Threats to bitcoin (3) — scalability problem

Calvin Cheng
Dec 7, 2017 · 3 min read

It has been a while since I published the last bitcoin article on 15th November. Surprisingly, the price of bitcoin surges from $7000 to $16000 now, more than 120% increase! Since I am not an investment expert, I will not give any advice in the following article. Let’s stick with the technology of bitcoin if you really care about its future. The huge growth in the price of bitcoin cannot be sustained without solid technological foundation.

Scalability problem has sparked a heated debate in the bitcoin community. The rise in transaction fee and the confirmation time for transactions make bitcoin fail to deliver its promise as an instant micropayment system. With only 7 transactions per second, bitcoin cannot compete with other international payment networks like Visa which can handle 2000 transactions per second. It even caused some people to create different “new bitcoins” to solve the issue. So, why can’t bitcoin process more transactions? The miner collects new transactions and forms a block every 10 minutes which then be included in the blockchain by all nodes in the bitcoin network. That means the size of the block determines the maximum number of transactions to be processed every 10 minutes. The existing size limit for a block is at 1MB. The average size of a bitcoin transaction is about 250 bytes. Dividing 1MB by 250 bytes, we can get 4000 transactions every 10 minutes. ( 1,000,000/250 = 4000 ) Dividing 4000 transactions by 10 minutes, we can get about 7 transactions per second. ( 4000/(10*60) = 6.667 )

I know you are confused now. Why there is a size limit for a block? The scalability problem can be solved by allowing miners to produce blocks with unlimited size, right? Yes, but it can hurt the decentralization of bitcoin which is considered as the most valuable element by many stakeholders in the bitcoin community. Decentralization in bitcoin is secured by the distributed nodes and miners. Blocks with unlimited size can result in a huge jump in the size of the blockchain. When bitcoin handles 2000 transactions per second, there will be 16TB of data created in a year which is about 100 times of the existing size. The personal computer usually comes with a 1TB of hard disk. Most individuals will be driven out of running the bitcoin node as they cannot afford to hold such a large blockchain. The similar consequence can happen in miners. Miners tend to stay close with each other to decrease the delay of receiving a larger block. The faster the miner receives the block, the earlier the miner can start to create a new block to earn the reward. In other words, individual miners have lower chance to mine a new block when they are located far away from the big miners. Centralization in the bitcoin network leads to the censorship and record altering problem I mentioned in the last article. Furthermore, the 21 million maximum cap on the bitcoin supply may also be revoked. That’s why lifting the size limit is not an effective solution to the scalability problem.

Luckily, different teams are working hard to scale bitcoin without affecting the decentralization of bitcoin. The most well-known one is the lightning network which is a second layer built on top of the main blockchain. I will explain more in the future so stay tuned!

Calvin Cheng

Written by

I love bitcoin, blockchain, tech, movie, history and life!! / HKUST graduate / Tech consultant

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