Bitcoin's Great Firewall Problem - Smith + Crown
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Bitcoin’s Great Firewall Problem

China's Great Firewall presents a set of unique challenges and considerations to the current and future development of Bitcoin that cannot be ignored.

Over the better part of the last year a debate has been raging over the size of blocks in the Bitcoin network. At this stage in the conversation it’s largely agreed upon that action is necessary and the right path forward is to increase the size of blocks. Right now blocks are limitedto 1mb every 10 minutes which is equivalent to about 7 transactions a second.

However at the moment consensus seems quite far off with various core developers, mining groups and notable community members favoring a variety of approaches and proposals.  Of all the proposals currently being discussed the most talked about – BIP 100 and BIP 101 both present their own challenges.  At their simplest level BIP 101 would introduce an rapid increase to 8mb blocks and steady doubling of block size while BIP 100 introduces a system by which miners vote for block size.  There is a lot worth discussing in both proposals, but one area of particular interest is resistance of miners, particularly Chinese miners, to the BIP 101 proposal. In order for any proposal to be successful, it needs the backing of Bitcoin’s miners.  In the world of Bitcoin it’s fair to say that mining power equals voting rights, and the majority of those votes are held by a handful of mining companies, most of which are based in China.

There was a particularly interesting conversation that took place among miners last week at the Scaling Bitcoin conference in Hong Kong.  On one stage you had a group of people that easily represent a majority of the hashing power in the world. These are the people that run Bitcoin’s infrastructure, and among them the topic of China and particularly the Great Firewall came up again and again. This was driven by two factors, the consolidation of mining in China and the delays introduced by moving data though the Great Firewall.

 

Consolidation

It’s worth taking a quick look at how mining became so concentrated in China. Along with the development of ASICs came a huge consolidation of mining. Individual users, hobbyists and even those with home mining operations were largely forced out of mining as hardware manufactures created new powerful generations of ASIC chips that were difficult, if not impossible, for the average user to acquire in a useful time frame.  With the ever growing importance of chip development, manufacturing and the need for a full datacenter approach to mining China’s economic advantage grew. Access to chip designers, rapid manufacturing and facilities become a huge advantage for anyone looking to mine on the Bitcoin network. Over the last few years the “made in China” advantage has created a network where most mining happens in China, behind the Great Firewall.

 

The Big Effects of a Small Delay

While on the surface BIP 101 may seem like a simple solution the challenge comes in miner adoption.  If the blocksize increases too far, then the delays created by communication through the great firewall put miners within it at a disadvantage.  This is due to the face that if two valid blocks are found simultaneously then the block that propagates to a majority of the network first will be the one that is accepted.  If mining is your business, then even a small increase in your network propagation time can have a serious impact on mining profitability.

“At this point the complications and challenges of China’s network are the complications and challenges of Bitcoin’s network.”

Now the community is in a difficult position where the economic interests of a large group of miners who control so much of Bitcoin’s future is complicated by the fact that they exist within a controlled network.  While at first pass it may seem counter to Bitcoin’s core tenants the censorship mechanism of a government would play a role in protocol development, however the importance and contribution of Chinese users and companies to Bitcoin’s current state is quite substantial, and will likely continue (barring massive government intervention).  At this point the complications and challenges of China’s network are the complications and challenges of Bitcoin’s network.

 

Moving Forward

The questions is now: how do the core developers, miners and community members work to address the effects of the great firewall on Bitcoin’s development, both now and in the future?  With so many Chinese exchanges, users and miners we are just beginning to see the reality of how much Chinese network restrictions as well as cultural and regulatory practices will shape the development of Bitcoin.