How Erlay Helps Preserve Bitcoin’s Decentralization

This opinion editorial is by Kudzai Kutukwa. He is a passionate financial inclusion advocate and was named by Fast Company as one of South Africa’s top-20 young entrepreneurs under thirty. “The problem with conventional currency is the amount of trust required to make it work. Although the central bank should be trusted not debase the currency’s value, the history of fiat currencies shows many breaches of that trust. Banks must be trusted to keep our money safe and electronically transfer it. However, they lend it out in credit bubbles with very little reserve. Trust is what drives fiat monetary to a great degree. Without it, the system would not function as it is. However, trust is being placed in untrustworthy institutions and individuals. The Bitcoin monetary system is trustless, decentralized and relies on cryptographic proof. This eliminates the need for trusted intermediaries in all financial transactions, from the central banking to individual transactions. This was a battle between those who favored the centralization of the protocol by a few developers, exchanges, and miners (akin what you have in Ethereum today), and those who favored decentralization and security over the long-term. Bitcoin was facing a hostile takeover attempt by powerful corporate entities, who wanted to control and impose their will. This was the first time that Bitcoin had ever faced. The disagreement over scaling Bitcoin and whether the block size limit should be increased or decreased became a two-year-long tug of war over Bitcoin’s very soul. There were two camps: the “big blockers”, who wanted to increase the block size because their priority was to ensure faster and more affordable transactions at the base layer, making Bitcoin a global payment system that could rival Visa (i.e. Corporate control; and the “small blocksers” who were more concerned with Bitcoin as a new form money, which must remain completely decentralized if it is to achieve the goal to separate money and state (i.e. This would mean the death of the dream of an apolitical, incorruptible, decentralized money.” This would be the end of the dream of a decentralized, apolitical, and incorruptible money. The small blockers predicted a scenario where users would find it more expensive to run full Bitcoin nodes. This would have led to greater centralization and re-creating the trusted third parties in another form, which would have been the exact middlemen Bitcoin was intended to disrupt. Satoshi created Bitcoin with the intention that it would remain a peer-to-peer (P2P), socially and technically robust network. This should not be “corrupted” by centralization. He stated that digital signatures are only part of the solution. However, double-spending can be prevented by a trusted party. Every attempt at centralization must be fiercely opposed in order to keep Bitcoin user-controlled. This is especially true given the human tendency to prefer centralized systems that have a leader. It would be similar to the Federal Reserve’s plan for the economy, which dictates interest rates and maintains “price stability” if a few developers and business entities could make such a significant change. It wasn’t about block sizes anymore, but it was an ideological clash over control. Who was in control? The miners, users or developers who would direct the protocol? The author of “The Blocksize War” accurately described this phenomenon and how it was a driving force for the big blockers. He noted that some people find the idea of a system controlled entirely by end users difficult to grasp. Instead, they search for someone or an entity that controls the system. Some people are unable to comprehend the idea of a system that has global consensus but lacks a leader… The jury is still out on whether Bitcoin is truly the leaderless system it claims to be and whether this will ever change. Despite the drama and shenanigans that have been the blocksize war, there is still hope that this claim is true. “Ultimately, it was the small blocks that won and Bitcoin remained in users’ hands. Although the victory of the small blockers in the blocksize war secured Bitcoin’s path to mass adoption, most people still don’t understand why running a node was so important. Let’s begin by explaining what a node actually is. A full node is a computer that stores and maintains the entire Bitcoin blockchain. This allows for transactions to be verified and recorded according to a common set consensus rules. These nodes act as referees for the Bitcoin network, validating and filtering out invalid transactions independently in the absence of any central party. This is how the Bitcoin network removes all trust in centralized entities and ensures that the 21 million supply limit is maintained. Although it is important to run a full node, it is still possible. A full node allows anyone to broadcast transactions (or block) on a permissive basis. The more Bitcoin is distributed, the more nodes there will be. This increases redundancy and makes Bitcoin more secure, making it harder to corrupt or censor. Each full node executes consensus rules of the network. An important element is Bitcoin’s fixed supply. Luke Dashjr (Bitcoin Core developer) summarized it perfectly: “All of Bitcoin’s advantages — including security from outright theft, and the 21 million BTC limit — stem from the assumption of the majority of the economy using their own full nodes for verifying payments to them. Centralized