[Blah-Chain: Talk28. Protocol Update: SegWit part.2]
Protocol Update: SegWit part.2
Scalability
Scalability is the ability of a network to handle huge amounts of transactions without slowing down.
Blockchain transactions are confirmed and verified by nodes on the network. The agreement between nodes is known as consensus, and there are several types of consensus algorithms, all of which take time.
*Note that Bitcoin uses PoW(Proof of Work) algorithm.
It would not be a big problem if there were only a few transactions that needed to be confirmed. However, a bottleneck will occur if there are too many transactions over the processing speed. Unfortunately, most cryptocurrencies have a scalability problem as their transaction process slows when it gets bigger.
The bottleneck in Bitcoin is caused by the block size which is limited to 1MB. In addition, the Bitcoin network used to only process around seven transactions per second maximum which is way less compared to the confirmation process from credit cards.
When the Bitcoin transaction volume increases, the block size restricts the number of transactions, which means that it gets difficult to process when there are more than a thousand transactions that users are trying to send every minute. Therefore, a lot of those users have to wait in a queue until their transactions are confirmed. This scalability problem results in delayed processing of transactions and increasing transaction fees.
As we learned in the last episode, SegWit not only protects from transaction malleability but also increases the block capacity to solve scalability issues.
SegWit increases Bitcoin’s transaction speed as well as lowers transaction fees.
HOW?
Each block contains transaction data, as well as the digital signature(witness), and the digital signature is used to take up about 65% of the weight in a transaction. After the implementation of SegWit, more transactions can be added to each block as the digital signature is separately stored in the sidechain. By removing the signature data from the main blockchain, which results in increasing the 1MB block size to 4MB to handle more transactions.
