Why is Erlay Protocol a Big Deal for Bitcoin?

A newly-proposed protocol could reduce the “transaction bandwidth” used up by bitcoin nodes by up to 75%.

Something most people ignore is that Bitcoin goes under continuous development. In fact, it’s a common belief that Bitcoin is a dull and rigid structure not inclined to changes whereas this could not be less true. You only need to take a look at the GitHub Bitcoin page to see that the implementations and updates to the system are the most prolific in the whole ecosystem and at times even the original protocol has received big changes.

On May 25th, Bitcoin developers Gregory Maxwell, Pieter Wuille, Ivan Beschastnikh, and Sasha Fedorova published a new protocol that if approved by the majority of Bitcoin developers could lead to such an improvement in the cryptocurrency security that will also inevitably affect the price for the better in the long term.

Who are these people and why do they count at all in the decentralized currency?

Gregory Maxwell is a Bitcoin core developer who has been contributing to bitcoin’s software since the early days. He’s said to have left Blockstream earlier this year to focus on the development of Erlay.

Peter Wuille is also a Bitcoin Core developer and the co-founder of Blockstream. He is #2 in terms of commits to Bitcoin Core and is responsible for important improvements to Bitcoin like the most popular Segregated Witness.

Ivan Beschastnikh and Sasha Fedorova are their supervisors at the University of British Columbia.

Let’s see what Erlay is and how it can affect Bitcoin security and ultimately its price.

There’s no doubt that Bitcoin is the top cryptocurrency certainly for higher value not only in monetary terms but also for the higher security provided.

Over the course of its ten years of lifetime, it has experienced huge growth and survived numerous attacks.

In the words of the developers: “The protocols making up Bitcoin must, therefore, accommodate the growth of the network and ensure security. The security of the Bitcoin network depends on connectivity between the nodes. Higher connectivity yields better security.”

While they believe current connectivity in the Bitcoin network is too low for optimal security and increasing it would make it too expensive to operate a full Bitcoin node, they propose the following:

Instead of announcing every transaction to every peer, announcements are only sent directly over a small number of connections (only 8 outgoing ones). Further relay is achieved by periodically running a set reconciliation protocol over every connection between the sets of withheld announcements in both directions.

“Half of the total bandwidth needed to operate a Bitcoin node is currently used to just announce transactions. Unlike block relay, transaction dissemination has received little attention in prior work. We propose a new transaction dissemination protocol, Erlay, that not only reduces the bandwidth consumption by 40% assuming current connectivity but also keeps the bandwidth use almost constant as the connectivity increases. In contrast, the existing protocol increases the bandwidth consumption linearly with the number of connections.”

By allowing more connections at a small cost, Erlay improves the security of the Bitcoin network. And, as they demonstrate, Erlay also hardens the network against attacks that attempt to learn the origin node of a transaction.

The main result is that half of the bandwidth a node consumes is saved, allowing an increase of connectivity almost for free, and, as a side effect, better withstand timing attacks.

If outbound peer count were increased to 32, Erlay saves around 75% overall bandwidth compared to the current protocol.

Worth remembering that nodes can increase the number of connections they hold with other nodes, making them more resilient to network attacks.

Erlay is a big deal as it DRASTICALLY reduces bandwidth requirements of running a full bitcoin node compared to the current flooding approach. Bandwidth no longer scales linearly with peer count, decreasing the cost of running well-connected nodes.

With security comes the better trust of the network and seems like Bitcoin is unstoppable on its run to the moon.