Right now, there's a civil war going on in Bitcoin, that could shake the very foundations of the project.
I call it a "caveman war" because, in my humble opinion, it's a conflict over essentially some of the dumbest reasons you could imagine. But still, it's relevant to Bitcoin, and therefore to crypto, so I might as well break it down for everyone.
I could rot your brains for hours on this, so in the interest of actually being useful, I'll keep everything brief.
Wait, there's a war?!
Yes. A group of purists, rallying around a cat-eating developer's Knots implementation of the Bitcoin protocol, is in revolt against Bitcoin Core, the main implementation, because of proposed code changes.
They're seeking to up-end some deeply rooted financial interests and cause the incumbent dev team to either bank down or be supplanted. This could boil over into 2017-era block size war scale of problems.
What are they fighting about?
Core lets you put a certain size of data into Bitcoin transactions, and they want to expand this to make it easier. Knots doesn't want non-financial transactions on Bitcoin, so they want to stop this.
What started the war?
Two things. First, a series of projects including Ordinals, BRC-20, Stamps, etc. made NFTs, tokens, and more on the Bitcoin blockchain. These caused major congestion and fee spikes on the chain when active, and are seen by the Knots camp as "spamming the network."
And second, Core introduced a change that would lessen limitations on the amount of data that could be included in a single Bitcoin transaction. Knots sees this as enabling more and worse spam.
What's Core's main argument?
"The actual builders and users of the Bitcoin network want it to be easier for them to do the stuff they want to do. Without builders and users, there isn't enough activity to sustain the network and keep it secure from implosion."
What's Knots' main argument?
"Bitcoin is a monetary network, and using it for data harms this use case. It makes it harder to run a node through data bloat, and opens up potential legal and ethical issues by making users store potentially problematic data."
How is Knots trying to fight?
Users are running Knots in their Bitcoin nodes, and on the Ocean Pool mining pool, which have different transaction rules and don't see, store, or relay larger data transactions. Core nodes will still broadcast and store these transactions, and mining pools will still pick them up.
Does this even do anything?
Technologically, no, not really. People running Knots won't see or broadcast these data transactions, but it only really becomes annoying if valuable actors like major mining pools, wallet infra, etc. start refusing these transactions. Or, if so many nodes run Knots that most of the nodes refuse to relay these data transactions, causing headaches.
Already, some Core nodes Are already rejecting connections to Knots nodes, so they aren't really affected at all. In theory, if everyone just ignored Knots, they would disappear entirely from relevance on the Bitcoin network.
On the other hand, socially, this is a much bigger problem. If a majority of nodes are Knots, then it looks really bad that Core isn't listening to their concerns. Economically significant entities such as exchanges, wallets, mining pools, etc. may get spooked and be pressured into also filtering transactions. That's the real value of resistance like this: social and economic signalling.
So yes, it's one big technological virtue signal, but virtue signals can sometimes make a big difference.
Root Causes: Sins of the Past
While this is a relatively new situation, it's at its root a continuation of the block size wars from almost a decade ago. When the Bitcoin Core team and their supporters prevented a block size increase and implemented Segwit, the conditions for the next conflict were laid out.
The block size limit created the technical problem
When Bitcoin's block size became limited, the problem stage was set for today's conflict.
By limiting the transaction throughput, Bitcoin could no longer survive as a purely monetary network. Because the number of fee-paying transactions was hard capped, the only way to make up necessary fee revenue would be to increase the per-transaction fee. And the market demonstrated that it just wouldn't pay more than a certain amount for a Bitcoin transaction under most circumstances.
The only way to get people to pay was to increase the scope of what they would be paying for: data storage and operations. Under the limited circumstances, this is the only real way to keep the network from going broke. But, it angered many users, so that's why we're here now.
The block size war revealed the real problem: governance
Bitcoin's real problem was in place long before even the block size wars: governance.
There's no clear, built-in way to decide who actually controls the Bitcoin network. "Users own it" is the talking point, but how do you measure users? We thought it was mining hashrate, but miners showed to be passive. Is it nodes? No, those could be spoofed in a sybil attack.
The real answer was: those who controlled the keys to the Bitcoin Core Github repository had dictatorial power over what made it into the code, and the hurdle to clear to switch to a different implementation proved too high.
But the real rulers of Bitcoin were the censors and astroturfers: who could control and censor the big discussion forums, and who could manufacture a campaign to make it look like the majority of users agreed with them? As it turns out, all these aligned under Core, so even though their block size restrictive position was the minority, they won.
Now the same thing is playing out again, only much of the astroturf part of the last war turned on Core and is on the Knots side. But we're seeing the same censorship of discussion and unilateral decision-making from Core that they did many years ago.
How Does This Resolve?
There's really only three ways this can turn out.
Scenario 1: Core wins
If Core manages to outlast Knots and essentially ignore them successfully, then things keep going as normal. Knots adherents either give up or leave the ecosystem, maybe going to another coin like Monero.
Bitcoin continues, business as usual, except we may see more companies building on it and more transaction fee revenue.
Scenario 2: Knots wins
If Knots either becomes the dominant Bitcoin implementation, or forces Core to back off on its changes, we're back to largely where we are now, only with shattered faith in the Core team to steward the project. Now, Knots developers either work themselves into the Core organization and now have influence, or Knots is just the new king of the Bitcoin castle.
Either faith in Bitcoin crashes with its dominant maintainers losing control, or the opposite: faith in the decentralization of the protocol skyrockets.
Scenario 3: Fork
If neither side relents, then eventually we're facing a fork, much like the other Bitcoin offshoots of the past decade. As always, the fork with the most economically significant actors on it wins out.
If this happens, the Knots fork will almost certainly, and overwhelmingly, lose out.
Either way, Knots loses
The sad part for the filteroooors is that, no matter the outcome, they're facing a dead end.
In reality, small blocker-ism was deliberately fomented because it was a useful tool for corporate interests in Bitcoin (and Ethereum) to hamstring the network so that they could profit off of layer-two solutions. The Knots crew are useful idiots, and are no longer useful to their handlers.
Everything about Bitcoin's design necessitates fee-paying economic activity. Everything collapses if this doesn't happen. A Knots victory means a slow death for Bitcoin. And to be fair, the 2017 Core victory also resulted in the beginnings of that, but now they're scrambling to find ways of reversing course. At least the Core plan has a shot of paying the bills.
Bitcoin will be around for a while regardless. And there's thousands of other projects doing actually cool, innovative things. I choose to pay attention to those instead. In the meantime though, enjoy the caveman wars.