For the last few months, the Bitcoin community has been struggling to find consensus on how to scale the rate at which the bitcoin network confirms transactions. As the urgency to find a solution grows, so does the intensity of the deliberations.
In this blog post, we seek to make sense of this debate without taking sides.
First, it is important to appreciate why scaling the payment system is inevitable. Currently, the Bitcoin network can confirm up to about 7 transactions per second. This rate is without a doubt too small for a technology for which people have ambitions that it will become the main online payment method.
Bitcoin Must Scale for Wide Adoption
By comparison, Visa handles about 2,000 transactions per a second, with a capacity for up to 56,000.
It is irrefutable, therefore, that the capacity of the current block size would soon be unable handle all the transactions needing confirmations. This could lead to an increase in the number of unconfirmed transactions, as well as extend the time it takes for a transaction to be confirmed, both of which put trust in the cryptocurrency at risk.
Indeed, most players in the bitcoin ecosystem agree on the need to scale, but they diverge on how to go about it.
Two major scaling options are on the table: One, increasing the size of the blocks, thus accommodating more transactions; or two, completing the bulk of transactions off the blockchain, with only net balances brought on chain.
Two Sides of the Same Coin
The community is divided on the issue, starting with the core developers of the Bitcoin software, a team of five individuals bestowed with the role of overseeing the software development and maintenance.
On one side is Gavin Andresen, a developer who communicated with Satoshi Nakamoto before the founder of Bitcoin retreated from the scene and who also holds the alert key for broadcasting critical messages to nodes in the network. Andresen has the support of Mike Hearn, a former employee at Google who has also contributed much to the Bitcoin core development.
Andresen and Hearn are championing for the increase in the block size from 1mb to 8mb, with room for it to double after every two years until 2036, as the best way to scale. They published a Bitcoin improvement proposal (BIP 101) in June that outlines these specifications as part of the debate.
On August 15, they released the client Bitcoin XT, amidst protests from some members of the Bitcoin community.
Bitcoin XT Offers Bigger Blocks
According to the duo and their supporters, Bitcoin XT, which comes with bigger blocks, will activate in January 2016 if 75% of the clients in the network install it by then. The decision whether to install can be interpreted as a sort of referendum voted on by those who run nodes in the Bitcoin network in order to break the procrastination of the community on the issue of scaling.
Other core developers sit on the other side of the debate. Wladimir J. van der Laan, Gregory Maxwell and Pieter Wuille believe that increasing the size of the bitcoin block would not be the most appropriate way to scale.
They argue that this would centralize the Bitcoin system and make it less secure, since it become more resource-intensive to set up validation nodes.
Lightning and Sidechains Offer Bigger Capacity
Those against a block size increase propose to move forward by building innovations on top of the blockchain. Among the solutions put forward are the Lightning Network, offering secure off-blockchain channels for micro transactions, and sidechains, independent blockchain replicas that are connected to the Bitcoin blockchain but handle different forms of transactions, hence easing the pressure on the main blockchain.
This latter side has also attracted notable industry players, including Adam Back — the inventor of hashcash, which is used in Bitcoin mining as proof of work — and Jon Matonis, who is the former chief executive director of the Bitcoin Foundation.
A third force
Another of the Bitcoin core developers, Jeff Garzik, has put forward other two proposals for scaling bitcoin. BIP 100, which proposes to remove the block size limit, has received an acceptance, especially from miners and will become operational if 90% of the nodes adopt it.
The other proposal he offers is BIP 102, which will as a fall back in case all the proposed solutions do not work.
As things stand, neither side has had its way. The debate is ongoing. Nevertheless, it is important to note that users have little to worry about. One way or the other, the bitcoin community will achieve a consensus.