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www.bloq.com
A Bitcoin Status Report

On-Chain Scaling Conference

August 2016
© Bloq, Inc. Strictly Private and Confidential. All Rights Reserved.
Sponsored by…
• Stable, modern Bitcoin platform, with router and
associated middleware and analytics.

• Security fixes delivered rapidly and safely

• Professionally maintained and delivered

• 24/7 support with Service Level Agreement

• Key scaffolding — from protocol to application

• Enterprise grade, productized and tested

• Pricing: Monthly subscription
• Strategic architecting and advisory consulting

• Innovation workshops, research and education

• Full stack: Design to PoC to production
Enterprise
© Bloq, Inc. Strictly Private and Confidential. All Rights Reserved.
TECHNOLOGY EVOLUTION
PC Era Internet Era Mobile Era Decentralized Era
Semiconductor

Technology
TCP/IP 

Protocol
Supercomputer

In Your Pocket
Bitcoin

Protocol
© Bloq, Inc. Strictly Private and Confidential. All Rights Reserved.
9 FACTORS OF BLOCKCHAIN
Trust Shifting Decentralization Automation
Cryptography Permission-less Validity
Immutability Uniqueness Authentication
MACHINE TO MACHINE
PKI LIKE THE INTERNET CONTINUAL SYSTEM SELF
& CROSS CHECKING
NO REWRITES NO DOUBLE SPENDINGS EVERY ACTION IS 

AUTHENTICATED
Approach and Point-of-View
• User centric: What do wallet
users experience?

• Kepner-Tregoe method: List
data points, advantages &
disadvantages
POV
• Field Experience - Data from
actual users in the field is given
more weight.
Background - Block Space Economics
• Fixed supply resource

• Changing Capacity = Changing
Supply of a Resource

• Large change, when blocks full:

Supply shock.

• Has control of supply of an
economic resource ever led to
problems, in history?
• Users bid for space inside a block

• Users speculatively bid, attaching Tx
fees to Tx prior to sending.

• Fee signaling inherently complex for
miners and users; compounded by
stupid software.
Background - Economic Actor Tension
• Not centralized vs. decentralized

• Not small blocks vs. large blocks

• Hypothesis:

• Tension: Asset class vs. Payments
• Bitcoin-as-Asset-Class

• Not fee sensitive

• Bitcoins as payments

• Fee sensitive

• Current practice (0conf) vs.

Long term (Lightning)

• Emerging blockchain applications

• Fee sensitive
Recent Metrics
• Price $575 (+149%)

• Average Tx Fee: $0.14 (+206%)

• Tx/Day: 225,000 (+63%)

• Difficulty +314%
• Nodes: 4810 (-24%)

• Median block is 98% full

• Econ. transition from “usually not full”
to “usually full”

• Number of miners to achieve 95%: 8
365 DAYS
Recent Bitcoin network improvements
• Dynamic Fee Adaptation via

Memory Pool limiting

• signature validation w/ libsecp256k1

• Compact Block Relay

• Child Pays For Parent

• CLTV, CSV: Check-LockTime-Verify
Considering Network Upgrades (forks)
• Consensus rules: Rules everyone
on network must follow.

• Process of meta-consensus

• How to change consensus rules?

• Akin to U.S Constitution
• Hard and Soft forks can both:

• Remove existing rules, that users
may be following today.

• Add new rules, that users must
follow into the future.
Hard Forks
• High user consent

• Clear upgrade path, rules.

• Reduced software complexity

• Fewer software changes req’d;

Fewer potential bugs.

• Clear user choice + market path.
• Requires long lead time (est. 3-6mo)

• Disruptive: Not backward compatible;

upgrade [probably] required.

• On-going network partition

• Users confused

• Ethereum/ETC example - rushed fork
BENEFITS AND RISKS
Soft Forks
• Miners agree to filter network in
new way.

