California Regulation & Bitcoin Block Size

Greetings Bitwagers!

In case you missed it, we recently announced the launch of our new referral program. When you log in, we have created an easy and convenient way to invite co-workers and friends to receive part or all of their wages in Bitcoin. For every referral that signs up, both the referral and the referee will receive a free payroll after we exit Beta or 1-month free of additional exciting features coming out soon. Help your friends streamline the process of obtaining bitcoins or reduce their international payroll and payment costs!

California Regulation

Although the Department of Business Oversight might not issue regulations for now, the legisture bill we’ve been covering, AB-1326 just passed in the California Assembly and now goes to the state Senate. If you are a California resident, please contact your senator and tell them what you think the impact might be on the 40% of US Bitcoin startups that are currently located in California.

21, Inc Mining Hardware

Much more is now known about 21, Inc’s plans to make bitcoin mining as ubiquitous as consumer electronics. Mobile phones are the prime candidates to feature a bitcoin mining chip, and the vision is for the networked devices to be able to spend bitcoin to seamlessly buy whatever resources they might need to function. So a phone might pay for some premium content, and a washing machine might pay a handyman to service it. The catch is these embedded miners are not stand-alone, full-node miners which the user can point at any pool, but would rather work only as a part of 21 Inc’s own mining pool, with a whopping 75% pool fee. But hey, it’s a start.

Bitcoin Block Size

Lastly, we would like to point out a few things about the “block size” scalability debate between some of the Bitcoin core developers which has been amplified on various online forums into a full-blown controversy, with some even claiming that the soul of Bitcoin is at stake.

While we are still at least a few months before new blocks regularly hit the current 1MB limit, some core devs like Gavin Andresen think that a hard-fork solution is called for (increasing the block size to about 20MB), and want to prepare all the stakeholders (miners, payment processors, etc) for the switch well in advance.

However, unlike what many may think, this not just an “either-or” debate. There are several alternative solutions in the works for making do with the existing 1MB block size while transaction volume keeps growing. The simplest solution already practiced are off-blockchain transactions by the likes of Coinbase and Changetip, although some dislike like the centralizing effect “off-chain” companies are having on Bitcoin. An off-chain yet decentralized solution in the works is known as the Lightning Network, which relies on setting up payment channels between two or more parties that aggregate transactions through the trading of cryptographic signatures privately, while recording only the net settlement amount on the blockchain once the channel is closed. There is also the more complex but auto-adjusting dynamic block size approach already practiced by some Alt-coins. The “Big Blockist” devs like Gavin and Mike Hearn are not fixated on increasing block size as the only solution, rather, they are for “all of the above”.

Even if the block size is increased today, chances are blocks will not fill up the available space for several years. The real question is should blocks be full by default or only as an exception? Should pending transactions compete with each other to get into the next block (by outbidding each other with higher fees), or should the blockchain be able to handle every cup-of-coffee transaction in the world? Time will tell how this dynamic system will play out.

For now we know that the scalability / block size debate is an optimization problem – it’s just not clear which use cases we are optimizing for. If there will be a hard fork, however, there will be a non-negligible one-time labor cost for the miners and other big players to perform the switch, since staying on the old branch of Bitcoin will quickly become unacceptable once the majority of players are on the new branch. There have been hard forks in Bitcoin before, but as the ecosystem grows bigger, there are more stakeholders that might find a new fork controversial. For the majority of Bitcoin (wallet) users, however no action will be required, even with the hard fork.

In any case, this is not unlike the early Internet developer controversies in 1980’s and 90’s.

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Until next time, stay classy, Bitwagers.

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