If you started following Bitcoin in late 2017 or anytime afterward, you may be wondering why some Bitcoiners are referring to August 1, 2018 as the one-year anniversary of “Bitcoin Independence Day.” If so, this guide is for you.
The goal is a basic understanding of what happened, and why it’s important moving forward. It's for beginners; it excludes details and subplots. For a fuller account, check out Aaron van Wirdum’s "The Long Road to SegWit", published in August last year. Let's go:
Can you explain the meaning and significance of Bitcoin Independence Day in one sentence?
On August 1, 2017, Bitcoin users demonstrated their independence from miner control by successfully deploying a software upgrade via a user-activated soft fork (UASF) that circumvented uncooperative miners, and in so doing made clear that users (nodes), not miners or anyone else, control the rules of the Bitcoin network.
Why does it matter that users control Bitcoin’s rules?
A Bitcoin network where users are in control of the rules is a much different network than one run by miners. Users, who host full nodes and and validate the bitcoin blockchain (peers in bitcoin's "decentralized peer-to-peer network of fully validating nodes"), often have different incentives than miners. Without user control of bitcoin, bitcoin’s most well-known consensus “rules” or "properties" (for example, its bounded supply of 21 million bitcoin or its network decentralization), could be at risk. After Bitcoin Independence Day, that risk is lower: no one changes Bitcoin without its users’ consent.
What upgrade did users make?
Users activated a software upgrade called Segregated Witness (SegWit). SegWit allowed more transactions to fit into each block (increased “block weight”), and fixed a long-standing “malleability bug” in Bitcoin signatures to pave the way for future scaling upgrades like the Lightning Network. Users implemented the upgrade via a UASF ("Bitcoin Improvement Proposal 148," or BIP-148), because the majority of miners refused to implement it themselves.
Why were many miners refusing to implement the SegWit Upgrade?
This is a little complicated, but a basic answer covers most of it: many miners believed SegWit would reduce the profitability of mining. Thus, they were in no rush to add it. Some miners, like BITMAIN CEO Jihan Wu, said SegWit transactions were "unfairly cheap," and as a result Wu directed his mining cooperative ("mining pool") not to implement SegWit unless paired with another change to Bitcoin’s rules that would offset the loss in profitability. After the UASF was activated, Wu and a few others began promoting a Bitcoin competitor that would retain miner control.
Consider the consequences of having miners control the rules of the Bitcoin network. If miners ran the rules of the network, they could change the rules to pay themselves more. For example, the rules of the Bitcoin network currently pay miners a “block reward” of approximately 12.5 BTC/block, which decreases over time in order to ultimately supply 21 million BTC. If miners determined the rules, they could coordinate and change the rules to keep their block reward at 12.5 BTC for another four years - and increase the overall bitcoin supply! That could undermine the whole project.
If Bitcoin is a “consensus currency,” as Goldman Sachs’ Lloyd Blankfein recently put it, a key question for Bitcoin is who determines that consensus: users (via full nodes), miners, businesses, developers, The Bitcoin Whitepaper, or another party altogether? Bitcoin Independence Day settled the question: users do, using their bitcoin full nodes. That’s big. Mess with them, and they fight back.
Happy Bitcoin Independence Day.
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Misha holds a J.D. from Yale Law School, where he co-founded the Yale Law and Technology Society (TechSoc). He can be reached on Twitter @MishaGuttentag.