Chapter 16 of the book The Blocksize War is published below. The full book is available on Amazon. As a reminder, 50% of any profits from physical book sales will be donated to Médecins Sans Frontières, a charity that provides medical assistance to people affected by conflict, epidemics, disasters, or exclusion from healthcare.*
* Note: Applies to sales up until the earlier of i. the death of the author and ii. January 2031
The Blocksize War – Chapter 16 – Litecoin
One strategy discussed in the Dragons’ Den in this period was the activation of SegWit on Litecoin, an alternative coin, often considered as a close relative to Bitcoin. This would show the miners that SegWit works and demonstrate that many of the shortcomings in SegWit proselytized by the large blockers, such as security weaknesses, were in fact nonsense. The SegWit softfork client was released on January 12, 2017, in Litecoin version 0.13.2.1. Unlike Bitcoin, which had a 95 percent activation threshold, Litecoin had a 75 percent miner activation threshold. Litecoin had the same two-week rolling activation windows, followed by a two-week grace period. Most of the release notes for this client were written by a pseudonymous Bitcoin developer called “Shaolinfry”, and much of the code for SegWit was produced by the Bitcoin developers. Shaolinfry was likely to be a member of the Dragons’ Den; however, even inside the Den, the true identity of this person was not known for certain. Charlie Lee had founded Litecoin and he seemed to identify as a small blocker. At the same time, the Litecoin community appeared to enthusiastically support the activation of SegWit, since this was an opportunity for them to implement new technology before Bitcoin, which was seen as very positive.
Support for SegWit among the Litecoin miners was gradually increasing, however it was still low and it was uncertain if activation would occur. Around April 9, 2017, there was a campaign for a user-activated softfork (UASF) on Litecoin, to force the activation of SegWit. The driving force of the campaign was users’ frustration with the lack of progress from the miners. The idea here was that, rather than have a miner activation threshold, users could run a client that would just activate the new rules at a certain point in the future, regardless of the state of miner flagging. At this point, the campaign primarily involved users adding a flag “UASF-Segwit-BIP148” to the user agent of their Litecoin client, such that this message was visible in the network. It did not activate anything at all, but just stated the intention of the users.
Bitcoin had used this activation methodology in the past, during Satoshi’s era, however Bitcoin switched to miner flagging in order to reduce the chances of any chain-splits or issues on activation. It appeared to me that, while using such an activation methodology in Bitcoin might be risky, especially for a controversial upgrade like SegWit, in Litecoin this could be fairly easy. Support for SegWit among users was near universal, and Litecoin even had a founder who was active in the space and supported the upgrade. The UASF appeared to be working; miners had gotten the message and the flagging for SegWit on Litecoin started to increase. Activation now looked imminent.
However, on around April 17, 2017, the Litecoin hashrate spiked. This new hashrate was not flagging for SegWit and appeared to be blocking the activation. This very much looked like a deliberate strategy from the miners. The hashrate came from the LTC1BTC and LTC.TOP pools, controlled by Jiang Zhuoer, who was widely regarded to be a proxy for Jihan Wu. On April 19, 2017, Jiang Zhuoer put out a blogpost explaining his position:
Although I have my reservations about Segwit (I am a Litecoin HODLER), if it is the most widely accepted path forward then I am not opposed to it. But I am firmly opposed to the tactics being used by Segwit supporters, namely UASF (DASF) and proof-of-DDoS, to push for its activation. If the supporters of these tactics are validated by seeing them succeed on Litecoin, then both Bitcoin and Litecoin become vulnerable systems prone to criminal manipulation.
Because of this, I am adding sufficient hashrate to my pool to ensure the following:
Guaranteeing that Segwit does not activate by proof-of-DDoS.
That the Litecoin community will wait until Charlie Lee’s visit to China to make this decision together.
