Piggybacking on the Bitcoin Blockchain

Bitcoin's blockchain is being used for more than financial transactions.

Piggybacking on the Bitcoin Blockchain

 The bitcoin blockchain is pretty innovative, but it’s also getting pretty big. In fact, some say that it might end up reaching a bursting point before long if something isn’t done. Although it hasn’t been a big problem so far, one practice is likely to create future problems for the blockchain: piggybacking.

Originally, the bitcoin blockchain was supposed to carry information about financial transactions.

Shared by everyone on the bitcoin network, it’s a software record of who paid bitcoins to whom. Every time someone makes a transaction in bitcoin, it stays in the blockchain forever.

Unfortunately for bitcoin’s users, that means the blockchain keeps getting bigger and bigger. At the time of writing, it had just topped 36Gb in size. For people that want to download the entire blockchain and use a full bitcoin client, it’s highly cumbersome.

The situation gets worse thanks to people using the blockchain for non-financial transactions. Bitcoin’s code includes a couple of features that enable people to embed messages in the blockchain. The core developers included something called OP_RETURN, which is a blank space inside every bitcoin transaction recorded on the blockchain. Using this, or another technique that involves ‘signing’ a bitcoin transaction with multiple signatures, people have been writing all kinds of extra messages into the blockchain.

People use a bitcoin transaction to record transactions like this by sending a tiny fraction of bitcoin, and writing their message inside the transaction. That way, the tiny bitcoin transaction isn’t really about the bitcoin at all – it’s simply a vehicle for the message that they really wanted to send.

The problem is that every time someone does this, it makes the blockchain bigger by using it for something it wasn’t originally intended for.

This isn’t a massive problem now because these applications – often called cryptocurrency 2.0 apps – have not been around for very long. However, they’re gaining traction. More transactions these days are piggyback transactions.

These messages have been used to provide a secure, distributed storage system for other software applications. They’re essentially turning the bitcoin blockchain into their own records system. These include colored coins transactions, where people use bitcoins to represent other kinds of property.

Another example of an application that uses piggybacking is document signing. One such application, Docusign, uses the spare space in a bitcoin transaction to record signatures on a particular document. This enables anyone to go back and check who signed a document, and what version they signed.

Document signing is a good example of why someone would piggyback on the bitcoin blockchain rather than just making a blockchain of their own. The secret lies in bitcoin’s popularity. Lots of people mine bitcoin and the more of them that do so, the more secure they make the network.

Lots of miners mean lots of computing power, and bitcoin’s blockchain relies on this to stop people tampering with transactions that have already been written to the blockchain. With signatures, that’s a particular concern, as you don’t want someone claiming that another person signed a document if they didn’t.

Other companies have even used the bitcoin blockchain to create entire new currency systems. Examples of this include Counterparty, which lets people make and trade their own cryptocurrencies by piggybacking messages on the bitcoin network. These kinds of projects are often called metacoins because they’re effectively new kinds of cryptocurrency that wouldn’t exist without bitcoin.

All of this has caused controversy among people in the bitcoin community. Some think that it’s an annoyance, and needlessly burdens the bitcoin network.

On the other hand, there are lots of tiny financial transactions that burden the bitcoin network, too. Examples include gambling sites that deliver the results of tiny bets via the blockchain and ‘tumblers’ that send and resend bitcoins to different addresses in an attempt to increase the anonymity of the owner.

Now, a couple of companies are proposing alternatives to help reduce the effect of piggybacking on the blockchain. One of them involves a concept called notary chains, and the other one has invented something called side chains. Read all about them here.