If you had told me in 2011 that by 2017 we still hadn't increased the block size, I would have said, 'That’s impossible.'
——Stephen Pair, CEO of BitPay
Bitcoin core developers turned Bitcoin into a different project through a technical parameter: 'block size limit.' The block size limit refers to the maximum block size allowed on the network. Remember, transactions are packed into blocks, so the more transactions there are, the larger the block. This effectively made the block size limit the maximum throughput limit of the Bitcoin network. The Bitcoin core team set a very small block size limit, artificially restricting the network capacity to a small fraction of its potential.
The block size limit should not have been an important parameter, nor should this limit have been touched. Its design intention was to always be above the average block size. Unless in extreme cases, blocks were never designed to be filled.
The demand for additional space
When a block is filled, it means that the number of transactions being attempted exceeds the number of transactions a single block can accommodate, which immediately leads to soaring transaction fees and transaction backlogs. Currently, a BTC block can accommodate 2,000 to 3,000 transactions and generates a block every 10 minutes. If 18,000 people attempt to initiate transactions during a 10-minute period, the network needs at least 6 blocks to process those transactions. This means that if no one else uses the network during that time, it would take an hour to process all the transactions in the queue. If 150,000 people use Bitcoin simultaneously, at least 50 blocks would be needed to process all transactions, which would require over 8 hours of waiting time.
During network congestion, delayed processing is not the only issue. When blocks are filled, transaction fees begin to rise. Paying higher fees does not guarantee that your transaction will be processed quickly; it only allows your transaction to jump ahead in the queue. Since each Bitcoin block can only handle a maximum of 3,000 transactions, a transaction queue forms. Paying higher fees can increase the likelihood that miners will include your transaction in the next block, but if enough people pay more than you, your transaction will be further delayed in the queue. This can lead to exponentially rising fees and a poor user experience. Once blocks are filled, fees can quickly rise from a few cents to one dollar, then five dollars, ten dollars, twenty dollars, fifty dollars, or even more. If enough people use Bitcoin, fees will rise even further. During the fee peaks in 2017 and 2021, some complex transactions had fees exceeding $1,000, and I have personally paid such fees multiple times. Searching on the blockchain for transactions with fees between $900 and $1,100 yields nearly 35,000 results.
Bitcoin is often likened to email because it can connect people instantly over the internet. Imagine if email couldn't handle 150,000 users at the same time and took 8 hours to send and receive messages; that would undoubtedly be seen as an embarrassing design flaw. However, during peak times of network collapse, transactions can be stuck for days, and in some extreme cases, up to a week. This is precisely why the block size limit should always be kept far above transaction demand—it should be a technical limitation that does not affect system functionality. Bitcoin should have scaled with increased usage, and the block size limit should have been raised or completely removed.
If blocks were allowed to grow naturally, Bitcoin would continue to function as a digital cash system with low transaction fees and universal blockchain access. However, Bitcoin core developers want to transform Bitcoin into a settlement system for high-value transfers, which is why they refuse to raise the block size limit. The astronomical fees and unreliability of the network are solely due to blocks being too small to meet transaction demand.
Countless early developers, businesses, and Bitcoin enthusiasts understood that the block size limit needed to be raised. They knew that filling blocks would lead to a poor user experience and that as Bitcoin's popularity grew, blocks were becoming increasingly full. However, despite the endless debates and calls within the industry, Bitcoin core developers still refused to raise this limit. Since 2010, Bitcoin's maximum transaction throughput has seen almost no substantial improvement.
It is worth noting that an image on your smartphone is often larger than an entire Bitcoin block, and sometimes much larger, depending on the quality of the image. This ultimately led to the split in the cryptocurrency industry and prompted the birth of Bitcoin Cash.
The reasons for the block size limit
When Satoshi left the Bitcoin project, there were already many passionate and talented developers involved, but two were particularly outstanding: Gavin Andresen and Mike Hearn. Satoshi chose Gavin as his successor and made him the project's lead developer. Naturally, he is a supporter of "large blocks." Over the years, he has written many influential articles on his blog discussing Bitcoin's scalability, developer culture, economics, and other related topics. He has a mild temperament, perhaps overly cautious.
In contrast, Hearn was a more outspoken developer who often criticized those he believed were harming the project with small block support. His work experience is particularly relevant. Before joining the Bitcoin project, Hearn worked at Google as a capacity planner for Google Maps for three years, and Google Maps is one of the most popular websites in the world. Therefore, he was very familiar with network capacity issues. Like Satoshi and Andresen, Hearn is also a supporter of "large blocks" and believes that there are no inherent scalability issues with Bitcoin. Through their blog posts, emails, forum dialogues, and public interviews, Andresen and Hearn have articulated Bitcoin's original vision better than anyone else. Their comments are key to understanding Bitcoin, and this book references their viewpoints multiple times.
