Forward Blocks On-chain / settlement capacity increases without the hard-fork

Segregated witness achieved a 2 to 3.6x capacity increase for on-chain settlement by moving script and signature data out of the area constrained by the original 1 MB block size limit. Unfortunately this approach could only be used to achieve a one-time increase as there is no remaining unsigned transaction data of significant size that could be moved out of the transaction structure. The previously proposed concept of soft-fork extension blocks involves entire transactions being moved into segregated data structures, which allows for limitless scaling at the cost of breaking the transaction graph. Alternatively simply removing or replacing block-size and other aggregate limits preserves the transaction graph but at the cost of a hard-fork cutoff event, and the significant transition risks and centralizing pressure that comes with any scheduled hard-fork event. We introduce the concept of forward blocks which combine the best of both approaches enabling aggregate block limits on size and number of signature operations to be circumvented as a soft-fork, while preserving the property that the spend graph, including all transactions and their witnesses, is seen by legacy clients. Effective block sizes of up to 14.336 GWe can be achieved in this way, permitting scaling up on-chain/settlement transaction volume to 3584x current levels, if permitted by the new consensus rules. The construction of forward blocks also makes possible changing the proof-of-work algorithm in a soft-fork compatible way, either simultaneously with dropping the aggregate limits or as a later re-application of the concept in nested forward blocks. Other benefits of the implementation approach taken include the introduction of explicit sharding for better scaling properties, rebateable fee market for consensus fee detection, and smoothing out drops in miner subsidy. It also provides the necessary prerequisite protocol pieces for confidential transactions, mimblewimble, unlinkable anonymous spends, and sidechains.