In late 2017, during the massive push in price of Bitcoin to above $20,000 USD across some exchanges, investors had to wait for some hours to transact their Bitcoin (BTC). This slow nature of Bitcoin has crippled efforts towards mass adoption of BTC as merchants and businesses shy away from adopting the coin. Satoshi envisioned BTC being a global currency that gives citizens freedom to control and spend their money without centralized governments.

Scalability on the number of transactions that can be made on the Bitcoin blockchain at any given time is currently very low (averaging 3-5 tps). The issue of scalability (or the lack thereof) has been crippling most of the early blockchains as demand for the technology continues to grow exponentially in recent years. Bitcoin (BTC) in particular is a victim and is not scalable enough to be the global currency the fanatics and enthusiasts dream it to be.

However, solutions are currently being put in place to ensure scalability improves significantly including the Lightning Network (LN).

Bitcoin’s scalability issues explained

Bitcoin uses the proof of work consensus mechanism to verify transactions on the network which are then recorded on blocks. This is known as mining. The transaction details are then stored on blocks that are limited to a maximum of 1 MB (a 2MB block has ever been mined). The small size allows more nodes to join the network making the platform more decentralized and secure.

Average Block size of Bitcoin (BTC) since March 2018 (Screenshot: Blockchain.com)

 

The security and decentralization of Bitcoin however has an opportunity cost on the scalability as the blockchain struggles to process the huge demand of transactions on the chain.

At current speeds, Bitcoin processes 2-5 transactions per second which is comparatively very low compared to payment services such as Visa with 40,000 transactions per second. While the solution to the Bitcoin scalability problem is clearly visible the execution of the solution is not as easy.

Proposals to increase the blocksize have been made by various stakeholders of Bitcoin with some proposing 2MB blocks, 8MB blocks and 32 MB blocks. The difference in opinion led to the Bitcoin hard fork back in August 2017.

The Blockchain Trilemma – Decentralization, Scalability & Security

The trilemma, as it is known around cryptocurrency communities, involves decentralization, security and scalability whereby a blockchain cannot fulfill all three. Either a blockchain is decentralized and secure but not scalable (such as Bitcoin) or make it scalable at the expense of decentralization or security. This is the problem that makes Bitcoin scalability to be an issue to developers.

If the block size is added to 32 MB, like Bitcoin Cash did in May 2018, the cost of running a node will be too expensive for some people which leaves only a few capable persons to run the network. This reduces the number of nodes on the network making the platform more centralized. While the scalability of the network will improve, the decentralization of the platform is eroded.

What solutions are available for Bitcoin scalability problem?

In August 2017, the first successful hard fork of Bitcoin occurred after the community were unable to agree on the blocksize increase. The disagreement pushed some of the community members to flock out to the new Bitcoin Cash chain with 8 MB blocks. Some of the community members believe that the increase in blocksize makes BCH a superior blockchain to Bitcoin. A consensus to increase the blocksize however makes it simpler to solve the scalability problem as demand in future will be met.

Bitcoin Lightning Network (LN)

However, plain increase in blocksize impacts decentralization of the blockchain negatively which led to the development of the Lightning Network (LN).

The Bitcoin Lightning Network (LN)

“The Lightning Network was first conceptualized in 2015 through a proposal by Thaddeus Dryja and Joseph Poon. Currently, the Network is being developed by three teams — Lightning Labs, Blockstream, and ACINQ with the cooperation and assistance of the wider Bitcoin community.”

The Lightning Network (LN) is a protocol built on top of a blockchain to increase the speeds of transactions. The second layer scaling solution uses smart contract functionality in the blockchain to enable instant payments across a network of participants.

The Lightning Network is built on a blockchain and the underlying smart contracts enable the platform to create a secure network of participants which are able to transact at high volume and high speed. Users on the platform create a payment channel to make transactions between one another which offloads the lag experienced on Bitcoin. The LN also minimizes the fees on the platform reducing them or making them non-existent.

Real time statistics of the Lightning Network as at 1.46 PM EAT February 22nd 2019 (Image: 1ML)

The Lightning Network is growing handsomely as it recorded an increase in the total number of nodes by 15.63% in the past 30 days to 6,515 nodes. The value capacity of the LN network currently stands at 715.13 BTC an impressive leap from November when it stood at 441 BTC. This signifies a solid 27% month on month increase in the value capacity which is very impressive.

Conclusion

The scalability problem is yet to be solved completely even with the immaculate Lightning Network becoming functional. To be able to capture the global market as Satoshi envisioned the project, Bitcoin will have to process thousands and probably millions of transactions per second. With Ethereum also dealing with its scalability problem through Casper 2.0 and the Sharding protocol, it won’t take long before the scalability problem is solved without impacting decentralization and security of blockchains.

 

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