It now appeared as if the Bitcoin scaling wars had migrated over to Litecoin, with almost a carbon copy of the arguments. During this period, I spoke directly with Jiang Zhuoer. He explained to me that he didn’t want SegWit in Litecoin, without Litecoin also having a hardfork blocksize increase. However, this didn’t seem logical because, unlike Bitcoin, Litecoin did not have full blocks at all. Jiang explained to me it was about the principal of the situation: the Litecoin developers needed to “make it clear they would do a hardfork when blocks became full”, otherwise this was the wrong path. He then explained to me that activating SegWit on Litecoin was a “play by Bitcoin Core”. He was concerned that, if SegWit activated on Litecoin, it may also activate on Bitcoin. He was also particularly angry about the proposed UASF, and that this could also be attempted on Bitcoin. In Jiang’s opinion, a UASF is “against the interest of miners” and “a hostile act towards miners”. It was clear from this conversation that Jiang and some of the miners were extremely concerned and almost fearful of the prospect of a UASF, which would remove the idea that miners had a degree of control over the protocol.
Of course, there was a degree of truth to what Jiang was saying. I knew from the conversations in the Den that small blockers absolutely intended to use SegWit activation on Litecoin to help it activate on Bitcoin. The large blockers had detected this and now had to switch their efforts to stopping SegWit on Litecoin. On the other hand, it was clear that the actual Litecoin community strongly supported the upgrade, so perhaps the action of the large blockers here was a little inappropriate.
On April 21, 2017, in a clear act of copying Bitcoin, a Litecoin roundtable meeting with most of the miners was held in China, and an agreement was published:
We advocate that Litecoin protocol upgrade decision should be made based on the needs of the users, through the roundtable meeting voting process, and activated by miner voting
…
We do not advocate a flag-day “UASF” that does not go though (sic) any users or community voting process. This type of forced upgrade without community consensus put Litecoin in a risk of split.
…
Through a voting process, the participating members unanimously agree to the following plan regarding to Litecoin protocol upgrade:
To implement Segregated Witness softfork on Litecoin.
When the usage of Litecoin block capacity is over 50%, we will start to prepare for a solution to increase the 1MB block size limit through a hardfork or softfork.
Finally, we want to emphasize that this roundtable meeting represents only the consensus of participating members, and cannot make decision on behalf of the Litecoin community.
The agreement committed to activating SegWit, but also agreed to start to prepare for another blocksize limit increase, once blocks became 50 percent full. This felt like a face-saving exercise for the miners; they would activate SegWit, but secure another vague promise for a potential hardfork. In reality, miners may have been forced to activate SegWit due to the threat of a UASF, which, in the case of Litecoin, was very real. The Bitcoin Hong Kong agreement was still important to Jihan, and this was a way of saying they still wanted something similar in Bitcoin, SegWit and a hardfork blocksize limit increase. Of course, in Bitcoin, blocks were already more than 50 percent full, so the hardfork was necessary now.
The agreement also contained several apparent contradictions. It started by saying protocol decisions should be made by the roundtable meeting, but the same statement later said that the meeting process cannot make decisions and the Litecoin community is in control. This seemed to indicate that not everyone at the meeting had the same view on governance, and that the conflicting sentences had been put in to appease both sides. It also gave an indication of how strongly Jihan and some of the miners felt, that it was that the miners who controlled the protocol rules. From speaking to both Jihan and Jiang in this period, it felt to me that they were gradually realising that miners did not have the power they once thought they did, this was very frustrating to them and they were desperate to cling on to this concept for as long as they could.
With a lot of fanfare, Litecoin then activated SegWit in May 2017. The price of Litecoin then sharply rallied: partly due to excitement over SegWit; partly due to a strategy from some small blockers to buy Litecoin in order to drive the price up and build a positive narrative about SegWit; but mostly due to more funds flowing into the space as the 2017 cryptocurrency bubble began. Some of the Dragons then began spreading positive narratives about SegWit: that the price of Litecoin increased and that the spurious doomsday predictions from the large blockers were baloney.
This was clearly a good start to 2017 for the small blockers. They had achieved three victories in a row: exchanges, ASICBoost and now Litecoin. By the summer of 2017, the score for the year was small blockers three, large blockers nil. This war was about momentum, and the perception of momentum; most people just wanted to follow the majority and back the winner. The cumulative impact of these victories was instrumental. The small blockers were in the ascendancy.
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