• Backwards compatible upgrade
• Changes require minimal approval

• More features, faster
• Asymmetric: Difficult to reverse
• Rule by tiny, few technocratic elite

• Repeated SF = Repeated collusion

• Increased software complexity

• Not opt-in — Entire network locked-in

• Asymmetric: Difficult to challenge

• User node security reduced

• Trust, reliance on miners increased

• Ethereum example
BENEFITS AND RISKS
Segregated Witness
• Messaging: “A capacity increase”

• Major

• In general: Foundational

• Solves transaction malleability

• Addresses UTXO cost

• Powerful upgradeable script vector

• Lightning enabler
• First economic soft fork; New precedents 

• Voluntary upgrade — Long transition

• Capacity unlikely before January 2017

• Little user-visible benefit vs. complexity

• Transitional complexity: Wallet/exchange/
up-layer software must know two txid’s,
two addressing paths, and more.

• Economic complexity: “Two buckets”,
new pricing, new fee bidding.
BENEFITS AND RISKS
Segregated Witness: economic changes
• Base block space size augmented by

• Extended block space size

• UTXO discount (75%)

• Analogy: Two buckets of different size, each
filled with water at different rates, prices.
Segregated Witness and predictability
Attribute Predictable?
Block period Yes
Block reward, BTC Yes
Block space (1M) Yes
BIP109 Block space Yes
SegWit capacity, bytes No
SegWit capacity,
calendar date
No
Conclusions
• Block space: Replace humans w/ algos ASAP (both BIP109 and SegWit fail, here)

• A tiny few choosing bitcoin economics is anti bitcoin’s ethos.

• Soft forks are neither opt-in nor risk-free.

• Soft forks introduce layers of long term complexity, as multiple systems (old & new)
must co-exist in router (bitcoind) and upper layer (wallet/exchange/db) for years.

• Comm.: Give both sides of an analysis to users.

• Time has real costs: Consider the impact of failing to increase capacity on existing
users, businesses.

• SegWit is a useful + complex foundational change - Should be hard fork.
Thank You!
Jeff Garzik
Co-Founder | jeff@bloq.com

Twitter/WeChat: @JGarzik
Matthew Roszak
Co-Founder | matt@bloq.com
Twitter/WeChat: @MatthewRoszak
Blockchain Solutions for Enterprise

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Bitcoin Status Report - On-Chain Scaling Aug 2016

