25 January 2023
Innovations are a process of adjustments and improvements, and this applies to bitcoin as a technology as well. Recently, bitcoin developers made a change called Erlay which improved the way transactions are transmitted. The result? 40 percent less data traffic, a better connected network, and increased security.
Here's why. Before the introduction of Erlay, all transactions were broadcast to all computers connected to the bitcoin network. These computers are called nodes. This method of transmitting transactions is called flooding, which refers to "flooding" the network with new information. This minimizes the chance that a new transaction will not reach everyone.
It is a safe and reliable method, but it also leads to a lot of data traffic. Data traffic increases linearly with the growth of the bitcoin network, which has already risen to several gigabytes per month per node. This can lead to high costs, which can discourage participants from running their own node.
For the decentralization of the network, it is important that as many participants as possible can set up and maintain their own node. If this is no longer the case, the power will lie with large players who can do so, and this is a danger to the security of the network.
A rule of thumb is that the more participants there are in the network, the safer it is. As described in the bitcoin whitepaper:
As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers.
In other words, a well-connected Bitcoin network is less vulnerable to attacks, such as attempts to de-anonymize users.
Decentralization is the best defense against power concentrations. But how do we prevent the costs of this from becoming too high?
Erlay has been devised as a solution to this problem. Thanks to this technical update to the network, data traffic has been reduced by 40 percent. In addition, the growth of data traffic has been decoupled from the growth of the number of connected nodes. This allows the network to continue to grow without it becoming more expensive to run a node. This is possible by addressing the problem in two ways.
The first way is low-fanout flooding. Instead of informing everyone about new transactions, only a small part of the connected nodes is informed. This greatly reduces data traffic, but increases the chance that a transaction will not reach all nodes. That is not desirable.
To ensure that transactions do reach all nodes, set reconciliation has been added. This is a method by which nodes discuss which transactions they have already seen and only exchange the difference in information. This is an effective method, but it takes more time. This is also not desirable when executing transactions.
Therefore, it was important to calculate the exchange of information efficiently so that transactions are passed on quickly enough and actually reach all nodes. This was a technical challenge, but since October 2022, the code has finally been written and has made its way into the bitcoin codebase.
The outcome? A significant reduction in data traffic and a safer and better-connected network. With Erlay, it is now easier to run your own node. This keeps the decentralization of bitcoin protected.
Bitcoin as a technology is comparable to the early days of the internet. Years of development were needed before we could use the internet as we are now accustomed to.
Perhaps you can still remember the internet in the 90s. It was on that one computer in the house. Handy and especially fun, of course, but when you were on the internet, it was not possible to make a phone call at the same time. The internet connection went through the telephone line, so you also paid per minute. It was an expensive trick.
Nowadays, this is unthinkable for everyone. In fact, if you are on the phone now, you can also visit the internet with the same device.
The limitations of the early internet have been overcome, making it indispensable in our daily lives. The same thing may now happen with bitcoin. Despite the drop in value, interest in bitcoin has not waned, and improvements behind the scenes are still ongoing.