brief:
1. Bitcoin is not ready to become the default digital payment method in the world.
2. If the 700 billion digital transactions that occur every year around the world are processed on the chain, it will cause a huge backlog.
3. There are several possible expansion solutions under development, and the development speed is stable but slow.
If Bitcoin is the world’s default digital payment method, it will process 700 billion transactions every year, and this will make the transaction speed of the blockchain pitifully slow.
As the world’s leading cryptocurrency, its initial goal is to be widely adopted in the form of electronic cash. But now, as the price of Bitcoin increases, people are more likely to see it as a store of value. Although we have witnessed the prosperity of non-cash transactions, the number of merchants that can pay with Bitcoin is declining. Many users have also concluded that Bitcoin as a shopping method has the following disadvantages, such as slower and more expensive than traditional cash (at least for small transactions).
However, this may not always be the case. Some Bitcoin enthusiasts are determined to reach such a state. At that time, almost all digital transactions in the world will be carried out with Bitcoin, and buying various commodities from lemons to Lamborghini through encrypted wallets will also become daily, and transactions Not only is the speed fast, but the cost is also low.
So, technically speaking, what needs to be done if Bitcoin is to become the main currency for global peer-to-peer payments?
opportunity
According to statistics, in 2019, there were approximately 708.5 billion digital transactions each year, which means that there were approximately 1.9 billion transactions per day.
If all these transactions are to be processed, then the Bitcoin blockchain needs to process 13,194,444 transactions every 10 minutes.
In order to process 13,194,444 transactions every 10 minutes, based on Bitcoin’s current transaction size (an average of 537 bytes), each block needs to hold at least 7GB of data.
As of September 2020, the entire Bitcoin blockchain data volume has just exceeded 300GB, that is to say, in order to achieve the above goals, the current volume needs to be added every 43 days.
At that time, the entire transaction volume will generate more than 1 terabyte of data per day and add it to the Bitcoin blockchain, or 372 terabytes of data will be generated annually.
reality
Currently, there is no technical way to do this. The block size of Bitcoin is fixed at 1MB (it can be exceeded, but only a little bit).
In addition, because the block time and size are fixed, 13,914,444 transactions cannot be processed within ten minutes, which will lead to a huge backlog (or, in blockchain terms, mempool).
How big will Mempool be? After racking our brains, we asked Jason Deane, an analyst in quantum economics.
He told us that based on historical data, the network can manage about 3333 transactions every 10 minutes-about 5.5 transactions per second. In contrast, Visa’s processing efficiency is about 1700 TPS. But as far as Bitcoin technology is still in its infancy, 13,914,444 transactions require 4174.5 blocks and approximately 29 days to complete.
“And this is just a block of data that we should clean up in 10 minutes!” Deane said, adding that the backup of this network will grow exponentially. “When we complete this part of the transaction, there will be 13,914,444×4,175 transactions that need to be completed, for a total of 580,092,803,700 transactions.”
Increase Bitcoin block size
Deane said that in order to process billions of transactions per day on the blockchain itself, Bitcoin needs to “far exceed the network, hardware, and transmission speed that we have now”. Therefore, based on “sidechain” and other external chain transactions The solution appeared. He added: “Even if you create a scenario where 7GB blocks can run, I think the technology is still not enough, and if you want to make it perfect, there will be many negative effects.”
One view is that it is impossible to increase the block size indefinitely, because it will lead to a greater degree of centralization. If node operators need to download gigabyte-scale blocks and cannot afford the related hardware or Internet costs, this may become an obstacle for many nodes. The increase in centralization will be the result of this obstacle.
In addition, the storage cost and transmission bandwidth of the data must be considered. In 2014, Bitcoin Core developer Gregory Maxwell stated: “When you talk about transactions on the network, there is an inherent trade-off between scale and decentralization.” “You need a lot of bandwidth to achieve about gigabits. Connection. This is feasible. But the problem is that it will not be very decentralized, because who would be willing to run this kind of node?”
However, many people still believe that increasing the block size is the key to making Bitcoin mainstream, especially when other solutions are still incomplete. It will allow more transactions to be confirmed in each block and reduce fees, making the network faster and cheaper. And this is what the Bitcoin Cash community does. When they fork from Bitcoin Core, they will first change the block size to 8MB and then to 32MB.
However, speaking of this, in actual operation, the average block size of the Bitcoin Cash network is still less than 1MB, and the debate about block size has been intensively conducted for many years and has not yet been resolved. On the contrary, other solutions have received attention.
This will mean that a block can accommodate more transactions, similar to how Bitcoin Segregated Witness increased overall network capacity in 2017.
Segregated Witness allows Bitcoin blocks to be expanded from 1MB to 4MB when necessary, thereby increasing the number of transactions that the network can process per second and reducing fees. Currently, Segregated Witness accounts for more than 60% of Bitcoin transaction volume.
Lightning Network
The so-called “two-layer solution” is deployed on the Bitcoin blockchain. The most famous of these is the Lightning Network. It allows nodes to open channels and conduct transactions between them, and pass the numbers that will eventually be recorded on the Bitcoin blockchain, thereby forming a payment system that may be faster and cheaper.
However, the Lightning Network is still not perfect, and there are still many technical problems to be solved, but the good news is that developers are making progress, and new features and improvements are constantly appearing.
Side chain
The side chain is a blockchain branched from the Bitcoin blockchain that can transfer assets between them, thereby freeing up bandwidth for transactions that need to be processed on the main chain.
Blockstream’s Liquid network is an example. But the disadvantage is that each side chain needs node protection, which may lead to trust and security issues.
Fragmentation
Sharding is one of the most popular methods used by other blockchains to ensure scalability. For example, one of the key features of the upcoming Ethereum 2.0 upgrade is sharding.
This technology increases the speed of the entire system by decomposing transactions and allowing nodes to efficiently perform parallel processing, achieving a speed of 100,000 transactions per second (as Ethereum 2.0 hopes to achieve). However, this process adds complexity and may be detrimental to security, because sharding may increase the chance of “double-spending” attacks.
Due to technical challenges and the general reluctance of Bitcoin developers to venture into unknown areas, sharding is unlikely to be developed as a scalable solution for Bitcoin in the short term.
Standard method
The limitations of Bitcoin are obvious, and the prospect of the Bitcoin blockchain processing 700 billion transactions per year is far from being realized. Scalability solutions like sidechains and Lightning Networks are helpful, but they also have drawbacks, and there is not necessarily a clear and successful standard method.
In any case, ensuring the security of the Bitcoin blockchain is still a priority. In addition, multiple solutions may be used in combination, for example, quantum computing may play a role.
At the same time, the optimistic point is that trials continue every day, and developers are working hard to improve Bitcoin’s scalability. Just to achieve this goal is still a long way to go.
