As the years go by, more people are embracing the use of crypto as a means of storing value for fiat, and also as an alternative form of investment that can yield, only in a few weeks, more than the yearly average of a commodity on the stock market. With all of this and promises of more, people are looking to cryptocurrencies, especially Bitcoin, as a means of daily transacting in the near future.
While this would be an amazing feat, it is a very unlikely one given the current scalability problems surrounding bitcoin. Some solutions seem highly likely, but not without one or two dents on the core components on bitcoins decentralized network. Scalability of Bitcoin, is the capability of its network to handle large amounts of transaction data on its platform, all at the same time.
It’s important to understand that bitcoin is the first of its kind, and still considered by some to be in it’s experimental phases. Even with the groundbreaking revolution it has brought about in the financial sector in such a short time, including the adoption of Blockchain technology, Bitcoin’s software upgrade hasn’t even got to version 0.5 yet. We are just nearly halfway there at v. 0.2. This only goes to prove that we are still a long way from certainty. With time, a lot more is bound to change as a result of development.
In this article we will be looking at the various scalability issues currently plaguing the Bitcoin network, and some possible solutions.
The Blockchain Network
In our article about blockchain, we talked about the idea behind the technology. How anywhere from 1 to 2,000+ transactions can make up a block, depending on the transaction size. These blocks in every chain (“Block-chain”) store every essential information of the transactions it contains. These stored information are basically what make up the kilobytes in every megabyte of transactions.
The fact that only 1 MB of transactions can make up the block at a time, is a very big limitation, but it wasn’t encoded without good reason at the time. The creator added a code to it’s mainframe, that limits the block sizes in order for the network to combat DDoS attacks more easily (We will talk about how later). This was definitely more than enough space at the time, due to the fact that the network did not have up to a quarter (¼) of current traffic, and did not demand half as much in computational power to support its proof of work protocol But as an alternative means of transacting that should be accepted worldwide, those numbers are so minute.
Competing with existing platforms for transacting such as Visa and MasterCard, these centralized platforms process as much as 2,000 transactions per second in sharp contrast to Bitcoin’s 3-4 per second. For a system that plans to take over, a lot has to be done about this.
Let us look deeper into the effects of these scalability issues that the blockchain network faces, and what possible solutions can bring about on the network as a whole.
1. Limit in Block Size
From inception, Bitcoin has maintained a maximum block size of one megabyte (1 mb), which is roughly equal to one thousand and twenty four kilobytes (1,024 kb), the actual maximum block size. Narrowing this down, we will be able to see that a block can contain as much as 2,000 transactions, and even more provided the transaction sizes are all below 0.5 kb. This doesn’t rule out the possibility of having a transaction as big as 1 MB, although such sizes are not common.
Now imagine that by any remote chance, that someone initiates a transaction bigger than 1MB on the network. This transaction will never go through. Usually, once a block is full, every other transaction is rejected and lined up in anticipation of the next block to be formed in 10 minutes. When such is the case, this size of transaction can’t fit into any block and is rejected forever. The user will have to break down their transaction into smaller transactions.
Such a scenario doesn’t seem likely as it stands, but if Bitcoin is accepted as an alternative payment method, for over 7 billion people, this will be more rampant than expected. If the adoption of Bitcoin drastically goes up with the way the network currently is, then there will be a case of overloading the network and probably crashing it for a while. Anything that results from this, will put the reputation of Bitcoin in such an unpleasant light, and see it drop in value as it becomes less popular.
It has been put forward to increase block size up to 8MB, but this doesn’t really solve the problem in the long run, the inevitable is only postponed. A globally accepted transacting platform is bound to easily surpass that threshold.
This was a tough one for developers in 2015, and after delegations they came to an agreement on shedding some of the data carried within a transaction. It happens that the signature within every transaction takes up about 65% storage and this part of the transaction is not necessary to confirm a valid transaction. This type of modification to the software is called a softfork; as opposed to a hardfork it fine tunes some features to the network algorithm without altering the main body of the crypto itself.
SegWit(Segregated Witness) was proposed by Blockstream company as a really good solution to the problem. The signature is stored in a different structure and let’s the less cumbersome bits move on to the block. This will increase the blocksize tps (transactions per second), which is also similar to increasing the blocksize by 2MB. This solution seems to go a longer way, but one downside is that the public ledger won’t contain the complete transaction history of each transaction. It will be more difficult accessing this information. There was discord and eventually Bitcoin Cash came about, increasing its blocksize to 8MB.
Bitcoin is still a long way to go, there is no telling what the future holds in store.
2. Longer wait time (TPS capacity)
The block sizes of each bitcoin block is very limited, and besides that, the amount of time it takes to form a block is 10 minutes. This means that in a second, roughly 3-4 transactions are processed. This didn’t pose a problem with the type of traffic when bitcoin was created. But as more people are getting attracted, and clamouring towards making it a major platform for daily transactions, the amount of tps becomes an issue.
No one wants to always wait up to 10 to 30 minutes before the transaction they sent out is confirmed. Adding to that, they may have to pay too much in transaction fees owing to a congested network. Needles to say, this is a nightmare for small-scale merchants.