The original intention behind block size limits
In Bitcoin's original code, there was no explicit limit on the size of blocks that could be generated. However, this changed in 2010. At that time, Satoshi added the block size limit to prevent potential denial-of-service (DoS) attacks while Bitcoin was still in its early stages. Gavin Andresen explained the reasons for setting this initial limit on his blog:
…[The limit] is to prevent denial-of-service attacks through "toxic blocks." If the cost of an attack is very low for the attacker, we must worry about denial-of-service attacks... This limit is a defense against a type of attack that would be much more expensive today...
On July 15, 2010, about 11,000 Bitcoins were traded at about 3 cents each. At that time, the block reward was 50 Bitcoins, so miners could sell a block's worth of Bitcoin for about $1.50. This roughly illustrates the cost an attacker would need to produce a "toxic block" to disrupt the network—one or two dollars. Many people would spend one or two dollars to "have fun" causing trouble; they would be willing to spend time or a small amount of money to create trouble.
The original block size limit was set at 1MB, theoretically allowing the Bitcoin network to process 7 transactions per second. In reality, its true processing capacity is about 3 to 4 transactions per second, corresponding to 2,000 to 3,000 on-chain transactions per block—far above the actual usage of the network at the time. The original plan was to gradually raise the limit as demand increased or completely remove it. Andresen mentioned in the forums:
The plan from the beginning was to support large blocks. The 1MB hard limit has always been a temporary denial-of-service defense measure.
Another early Bitcoin pioneer **Ray Dillinger** also expressed the same view:
I was the one who reviewed the blockchain section of Satoshi Nakamoto's first version of the Bitcoin code. The original code did not have a 1MB limit. This limit was originally Hal Finney's idea. Both Satoshi and I opposed this limit, believing that 1MB was not scalable. But Hal was concerned about potential DoS attacks, and after discussion, Satoshi agreed... but the three of us unanimously believed that 1MB must be temporary because it would never scale.
The consensus among Satoshi Nakamoto, Hal Finney, and Wei Dai is particularly noteworthy, as Hal Finney is often considered a proponent of small blocks. But even he agreed that the 1MB limit must be temporary. However, to this day, Bitcoin core developers still refuse to make any substantial increase to the block size limit set at its initial level in 2010, despite significant advancements in software, hardware, and network technology.
In fact, almost all of the largest companies in the industry have attempted multiple times to raise the block size limit, but core developers have rejected these requests, and even after publicly agreeing to raise it, they did not actually implement it. Instead, they changed the metric "block size" to "block weight," claiming the new limit is 4MB, but this is mostly an accounting trick that does not mean a fourfold increase in throughput capacity.
Disruptive design
The simple reason Bitcoin core developers refuse to raise the block size limit is that they want to change the design of Bitcoin. The earlier blocks are filled, the sooner transaction fees will rise, and they believe this is the ideal outcome. Core developer Jorge Timón stated, "I agree that reaching the limit is not a bad thing; in fact, it's good for a young and immature market like Bitcoin." Greg Maxwell bluntly stated, "There is no problem with blocks being filled... full blocks are the natural state of the system."
To understand how radical these views are, just compare them with the early ideals of Bitcoin. Back then, the Visa network was often used as a comparison to Bitcoin's transaction throughput. As early as 2009, Satoshi was asked about Bitcoin's scalability.
Currently, the Visa credit card network processes about 15 million internet transactions globally each day. Bitcoin can already scale to levels far beyond this with existing hardware and at a lower cost. It will never actually hit a scaling limit.
This understanding has been taken for granted for many years. While we may now call it "Satoshi's vision," almost everyone thought this way at the time. For example, if you studied Bitcoin in 2013, you might have seen its wiki page. In the "scalability" section, it was described as follows:
The core Bitcoin network could scale to higher transaction rates than it currently has, as long as nodes in the network primarily run on high-end servers rather than desktop computers. Bitcoin is designed to support lightweight clients that only process a small portion of the blockchain...
A configuration in which most users synchronize lightweight clients to more powerful backbone nodes, capable of scaling to millions of users and tens of thousands of transactions per second...
Currently, the Bitcoin network is artificially limited to a sustained rate of 7 transactions per second. These limits are meant to prevent the blockchain's size from ballooning while the network and community are not ready. Once these limits are lifted, the maximum transaction rate will significantly increase... At very high transaction rates, each block could exceed 500MB.
