Bitcoin Scalability Problem - GeeksforGeeks (2024)

Bitcoin scalability issues arise because the network’s ability to process transactions quickly and efficiently is limited.

This article explores various issues related to Bitcoin’s scalability problem and offers effective solutions while maintaining network security.

What is the Bitcoin Scalability Protocol?

The Bitcoin scalability issue means that the Bitcoin network has a limited ability to handle large amounts of data transfer on its platform in a short period. This implies that the size and frequency of data (called blocks) in the Bitcoin blockchain are limited.

1. Bitcoin blocks contain transactions of the Bitcoin network. The on-chain transaction capacity of the Bitcoin network is limited by an average block generation time of 10 minutes and a raw block size limit of 1 MB. Together these limit network traffic.
2. As more people use Bitcoin and make transactions, the current 1 MB block size limit becomes very thin, causing delays in transaction confirmation and increased fees. This limitation is due to the complexity of Bitcoin, where all transactions must be recorded on each participant’s computer, called a full node.
3. Maximum market potential is estimated using an average or median transaction size of 3.3 to 7 transactions per second.

Limitations with Bitcoin’s Protocol

In its current state, there are several important factors limiting the Bitcoin blockchain:

1. Block size: A Bitcoin block can only hold 1 megabyte (MB) of data.
2. Block Time: A new Bitcoin block is created approximately every 10 minutes.
3. Throughput: Bitcoin’s block size and block time limit allow it to process only three to seven transactions per second.
4. Transaction costs: The previous restriction had led to a high demand for limiting the block area. This causes Bitcoin prices to increase during times of network congestion.
5. Programmability: Bitcoin’s coding language has strong limitations, making smart contracts difficult to implement. This also makes building business applications on Bitcoin less difficult than building business applications on Ethereum.

How can Bitcoin Scale?

1. While Bitcoin has its limitations, it can be scaled using a range of solutions that add efficiency and functionality to a larger network.
2. By building on top of Bitcoin, developers can create solutions without changing Bitcoin itself. This approach increases the efficiency of regular Bitcoin transactions while leveraging Bitcoin’s revenue and network effects.
3. The layer allows the transfer of Bitcoin (and other assets) without using the blockchain directly. While each Bitcoin layer has its own protocol for connecting with Bitcoin, the goal is to move goods down the chain in a faster, cheaper, programmable and scalable way.

Example of Bitcoin Layers

There are currently four main layers that help measure Bitcoin.

1. Lightning Network

Lightning Network is a layer 2 scaling solution for scaling micropayments and daily Bitcoin transactions. Using smart contracts and payment lines, both parties can send BTC quickly and at zero cost in return. Payment channels are opened with Bitcoin transactions, but once opened, the channel can host almost unlimited Lightning transactions. Once the payment is settled, the second and final Bitcoin transaction is processed. Lightning Network also has a network-like design that can directly connect two users through connections and chats.

2. Stacks

Stacks is an independent blockchain that brings smart contracts to Bitcoin. Stacks is powered by 100% recycled Bitcoin mining power, making it very safe. The Stacks block is connected to the Bitcoin block via a Proof of Exchange (PoX) agreement. Aside from the anchor blocks used to ultimately connect the stack to Bitcoin, microblocks also enable increment by broadcasting thousands of transactions between two Bitcoin blocks.

3. RSK

RSK (Rootstock) is an EVM compatible sidechain that supports smart contracts for Bitcoin transactions. The confirmation time for RSK blocks is approximately 30 seconds and can process 10-20 transactions per second. RSK can scale better than Bitcoin. RSK payments are only one-fifth the size of standard Bitcoin payments.

4. Liquid Network

Liquid Network is a sidechain that facilitates the fast resolution of Bitcoin transactions. The network operates similarly to Bitcoin’s consensus but with a centralized governance structure. This allows Liquid to sacrifice some decentralized management elements in the name of efficiency. The liquid reduces blockage time from approximately 10 minutes to 60 seconds. Additionally, Liquid’s transaction fees are on average one-tenth of the price of Bitcoin.

Can Bitcoin Truly be Scalable?