verification and third-party/custodial wallets are a bigger threat to Bitcoin than anything else.” Nodes are essential components of the Bitcoin network’s defense mechanism in processing transactions. They are also the last line against centralization and malicious actor. According to Dashjr’s data, the number of nodes in Bitcoin has fallen from a peak of 200,000 in 2018, to less than 45,000 as of the time of writing. It’s concerning that there is a decrease in the number of nodes on the network by 2022 compared to 2018. This is due to the fact that full nodes were one of the main factors that led to the blockize war. This could make the Bitcoin network more vulnerable to centralization and less secure. From a geographical perspective, 32.8% are located in seven countries: the United States, Germany France, Canada, Finland, Canada, Finland, and the United Kingdom. This is according to Bitnodes data. However, this is ironic because the global south, where Bitcoin is in great demand from a financial inclusion standpoint, has a shortage of Bitcoin nodes. There are many reasons why there is a decrease in Bitcoin nodes in other regions. First, there are many people who are not well-informed about the importance and benefits of running a full Bitcoin network node, especially with the current obsession with numbers. The second reason is that full Bitcoin nodes consume a lot of bandwidth, especially as the network grows, making it prohibitive to do so, especially in areas with poor internet connectivity. Erlay is here to help. Erlay, a new efficient transaction relay protocol, aims to reduce bandwidth usage to connect full Bitcoin nodes. Only announcing transactions consumes approximately 50% of the bandwidth required for a Bitcoin node to operate. A new bitcoin transaction is broadcast to all nodes on Bitcoin’s p2p network. This happens in two ways. First, a node receives a transaction and sends a transaction ID (i.e. transaction ID) to all the peers it is connected to. All these peers verify the transaction ID to make sure they haven’t received it from another peer. If they have not received the transaction ID, the entire transaction is requested from that node. This process continues indefinitely, resulting in a large number of redundant messages being sent on the Bitcoin network. This is unnecessarily consuming lots of bandwidth. These redundant messages account for 44% of the bandwidth between nodes. This approach is both high-redundancy and low bandwidth efficient. Some users find it difficult to run full nodes due to high bandwidth costs. This severely limits the decentralization potential of the network. The second issue is the decentralized nature and use of bandwidth that Bitcoin uses to maintain connectivity with other nodes. The current protocol increases bandwidth consumption with increasing number of connections between nodes. As the network grows, this also means that it costs more to run a Bitcoin full-node. This would make the network more vulnerable to centralization. The connectivity between nodes is crucial for the security of the Bitcoin network. Higher connectivity means a safer network. However, fewer connections between nodes will result in a smaller network that is less secure and borderline centralized. According to the whitepaper co-authored by Bryan Bishop, Pieter Wuille and Greg Maxwell, Alexandara Federova, Ivan Beschastnikh, Bryan Naumenko, Bryan Bishop and Pieter Wuille; Erlay will reduce bandwidth needed to maintain current levels in connectivity betweenBitcoin nodes. However, Erlay will also maintain bandwidth usage as connectivity between nodes increases. This is a significant reduction in bandwidth usage. A connection to 32 nodes currently uses 17.3GB per monthly to relay transactions. Erlay dramatically reduces this number to 0.94GB per months. The diagrams below show how Erlay dramatically improves bandwidth efficiency. As we have shown, Erlay also protects the network from attacks that attempt to discover the origin node for a transaction. Erlay increases bandwidth efficiency by reducing the bandwidth used for transaction relay and scaling the connections between peers. This makes the network more resistant against partitioning attacks and fortifies single Nodes against eclipse attacks. Although Erlay protocol support signaling was successfully merged intoBitcoin Core, it took three and a quarter years due to extensive review and testing. This is because the network is more resistant to partitioning attacks and can be scaled between peers. We, the users, must remain committed to protecting the principles on which it is based. The small blockers won the blocksize war, but not by chance. It was achieved through a relentless commitment to the goal to separate money and the state. It was all or nothing. There will be many more attempts to control Bitcoin at protocol level. However, they will fail if we don’t remain determined and unwavering in protecting the network’s core principles. Decentralization is my personal favorite. This is Erlay’s vision. It keeps the costs of running a network node as low-cost as possible so that more users can participate in validating it. It is a defense against centralization by larger players, thus preserving Bitcoin’s identity as a fully distributed, permissionless and trustless peer to peer monetary system. Kudzai Kutukwa contributed this guest post. These opinions are not necessarily those of Bitcoin Magazine or BTC Inc.


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