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Bitcoin scalability problem

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For broader coverage of this topic, see Bitcoin.
Number of transactions per month, on a logarithmic scale

The Bitcoin scalability problem refers to the limited capability of the Bitcoin network to handle large amounts of transaction data on its platform in a short span of time.[1] It is related to the fact that records (known as blocks) in the Bitcoin blockchain are limited in size and frequency.[2]

Bitcoin's blocks contain the transactions on the bitcoin network.[3]: ch. 2  The on-chain transaction processing capacity of the bitcoin network is limited by the average block creation time of 10 minutes and the original block size limit of 1 megabyte. These jointly constrain the network's throughput. The transaction processing capacity maximum estimated using an average or median transaction size is between 3.3 and 7 transactions per second.[2] There are various proposed and activated solutions to address this issue.

Background

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The block size limit, in concert with the proof-of-work difficulty adjustment settings of bitcoin's consensus protocol, constitutes a bottleneck in bitcoin's transaction processing capacity. This can result in increasing transaction fees and delayed processing of transactions that cannot be fit into a block.[4] Various proposals have come forth on how to scale bitcoin, and a contentious debate has resulted. Business Insider in 2017 characterized this debate as an "ideological battle over bitcoin's future."[5]

Efficiency improvements

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Technical optimizations may decrease the amount of computing resources required to receive, process and record bitcoin transactions, allowing increased throughput without placing extra demand on the bitcoin network. These modifications can be to either the network, in which case a fork is required, or to individual node software (such as Bitcoin Core).

"Layer 2" systems

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Main article: Lightning Network
A Lightning Network overview

The Lightning Network (LN) is a protocol that aims to improve bitcoin's scalability and speed without sacrificing trustless operation.[9] The Lightning Network requires putting a funding transaction on the blockchain to open a payment channel. Once a channel is opened, connected participants are able to make rapid payments within the channel or may route payments by "hopping" between channels at intermediate nodes for little to no fee.

In January 2018 Blockstream launched a payment processing system for web retailers called "Lightning Charge", noted that lightning was live on mainnet with 200 nodes operating as of 27 January 2018 and advised it should still be considered "in testing".

On 15 March 2018, Lightning Labs released the beta version of its lnd Lightning Network implementation for bitcoin mainnet, and on 28 March 2018, ACINQ released a mainnet beta of its eclair implementation and desktop application.

In January 2019 the online retailer Bitrefill announced that it receives more payments in Bitcoin via the lightning network than any other cryptocurrency they accept.

In June 2021, the Legislative Assembly of El Salvador voted legislation to make Bitcoin legal tender in El Salvador.[10][11][12] The decision was based on the success of the Bitcoin Beach ecosystem in El Zonte that used a LN based wallet. The government will be introducing a wallet utilising the Lightning Network protocol while giving the freedom for citizens to use other Bitcoin Lightning wallets.[13]

Block size increases

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Bitcoin's transaction throughput is limited by two parameters:

  • the block time determines how often a new block is added to the chain,
  • the block size determines the amount of data that can be added with every block.

Bitcoin has a block time of 10 minutes and a block size of 1 MB. Various increases to this limit, and proposals to remove it completely, have been proposed over bitcoin's history. Implementing any of these proposals involves a fork.

Litecoin produces blocks four times faster than Bitcoin which leads to a 4x improvement in throughput. Dogecoin has even more throughput with a block time of 1 minute. Bitcoin Cash has a block size of 32 MB and hence 32x more throughput than Bitcoin. Bitcoin SV removed the block size limit altogether.

