Scalability

Bitcoin is the first cryptocurrency. Since 2009 when digital gold appeared, Blockchain technology has come a long and thorny way with technology constantly evolving and adapting to different niches and applications. But opportunities to improve bitcoin at the same time as improving blockchain technology itself are limited. These limitations are imposed primarily by the network's consensus rules.

Many problems are solved without radical changes, preserving the integrity of the original network. But it is impossible to get rid of some serious flaws within the established rules. Therefore, independent development teams often solve key bitcoin problems with hard forks. Sometimes these problems are solved successfully and sometimes not.

Ten years ago, at the dawn of the industry, there were few cryptocurrency users. Today there is so much hype around the digital economy that the bitcoin network is simply not capable of processing a huge number of transactions quickly and with minimal fees. It is the problem of bitcoin's poor scalability that critics are appealing to. Let's see how serious the problem is, what options are available to solve it, and how other blockchains fuse with a similar problem.

Problems

In fact, bitcoin's rise in popularity has shown its weaknesses. At the start of the project, bitcoin was used by only hundreds of enthusiastic people, but today it is used by tens of millions. The number of daily transactions in the oldest blockchain has skyrocketed to hundreds of thousands.

The objective reality is that over the past ten years, the underlying code has not undergone major changes, and the network is simply not capable of withstanding the new colossal loads, so it is not designed for them.

Skeptics point out that the popularity of cryptocurrencies doesn’t reach a significant part of the population. Therefore, they predict even greater difficulties for bitcoin when new waves of users come to the industry and the number of daily transactions becomes comparable to the number of daily bank transfers.

Exceptionally technical limitations in scalability are imposed on the network by the large block size in the chain. All network transactions are recorded in blocks. The more people actively use the network, the faster the blocks fill up with information. When there is a peak load on the network, the limited block volume decreases, and some users may wait hours for a transfer.

Miners are responsible for the consensus of the bitcoin network. Their motivation is the commission from each transaction on the network. The higher the commission is set by the sender of the transfer, the faster the miners will process and confirm their transaction.

Many years ago, the amount of commission was a tenth of a cent, then it was possible to speed up the transfer with minimal costs. Today, absurd situations often arise when high-speed small transactions require a fee that exceeds the amount of the transfer itself.

Due to conceptual limitations imposed by the basic principles of the network, even the implementation of advanced developments will not allow bitcoin to reach the speed of more modern blockchains because of the dependence on mining. Its complexity and cost keep increasing, while its efficiency goes down.

Solutions

Kernel developers periodically offer solutions and outline their proposals in special documents, that is called Bitcoin Improvement Proposals. Two documents, numbered 100 and 101, were submitted in 2015. The first one was submited by Jeff Garzik and the second one was submitted by Gavin Andersen

Both proposals imply an increase in the block size volume on the network as a result of a hard fork of the cryptocurrency. The difference between the variants is that BIP 100 proposes to increase the block size according to the decision of the miners, while BIP 101 talks about a one-time fixed increase in the block size from 1 to 8 megabytes.

Unfortunately, none of the solutions has been fully implemented, and the problem persists. One of the factors that constrains the implementation of the described proposals is that increasing the size of the block to the optimal size would entail increasing the size of the entire blockchain to enormous amounts.

Large volumes of blockchain network would immediately lead to a decline in decentralization. In that case, only large companies with the appropriate hardware and computing power will be able to store the entire blockchain, its volume of several petabytes, and act as full-fledged nodes.

This perspective is completely contrary to the ideology and concept of the first cryptocurrency, which should be managed by users themselves. Therefore, discussions did not lead to implementation.

There is a more successful example of trying to solve a network's scalability problem: the Segregated Witness protocol. The SegWit protocol allows you to increase the capacity of a block without increasing its capacity limit. In fact, it was designed for a different purpose to take out and store the least important transaction information outside the blockchain.

Reducing the amount of information about each transaction, that is written to the blockchain, leads to the fact that it is possible to record 60-70% more transactions for the same volume of the block. However, due to the fact that SegWit wasn’t designed to solve the scalability problem, it only solves it effectively in the short term. Further growth of the network and the number of transactions will lead to a slow blockchain again.

Bitcoin Core developers and representatives of major mining companies met in Hong Kong in 2016. They were all interested in maximizing block volume. Both sides want to breathe life into the Segregated Witness protocol and get it to spread. But due to certain differences in approach and conflicting views on the future of bitcoin, no agreement was reached.

There are many other suggestions and ideas to solve the problem, but decentralization implies that developers do not have full power over the blockchain, so many ideas are rejected and the community fails to reach agreement and solve the problem.

A parallel reality

Bitcoin Cash, which separated from Bitcoin hard-fork, has a block size of 32 MB as for October 2021, while the original Bitcoin is still 1 MB. This example shows that scalability can and should be addressed, but sometimes drastic measures are needed.