This was common knowledge at the time. Everyone knew that the design of the Bitcoin system was to scale through larger blocks, which did not even raise controversy at the time. Andresen also stated that Bitcoin's scalability was one of the reasons that attracted him to the project:
When I first heard about Bitcoin, it was still small, and I could read everything; I really did, including all the posts on mailing lists. The promise of a system that could scale to compete with Visa was one of the visions that attracted me to Bitcoin.
In 2013, Visa's average processing capacity was about 2,000 transactions per second. To achieve 2,000 transactions per second on Bitcoin, the block size would need to be about 500MB, which is entirely manageable. Today's smartphones can easily record and upload HD videos of several GB in size, far exceeding the size of a Bitcoin block containing millions of transactions. Achieving this scale requires not only increasing the maximum block size, but there is no fundamental reason to suggest that this cannot be achieved. In fact, Bitcoin Cash has successfully handled multiple 32MB blocks, and a branch of Bitcoin Cash—Bitcoin SV—even mined a 2GB block. These networks did not collapse.
Satoshi had a simple final answer to the block size issue:
We should keep the [blockchain] file as small as possible. The ultimate solution is not to care about how big it is.
High fees and slow transactions
Why would Bitcoin core developers want high transaction fees? For early Bitcoin enthusiasts, and even for regular people, this sounds obviously like a bad idea. However, high fees are actually an inevitable result of the "small block" idea. To understand why, we need to analyze the system more deeply. As explained in Chapter 2, miners are rewarded in two ways: transaction fees and block rewards. Since block rewards will gradually decrease over time, the only source of income will ultimately be transaction fees. And because Bitcoin core developers want blocks to remain small, the only way for miners to earn money in their system is to rely on extremely high transaction fees.
Bitcoin cannot operate without rewards for miners. If miners can only process 3,000 transactions per block, then the fee for each transaction must reach hundreds or even thousands of dollars to maintain the network's security. Core developer Jorge Timón candidly discussed this issue:
In the long run, to sustain [proof of work] after [block rewards] subsidies disappear, Bitcoin needs a competitive fee market. I am glad we now have such a market...
Another core developer, Pieter Wuille, also stated:
My personal opinion is that we—as a community—should indeed let a fee market develop, and the sooner the better.
They euphemistically refer to the backlog of high-fee transactions as a "fee market," where users bid against each other for limited block space. This strange and unnecessary security model is precisely why core developers celebrate and encourage high fees and transaction backlogs. Greg Maxwell claims:
Fee pressure is an intentional part of system design, and according to current understanding, it is a necessary condition for the long-term survival of the system. So yes, this is fine.
When transaction fees soared to $25 in December 2017, Maxwell even shockingly responded:
To be honest, I’ve already opened champagne to celebrate, as [market behavior] is indeed generating an activity level that pays for security without inflation, while also creating a backlog of transactions that require fees to stabilize the consensus process as subsidies decrease.
However, Satoshi Nakamoto did not design Bitcoin this way. He anticipated that miners would recoup costs by processing large blocks of many low-fee transactions. In the forums, when asked about the long-term revenue model for miners, Satoshi explained that:
Decades from now, when the rewards become too small, transaction fees will become the primary reward for [miners]. I am certain that in 20 years, there will either be very high transaction volume or no transaction volume at all.
Note that he did not say, "In 20 years, there will either be a lot of transactions or a small number of transactions with extremely high fees." This statement would seem ridiculous to anyone with common sense. His prediction was that there would either be high transaction volume or no transaction volume at all.
New Bitcoin
By artificially limiting the block size, Bitcoin core developers successfully changed the dynamics of how the system operates. Not only did the user experience shift from "almost instant and free transactions" to "expensive and unreliable transactions," but the underlying economic model also fundamentally changed. Bitcoin (BTC) is betting on an assumption: future users will be willing to pay hundreds or even thousands of dollars for each on-chain transaction, even with superior alternatives available. Otherwise, miners will have to shut down most of their equipment because they cannot remain profitable.
Based on this, saying that BTC was "hijacked" and replaced by a new, speculative design is not an exaggeration. Therefore, Ethereum co-founder Vitalik Buterin publicly stated:
I believe BCH is a legitimate competitor for the name Bitcoin. I think Bitcoin's failure to maintain reasonable fees by increasing the block size is a significant (non-consensus) change to the "original plan," which is morally equivalent to a hard fork.
The failure of Bitcoin core developers to increase the block size limit is not just a theoretical issue; it has real impacts on businesses that build on Bitcoin or accept Bitcoin payments. After the fee spike in 2017, the Bitcoin industry experienced "anti-adoption" for the first time.