  • 1. www.bloq.com A Bitcoin Status Report
 On-Chain Scaling Conference
 August 2016
  • 2. © Bloq, Inc. Strictly Private and Confidential. All Rights Reserved. Sponsored by… • Stable, modern Bitcoin platform, with router and associated middleware and analytics. • Security fixes delivered rapidly and safely • Professionally maintained and delivered • 24/7 support with Service Level Agreement • Key scaffolding — from protocol to application • Enterprise grade, productized and tested • Pricing: Monthly subscription • Strategic architecting and advisory consulting • Innovation workshops, research and education • Full stack: Design to PoC to production Enterprise
  • 3. © Bloq, Inc. Strictly Private and Confidential. All Rights Reserved. TECHNOLOGY EVOLUTION PC Era Internet Era Mobile Era Decentralized Era Semiconductor Technology TCP/IP 
 Protocol Supercomputer In Your Pocket Bitcoin Protocol
  • 4. © Bloq, Inc. Strictly Private and Confidential. All Rights Reserved. 9 FACTORS OF BLOCKCHAIN Trust Shifting Decentralization Automation Cryptography Permission-less Validity Immutability Uniqueness Authentication MACHINE TO MACHINE PKI LIKE THE INTERNET CONTINUAL SYSTEM SELF & CROSS CHECKING NO REWRITES NO DOUBLE SPENDINGS EVERY ACTION IS 
 AUTHENTICATED
  • 5. Approach and Point-of-View • User centric: What do wallet users experience? • Kepner-Tregoe method: List data points, advantages & disadvantages POV • Field Experience - Data from actual users in the field is given more weight.
  • 6. Background - Block Space Economics • Fixed supply resource • Changing Capacity = Changing Supply of a Resource • Large change, when blocks full:
 Supply shock. • Has control of supply of an economic resource ever led to problems, in history? • Users bid for space inside a block • Users speculatively bid, attaching Tx fees to Tx prior to sending. • Fee signaling inherently complex for miners and users; compounded by stupid software.
  • 7. Background - Economic Actor Tension • Not centralized vs. decentralized • Not small blocks vs. large blocks • Hypothesis: • Tension: Asset class vs. Payments • Bitcoin-as-Asset-Class • Not fee sensitive • Bitcoins as payments • Fee sensitive • Current practice (0conf) vs.
 Long term (Lightning) • Emerging blockchain applications • Fee sensitive
  • 8. Recent Metrics • Price $575 (+149%) • Average Tx Fee: $0.14 (+206%) • Tx/Day: 225,000 (+63%) • Difficulty +314% • Nodes: 4810 (-24%) • Median block is 98% full • Econ. transition from “usually not full” to “usually full” • Number of miners to achieve 95%: 8 365 DAYS
  • 9. Recent Bitcoin network improvements • Dynamic Fee Adaptation via
 Memory Pool limiting • signature validation w/ libsecp256k1 • Compact Block Relay • Child Pays For Parent • CLTV, CSV: Check-LockTime-Verify
  • 10. Considering Network Upgrades (forks) • Consensus rules: Rules everyone on network must follow. • Process of meta-consensus • How to change consensus rules? • Akin to U.S Constitution • Hard and Soft forks can both: • Remove existing rules, that users may be following today. • Add new rules, that users must follow into the future.
  • 11. Hard Forks • High user consent • Clear upgrade path, rules. • Reduced software complexity • Fewer software changes req’d;
 Fewer potential bugs. • Clear user choice + market path. • Requires long lead time (est. 3-6mo) • Disruptive: Not backward compatible;
 upgrade [probably] required. • On-going network partition • Users confused • Ethereum/ETC example - rushed fork BENEFITS AND RISKS
  • 12. Soft Forks • Miners agree to filter network in new way. • Backwards compatible upgrade • Changes require minimal approval • More features, faster • Asymmetric: Difficult to reverse • Rule by tiny, few technocratic elite • Repeated SF = Repeated collusion • Increased software complexity • Not opt-in — Entire network locked-in • Asymmetric: Difficult to challenge • User node security reduced • Trust, reliance on miners increased • Ethereum example BENEFITS AND RISKS
  • 13. Segregated Witness • Messaging: “A capacity increase” • Major • In general: Foundational • Solves transaction malleability • Addresses UTXO cost • Powerful upgradeable script vector • Lightning enabler • First economic soft fork; New precedents • Voluntary upgrade — Long transition • Capacity unlikely before January 2017 • Little user-visible benefit vs. complexity • Transitional complexity: Wallet/exchange/ up-layer software must know two txid’s, two addressing paths, and more. • Economic complexity: “Two buckets”, new pricing, new fee bidding. BENEFITS AND RISKS
  • 14. Segregated Witness: economic changes • Base block space size augmented by • Extended block space size • UTXO discount (75%) • Analogy: Two buckets of different size, each filled with water at different rates, prices.
  • 15. Segregated Witness and predictability Attribute Predictable? Block period Yes Block reward, BTC Yes Block space (1M) Yes BIP109 Block space Yes SegWit capacity, bytes No SegWit capacity, calendar date No
  • 16. Conclusions • Block space: Replace humans w/ algos ASAP (both BIP109 and SegWit fail, here) • A tiny few choosing bitcoin economics is anti bitcoin’s ethos. • Soft forks are neither opt-in nor risk-free. • Soft forks introduce layers of long term complexity, as multiple systems (old & new) must co-exist in router (bitcoind) and upper layer (wallet/exchange/db) for years. • Comm.: Give both sides of an analysis to users. • Time has real costs: Consider the impact of failing to increase capacity on existing users, businesses. • SegWit is a useful + complex foundational change - Should be hard fork.
  • 17. Thank You! Jeff Garzik Co-Founder | jeff@bloq.com
 Twitter/WeChat: @JGarzik Matthew Roszak Co-Founder | matt@bloq.com Twitter/WeChat: @MatthewRoszak Blockchain Solutions for Enterprise