in much needed ways.”

Note: this is where funding development becomes critical to developing a “roadmap” of sorts that would also contribute to the needs of businesses

  • “It would be helpful to have a constructive dialogue with realistic views on technology timelines vs. user experience benefits delivered by technology to prioritize how and when upgrades are deployed to benefit the greatest number of stakeholders.”
  • “Overall, there are better ways we could deal with new technology as a community. For example, NASA deals with new-new technology all the time, and came up with a ladder to assess how close to production a technology is, called a Technology Readiness Level
  • Note that there is a SegWit readiness list of companies which have tested and prepared for the upgrade, which can be found here.

Are we Locked in a False Dichotomy?

The conversation then led to a dialogue about whether or not we’re limiting bitcoin development to a false dichotomy — SegWit or No, while ignoring some of the other technical options that may help resolve the frustration with network capacity and scalability of the bitcoin network.

  • “We’ve never understood why it has to be one or the other — why can’t there be both? Why can’t we introduce 2nd layer technologies (as they are ready) AND have a block size increase as well?”
  • “If you remove all the us vs them rhetoric being thrown around — we could gain benefits from both approaches (block size increase and SegWit)”
  • Another company noted that “SegWit provides a capacity increase of 2–4x, and if combined into a hard fork, would delay development at least a year or more in their estimate.”

We Don’t want to “Choose Sides”

  • “As we’ve outlined, the idea of pursuing a hard fork and activating Segwit is a relatively nuanced issue and its mostly just reduced to having to choose a “side” in public — too often it’s boiled down to segwit-lover or segwit-hater, which is not very professional or scientific”
  • “It’s difficult to identify how we move the discussion forward productively — anyone who takes any sort of position in public, even one of compromise, is instantly labeled to be a seg-wit supporter or a seg-wit blocker and the discussion just ends/degrades into name calling”
  • “As a community, we should avoid all-positive documents on SegWit (prudent to include some cautions), just as we should avoid all-negative SegWit commentary. This is a hugely complex upgrade, as the devs themselves have noted many times.”
  • Another company said “we consider the upgrade less complex, and the optional nature of SegWit integration can give companies more time to prepare.”
  • “What we’ve observed is that communication has done downhill — people are calling one another liars, claiming the “other side” is destroying bitcoin, calling anything that doesn’t match their proposal a “coup,” and it’s incredibly unprofessional. It makes everyone in bitcoin look bad. We want to see communication return to a professional, scientific level.”

But It’s Clear the Current Approach Isn’t Working

  • “We’ve thought long and hard about this — if anything, what we would really like to see is compromise (e.g. both sides working together on a solution that works for as many as possible) — but its like trying to get someone from the extreme political right and left to agree on something they fundamentally disagree on — any push towards compromise/confronting the issue seems to just entrench the two sides that much further.”
  • Companies that are building on and testing SegWit signaled their willingness to meet with “to meet with other members of the community to discuss their perspectives.”
  • One company note “It seems that so far, the approach of “get [devs] to all sit down and figure out how to work together” is a lost cause and that trying to push it has done more harm than good. Events like the Hong Kong Meeting, the various Roundtables, have all isolated rather than included opinion.”
  • “Private, closed-door meetings do little to address the main issues found in support tickets that we’re seeing every day. We need to talk about alternatives and options to get these issues addressed.”
  • “It seems like a better use of energy to identify a new mechanism that gets devs, business operators, and miners together — not in secret, invite-only roundtables.”
  • “We are fairly split in opinion on the value of roundtables and private events, but for those who do not attend roundtables, from the results they don’t seem to work for something like this. We need other methods.”

So What’s the Alternative?

All of the comments above led to an interesting observation that some of the anguish and frustration we see in the bitcoin ecosystem today is due to a lack of a clear understanding of what is and is not negotiable. Zooko Wilcox laid out his view on the lack of willingness to compromise in bitcoin:

  • “Perhaps some of today’s frustration is caused by the fact that people don’t know what their Best Alternative To a Negotiated Agreement (BATNA) is. When you don’t know your BATNA, then you tend to panic if you think you aren’t going to get your Negotiated Agreement (NA), and then you try to force the other side to agree to your NA.
  • Some people apparently think that if they don’t get their way then Bitcoin is over, and it’s the end of the world, and they might as well go find a different industry or meaning in life or whatever. That feeling probably makes negotiated compromise impossible.
  • Perhaps the path forward is to start accepting the inevitability of death and taxes, the futility of life, and the fact that Bitcoin is doomed, and then from that starting point of having let go of your attachment, start thinking about what your options are.”

Zooko noted, your options could include:

  • “A minority fork
  • An alt-coin
  • Accepting your opponents’ position for now and biding your time
  • Going and working for a fintech “blockchain” startup
  • Taking a vow of silence and becoming a monk”

(We noted that other might say no changes are necessary)

He closed with, “With this logic, this probably initially sounds like “giving up” on your desired outcome. But to the contrary, we would probably get more if we assumed all paths will eventually lead to a compromise, or a BATNA, rather than our initial NA.”

While becoming a monk sounds appealing, we all agreed that one of the main reasons the debate over what’s next for bitcoin has become so emotional is because there is a lot at stake.

So what’s next?

It’s up to us as a community to come together to engage in constructive, respectful dialogue so we can keep building this incredible technology we all believe will change the world.

In Part 2 of this post (coming), we will highlight stories from companies who have tested and integrated SegWit as to why they’ve pursued this path.

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We build and support bitcoin and blockchain companies by leveraging our insights, network, and access to capital

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