When the popular gaming platform Steam announced that it would no longer accept Bitcoin, they publicly shared the reason:
Starting today, Steam will no longer support Bitcoin as a payment method on our platform, due to high fees and the volatility of Bitcoin's value... [The transaction fees charged to customers by the Bitcoin network] surged this year, reaching nearly $20 per transaction last week (in contrast, when we first enabled Bitcoin, each transaction was about $0.20)...
When checking out on Steam, customers need to transfer x amount of Bitcoin for the game fee and y amount of Bitcoin for transaction fees charged by the Bitcoin network. The value of Bitcoin is only guaranteed for a certain period, so if a transaction does not complete within that time window, the amount of Bitcoin required may change. Recently, the magnitude of this change has been getting larger, to the point where there can be significant differences.
The usual solution is to refund the original payment to the user or to ask the user to transfer additional funds to cover the remaining balance. In both cases, the user needs to pay the Bitcoin network's transaction fee again. This year, we have seen more and more customers fall into such situations. And the currently high transaction fees have made it impractical to refund or ask customers to transfer to cover the balance (and this itself carries the risk of unpaid balances, depending on how Bitcoin's value changes as the network processes additional transfers).
Under these circumstances, continuing to support Bitcoin as a payment option is unsustainable. We may reassess whether Bitcoin makes sense for us and the Steam community later...
--Steam team
One cannot blame Steam's decision. Trying to use Bitcoin when blocks are full would be a terrible experience. Customers wanting refunds are almost certain to incur losses. If they want to refund a $30 game, and the transaction fees are as high as $10 each, the user could lose $20 and end up with nothing. In my view, if you want to cause Bitcoin to collapse, allowing the blocks to fill would be the most effective way. If high fees and transaction delays are caused by technical failures, it could actually be more beneficial for Bitcoin because it is a new technology, and such problems can be seen as incidental. But the opposite is true; the public is told that high fees are perfectly acceptable and that Bitcoin should not be used for everyday spending, while also being told that the blockchain itself cannot scale.
Bitcoin supporters usually have some standard responses to these criticisms. If they are not aware that high fees are an intentional part of Bitcoin's design, they often say, "Fees are not a problem at all. Look, fees are very low now!" But this is an untenable argument. At any given moment, Bitcoin fees may be low, but that's only because network traffic is low. If more people use it, congestion will rapidly increase, and fees will soar again. It's like car traffic. Just because the roads are clear at 3 AM doesn't mean Los Angeles has solved its traffic problem. If Bitcoin blocks are not full, fees will be lower; but once blocks are full and activity increases, fees will inevitably reach very high levels.
What about second-layer solutions?
Another way to try to save the "small block" idea is to appeal to second-layer networks. After all, if most transactions happen off-chain, perhaps the fees can remain low on these second-layer networks. While building a multi-layer architecture in Bitcoin makes sense, for it to function correctly, the base layer must have scalability. If the base layer can only process seven transactions per second, that is far from sufficient to provide a solid foundation for building upper layers. Second-layer networks still need to interact with the base layer, so high fees remain a fundamental issue. For example, the Lightning Network still requires occasional on-chain transactions, and those fees must be borne by someone. Currently, many mainstream wallets are subsidizing these fees for users, but if fees above $50 become the norm, this model is clearly unsustainable.
Elon Musk is one of the few who seem to understand the value of scaling the base layer of cryptocurrency. In a Twitter discussion about network design, he shared his views from an engineering perspective:
Bitcoin and Ethereum are pursuing multi-layer transaction systems, but the transaction speed at the base layer is very slow and the costs are high... It makes sense to increase the transaction speed at the base layer and reduce transaction costs... Block size and frequency should increase steadily with the general improvement in bandwidth.
If Musk had gotten involved back then, he would likely have stood in the same line as Satoshi Nakamoto, Andresen, Hearn, and most early Bitcoin entrepreneurs including myself. Low-cost on-chain transactions are irreplaceable.
The technical parameter that ultimately led to the split of Bitcoin is the block size limit. Before the blocks were full, Bitcoin held about 95% of the market share in the cryptocurrency industry. Once blocks started filling up, its market share rapidly declined. In January 2018, during the network peak, its market share fell to as low as 32%, with many users, businesses, and developers completely leaving Bitcoin. As of March 2023, Bitcoin's market share is about 40%, and it may decline again as more network issues arise. If Bitcoin core developers had only raised the block size limit to a reasonable level back then, I believe many competing cryptocurrency projects would not even exist, and the industry could have remained unified around one currency, with Bitcoin continuing as the preferred digital cash system for the internet. However, Bitcoin core developers turned to a high-fee, unreliable transaction settlement system, leaving a gap in the digital cash space that has yet to be filled.
Excerpt from <Hijacking Bitcoin>
Original author Roger Ver