Proposed

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  • In 2015, BIP100 by Jeff Garzik and BIP101 by Gavin Andresen were introduced.
  • Bitcoin XT was proposed in 2015 to increase the transaction processing capacity of bitcoin by increasing the block size limit.[14]
  • Bitcoin Classic was proposed in 2016 to increase the transaction processing capacity of bitcoin by increasing the block size limit.
  • "The Hong Kong Agreement" was a 2016 agreement of some miners and developers that contained a timetable that would see both the activation of the Segregated Witness (SegWit) proposal established in December 2015 by Bitcoin Core developers, and the development of a block size limit increased to 2 MB. However, both timelines were missed.
  • SegWit2x was a proposed hard fork of the cryptocurrency bitcoin. The implementation of Segregated Witness in August 2017 was only the first half of the so-called "New York Agreement" by which those who wanted to increase effective block size by SegWit compromised with those who wanted to increase block size by a hard fork to a larger block size.[15] The second half of SegWit2x involved a hard fork in November 2017 to increase the blocksize to 2 megabytes. On 8 November 2017 the developers of SegWit2x announced that the hard fork planned for around 16 November 2017 was canceled for the time being due to a lack of consensus.
  • Bitcoin Unlimited advocated for miner flexibility to increase the block size limit and is supported by mining pools ViaBTC, AntPool and investor Roger Ver. Bitcoin Unlimited's proposal is different from Bitcoin Core in that the block size parameter is not hard-coded, and rather the nodes and miners flag support for the size that they want, using an idea they refer to as 'emergent consensus'. Those behind Bitcoin Unlimited proposal argue that from an ideological standpoint the miners should decide about the scaling solution since they are the ones whose hardware secure the network.

See also

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References

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  1. ^ [The Limits to Blockchain? Scaling vs. Decentralization.] Social Science Research Network. Cybersecurity, Privacy & Networks eJournal. Accessed 21 April 2019.
  2. ^ a b Croman, Kyle; Eyal, Ittay (2016). "On Scaling Decentralized Blockchains" (PDF). Financial Cryptography and Data Security. Lecture Notes in Computer Science. Vol. 9604. pp. 106–125. doi:10.1007/978-3-662-53357-4_8. ISBN 978-3-662-53356-7. Retrieved 10 December 2017. The maximum throughput is the maximum rate at which the blockchain can confirm transactions. Today, bitcoin's maximum throughput is 3.3–7 transactions/sec [1]. This number is constrained by the maximum block size and the inter-block time.
  3. ^ Antonopoulos, Andreas M. (April 2014). Mastering Bitcoin. Unlocking Digital Crypto-Currencies. O'Reilly Media. ISBN 978-1-4493-7404-4.
  4. ^ Pearson, Jordan (14 October 2016). "'Bitcoin Unlimited' Hopes to Save Bitcoin from Itself". Motherboard. Vice Media LLC. Retrieved 17 January 2017.
  5. ^ Williams-Grut, Oscar; Price, Rob (26 March 2017). "A Bitcoin civil war is threatening to tear the digital currency in 2 — here's what you need to know". Business Insider. Retrieved 2 July 2017.
  6. ^ "kanzure/diyhpluswiki". GitHub. 9 October 2021.
  7. ^ "[WIP] Aggregate signature module implementation by apoelstra · Pull Request #461 · bitcoin-core/Secp256k1". GitHub.
  8. ^ "Note that aggsig paper was rejected by ysangkok · Pull Request #479 · bitcoin-core/bitcoincore.org". GitHub.
  9. ^ Antonopoulos, Andreas (2017). Mastering Bitcoin (2nd ed.). O'Reilly. pp. 297–304. ISBN 978-1491954386.
  10. ^ Aleman, Marcos (9 June 2021). "El Salvador makes Bitcoin legal tender". Associated Press. Retrieved 16 June 2021.
  11. ^ "El Salvador aprueba el uso de Bitcoin como moneda de intercambio". Agencia EFE (in Spanish). 9 June 2021. Retrieved 16 June 2021.
  12. ^ "El Salvador first country to approve bitcoin as legal tender". Agence France Presse. 9 June 2021. Retrieved 16 June 2021.
  13. ^ @nayibbukele (28 June 2021). "Aclarando la desinformación que están..." (Tweet) – via Twitter.
  14. ^ Alex Hern (17 August 2015). "Bitcoin's forked: chief scientist launches alternative proposal for the currency". the Guardian. Retrieved 20 August 2015.
  15. ^ Vigna, Paul (8 November 2017). "Bitcoin Dodges Split That Threatened Its Surging Price". The Wall Street Journal. Archived from the original on 8 November 2017. Retrieved 8 November 2017.
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