Scalability is a challenge for all blockchain technologies. In the context of the blockchain triad, Bitcoin outperforms all other chains in terms of decentralization and security. Bitcoin achieves these two points, affecting its ability to act.

1. While increasing Bitcoin’s size limit and reducing its block time may seem like a good idea, this would harm the integrity of the blockchain. The core of Bitcoin should remain the same, with some minor improvements around the edges.
2. Layer 1 can only measure so much before it starts compromising its distribution and security. Any major changes and experiments to the Bitcoin network will build on blockchain, not replace it. The system has proven to be the best Bitcoin scalability solution ever. By chaining in a layer, more changes can occur while being faster, cheaper, and more programmable.
3. In the future, these layers will help the world use Bitcoin, even if they are not directly related to the blockchain. Bitcoin scaling is a work in progress, but sooner or later improvements to existing solutions and additional proposals will appear online.

Is Increasing Length of Bitcoin Blockchain is Really an Issue?

Yes, the size of the blockchain ledger matters. Blockchain is a new technology and will continue to evolve over the next few years. Bitcoin suffers from both scalability and size issues. The increasing length of bitcoin blockchain creates following problem:

1. As blockchains continue to grow, scalability becomes an issue which is a problem in Bitcoin thus scalability and performance issues associated with Bitcoin.
2. Cheep hardware, large storage and efficient processing capabilities are required to handle increasing length of bitcoin blockchain.
3. The size of the blocks will increase exponentially and miners will need more time to solve the blocks, which will slow down the transactions.
4. Nodes become more expensive due to the larger size of the blocks.
5. Many problems will arise due to the grouping of all nodes, this creates single point of failure.

Conclusion

Although there is no particular solution to Bitcoin’s scalability problem, various methods have been proposed to improve the network’s ability to process transactions. Balancing decentralization, security, and scalability is still a challenge, but innovations such as advanced consensus mechanisms, sharding, intertwined blockchains, and the Lightning Network offer a good way to solve the problem. Currently, the most common solution to intercept Bitcoin exchange and use it as a real medium of exchange is the Lightning Network.

FAQs based on Bitcoin Scalability Problem

What is Proof of Work and bitcoin mining?

Bitcoin transactions are transferred to the blockchain, where “miners” (computers specially designed to operate at maximum capacity) compete to solve specially designed algorithms. These algorithms will verify the transaction and create a new block on the Bitcoin decentralized ledger shared by all nodes in the network. The name “Proof of Work” refers to the fact that miners earn a small BTC profit when they prove that they are the ones who can use the changes and create new blocks on the chain. This seems like an excellent system for peer-to-peer trustless transactions, but there are still some problems.

What is double spending?

Double spending is a common problem in digital currencies where the same token can be used multiple times. This is especially problematic with digital currency because digital information can be easily copied. Bitcoin solves this problem with decentralized blockchain data. When a Bitcoin transaction occurs, it is broadcast to a network of computers (nodes). Nodes verify the authenticity and history of transactions, ensuring that the same Bitcoins have not been used before. Once the change is detected, it is added to the block in the blockchain and confirmed by miners. This authentication process, combined with the timely settlement of transactions on the blockchain, makes it very difficult to change history or reuse the same Bitcoin without knowledge of the network, thus preventing double spending.

Is Bitcoin Anonymous?

Bitcoin is often thought of as an anonymous currency, but is more accurately described as pseudonymous. All Bitcoin transactions are recorded on a public ledger called the blockchain. This list shows the transaction history of each Bitcoin address (a string of alphanumeric characters) rather than the user’s personal identity. While this means that, from a blockchain perspective, individual transactions cannot be directly linked to the individual’s identity, anonymity will be compromised. If a Bitcoin address is linked to a person’s identity, their past and future transactions can be tracked using that address. Additionally, many cryptocurrency exchanges require authentication, which establishes a link between the ID and the Bitcoin address. Therefore, although Bitcoin has a higher level of privacy than traditional transactions, it is completely anonymous. Participants in a Bitcoin exchange are identified by their public address. Sending and receiving addresses are visible to everyone in all transactions.