Messenger vs Demagogue
A demagogue is "a political leader who seeks support by appealing to popular desires and prejudices rather than by using rational argument." All the people in bitcoin who fit that description are people with names that hardly anyone would recognize. Oh wait, I forgot the politicians who talk about bitcoin. Pretty much all of them are demagogues.
I'm sorry I didn't write and send this out earlier, before some of you may have panicked.
TL;DR: If you don't care about the details, check out this article, which suggests the issue is now a non-issue. I haven't vetted the info in that article, but because the info CAN be verified, and the bitcoin community will viciously attack FUD, I believe what it says. However, there is nothing to stop another team of software engineers from offering miners another way to essentially fork our system, so the analysis below might still be useful.
On August 15th, an implementation of the Bitcoin Protocol (slightly altered) called Bitcoin XT came out. That software will allow miners to add blocks that are larger than 1MB if 75% of the last 1000 blocks indicate support. Bitcoin Core is the most prevalent implementation right now and will not allow that, so if a big block is found, there will be two blockchains, one valid according to Bitcoin Core and the other valid according to both implementations (but not long enough to be "correct" for Bitcoin XT).
If this happens, it is possible (but unlikely in my view) that diehard Bitcoin Core fans will continue mining on the chain that rejected the first big block. In the Bitcoin-XT Google group, Gavin confirmed some of my assumptions about this situation when asked by Grinio Vey:
My expectation is that miners who do not want the bigger blocks will give up within a few blocks of the first big block being solved, if Bitcoin-XT achieves the goals required to activate the change in maximum block size.
- There will still be only one network.
- At first, most transactions, since they use coins from transactions that both versions have, will be picked up by XT nodes and Core nodes, and get added to both chains.
- There are a two mechanisms that will cause a transaction to appear in only one chain. A carefully orchestrated double-spend would do it if one went to one chain and the other went to the other chain. Another mechanism is the coinbase transaction from each block after the split. Newly generated coins will be available only in the chain that includes that block.
If the 75% threshold is reached, the Bitcoin Core nodes will still operate correctly and see all transactions until some transactions appear only in the first big block. It is possible for that first big block to be orphaned, which will restore Bitcoin Core's usefulness. If miners are looking to have a bigger block, it will only be a matter of time before Bitcoin Core nodes are susceptible to accepting expenditures that were already spent (and recorded only in the big block). Recommendation: Be prepared to upgrade to Bitcoin XT if this page shows that the goal has been reached (75% of the lower-right pie chart will have to be blue).
Note that the xtnodes website may show incorrect information (hacking, errors, MITM attack, etc.), so don't have tunnel vision when making decisions.
I don't view this as "appealing to popular desires and prejudices." For me, Gavin and Mike and all those who supported XT have shown us something valuable. I appreciate the messengers and the message.
Finally, Relax! I have searched and searched for a way that this situation can hurt me or anyone else holding bitcoin and the best chances it has of doing so is this: A bitcoin holder doesn't research, reads FUD, gets scared, and sells into weakness. I actually increased the portion of my savings that I hold in bitcoin, though that was before the announcement (bummer!), but I'm sticking to that decision.