You have some bitcoins in your wallet and you want to use them for your daily purchases. What about a world where Visa, Mastercard and other financial services still dominate the market?
Bitcoin’s ability to compete with other payment systems has long been debated in the crypto community. When the mysterious author Satoshi Nakamoto limited the block size of Bitcoin to 1 megabyte (MB) in 2010 to prevent people from decentralizing the network, the scalability of Bitcoin was also limited.
Each block takes an average of 10 minutes to process, so the number of transactions that can be performed at one time is negligible. That’s a big obstacle for systems that many wanted to replace trust payments. Increased demand will inevitably lead to higher fees, further limiting the usefulness of Bitcoin.
The debate over scale has sparked a wave of innovation in the quest for alternative solutions. There are significant advances, but sustainable solutions are clearly far from clear.
Bitcoin block size discussion
Initially, the simple solution was to increase the block size. But the idea doesn’t seem to be easy.
Increasing the block size can weaken the decentralization of the protocol by giving more power to miners with larger blocks. The competition for faster machines can ultimately make Bitcoin mining profitable. The number of nodes that can handle much heavier blockchains can also be reduced, further centralizing networks that rely on decentralization.
Second, not everyone agrees with this change. How are system-wide updates performed when participation is decentralized? Does anyone need to update their Bitcoin software? What if some miners, nodes and traders don’t?
And finally, Bitcoin is Bitcoin, why waste it? If someone doesn’t like it, they can customize the open source code and start their coins. Introducing SegWit
One of the first solutions to this problem is called Segregated Witness (SegWit), which was proposed by developer Pieter Wiulle in 2015.
This process increases capacity without resizing the Bitcoin block by changing the way transaction data is stored. More specifically, SegWit involves removing the signature data (token information) from the base transaction block (1 MB main block) and adding it to another block called the’extension block’. You can add transaction data to the main block.
SegWit was deployed on the Bitcoin blockchain via a soft fork in August 2017 to comply with non-upgraded network contributors. A soft fork is a software protocol change that disables a previously valid transaction block. Many wallets and other Bitcoin services are gradually adapting their software, but the risks and costs are perceived and other services are hesitant to adapt. Players in several roles in the industry claimed that SegWit wasn’t advanced enough. This may help in the short term, but sooner or later Bitcoin will again experience constraints on its growth.
In 2017, at the same time as the CoinDesk consensus conference in New York, a new approach, Segwit 2X, was announced. The idea is to combine SegWit with increasing the block size to 2MB, effectively doubling the transaction capacity before SegWit.
Instead of solving the problem, the proposal created a new wave of disagreement. The way it was announced (through public announcement rather than renewal proposal) and lack of reprotection (transactions can occur in both versions and can lead to double payments) are very It was exciting. And while developers’ claims to redistribute power to miners and businesses are ultimately avoided, they can cause fundamental divisions in the community.
Bitcoin scale alternative solution
Other technical approaches have been developed as possible ways to increase capacity.
Schnorr Signature-Provides a way to integrate signature data, reducing the space occupied by Bitcoin blocks (and improving privacy). Combined with SegWit, you can enable far more transactions without changing the block size. Lightning Network: The second layer of protocols that run on top of Bitcoin. The Lightning Network opens a channel for high-speed microtransactions that is established only on the Bitcoin network when the channel participants are ready. Acceptance of upgrades will slowly spread throughout the network, increasing transaction capacity and lowering charges. To date, over 74% of Bitcoin transactions use SegWit. Compared to last year’s 44%. Advances are accelerating with more advanced solutions such as Lightning, and the potential for Schnorr signatures is gaining more and more attention, with various developments working on detailed features and integration.
The use of Bitcoin as a payment mechanism has been replaced by its value as a speculative investment asset, but more because the rewards charged by miners for processing are now more expensive than their trustee equivalents. The need for many transactions remains urgent. Improved scalable functionality is important to unlock the potential of the underlying blockchain technology as it continues to earn viable forms of currency.