While some cryptocurrencies are already coming up with solutions for this, Bitcoin will have to do so as well or face the possibility of obsoletion. In the forefront of tokens with the capacity to handle more transactions are EOS, Futurepia, both claiming up to 50,000 and 100,000 tps respectively.
There is also Tectum which claims to be the fastest and processing about 1 million tps in a real world scenario. In an interview with Tim Ventura, the software executive of the company- Alexander Guseff - explained why the idea of storing only the hashes and separating the original data is a more feasible solution. These hashes stil link to the original data, but there is also a risk of losing the original data and having a similar problem with the SegWit proposal. Nevertheless, it will be impractical to solve the bitcoin scalability problem without some form of sharding. Secure lightning nodes and optimized sidechains might do the trick of making Bitcoin eligible as a payment system, but this will hamper the decentralization of miners.
3. Long term competitive disadvantage
In the competition for crypto supremacy, Bitcoin is definitely leading the pack. It is expected that a token with such competitive advantage like bitcoin would be unmatched in the race for global domination. This would be a very common misconception as many people do not understand the depth of Bitcoin’s scalability issue and how it is actually at a competitive disadvantage.
If something lasting isn’t implemented to tackle this issue, and fast, then we may as well start calling the end of Bitcoin as we know it.
Over the years, solutions have been brought forward in a bid to surmount this hindrance but all of them were not without one or two possible shortcomings.
4. The Decentralized network is at Risk.
We already explained how an increase in blocksize won’t necessarily solve the problem for long, and how it would also run some miners out of business, keeping up with capacity, thereby forcing some form of centralized mining.
Another possible solution would have easily been Sharding, or Lightning nodes. Using these methods also eliminates the power and time spent in processing the authenticity of a single transaction by storing and recognising the signature. Although still the most favourable of all, this solution will bring about a kind of centralization in the distribution of mining power and information control. If this should happen, then bitcoin has lost its essence that drew admirers and fans from around the world. Centralization may not necessarily be a bad thing, but only with the right people in charge.
5. The network’s Privacy is at risk.
If the decentralized network is at risk then privacy is also at risk as a result. The fact that people got exposed to the possibilities of blockchain technology is as a result of Bitcoin, and the reason people got attracted to bitcoin is as a result of its security and privacy set up. If this is taken away, then investors will be better-off investing in cheaper and promising crypto, and we all know that the value of any crypto is largely influenced by the hype around it. This would most likely lead to an instantaneous plunge in value.
At this point, blockchain wallets can be traced to the user, and transactions can be tracked if the power to oversee is given to the wrong government. This may not be a cause for worry under a dedicated government, but in the opinion of many developers it is impossible to find a Big Tech company that wouldn’t sell out to the highest bidder, say the CIA (Central Intelligence Agency), or the IRS (Inland Revenue Service), just like Chainalysis did. Imagine the IRS demanding a tax from your crypto holdings. Why not just put it in the bank already?
6. Increased capacity would mean higher fees
If we can get the network to be more fluid with a huge influx of transactions by increasing the capacity of the nodes, these nodes will also take up more energy than before. Besides running other smaller nodes out of business and monopolizing the mining pools, these nodes are at a higher chance of pumping up the minimum transaction fee.
This increase in transaction fees won’t be born out of sheer intentions for profiting, but as an incentive for keeping up with the amount of work required to run such powerful nodes. It’s been observed that Bitcoin is not the most environmentally friendly crypto. Its computational network is currently more powerful than any other on the planet, and this is also a problem that scalability solutions should be aware of.
It is well known that the problem of scalability has been a dilemma for bitcoin for some years now, despite being there since inception. In this article, we listed the prominent ones, and some solutions that have been put forward. Despite the fact that new tokens are emerging, with perfect solutions to these issues, Bitcoin has to also find a solution that will get the job done and also preserve core functionalities like Privacy and Decentralization for the revolutionary vision of Satoshi Nakamoto to stay alive. The vision of a decentralized financial space where the power is evenly shared.
So far, the feasible solutions that have been proposed all hinge on altering the security of either privacy, or decentralization. Increasing the blocksize may seem like the only way out, but it will only postpone the inevitable and possibly surge the range of transaction fees to a point where small transactions will eat up twice their size in fees.
A project that addresses these questions is already in the works. BITCOIN8M as we name it, is a movement focused on bringing awareness to miners, average users, and other stakeholders in the network, of the need to increase the Block size. In reality, this is inevitable, and everyone has a role in it.
You should be aware that Bitcoin-8m does not cause a hard fork. Bitcoin8m core is simply a modified version of bitcoin core to start accepting block of weight up to 8 times the regular MAX_BLOCK_WEIGHT (which is defined at 4000000) if 1000 consecutive blocks in the past show acceptance of big blocks. For every release of bitcoin core, we release a similar version with a different versioning convention that contains just the above tweak. For example, if version 0.21.0 is released for bitcoin core, we will release bitcoin8m core 8.21.0 which is identical except for the above tweak. Bitcoin8m source code can be downloaded from this https://github.com/bitcoin-8m/bitcoin. You can just replace the bitcoin core binary with bitcoin8m binary of compatible version and everything should continue to work as usual.
You can learn more by joining our Reddit discussions on these concerns.