Bitcoin, the first and largest cryptocurrency by market capitalization, has been facing scalability issues since its inception in 2009. Transactions on the Bitcoin network can take several minutes to confirm and the network can handle only a limited number of transactions per second (TPS). This is a problem that needs to be addressed in order for Bitcoin to be able to compete with traditional payment systems and be adopted on a larger scale.
One of the main solutions proposed to address the scalability issue is known as Segregated Witness (SegWit). SegWit is a soft fork that was implemented in August 2017 and aims to increase the block size limit on the Bitcoin blockchain. The block size limit is the maximum amount of data that can be stored in a block on the blockchain. The limit currently stands at 1 megabyte (MB) but SegWit increases this limit to around 4 MB by removing certain data from the block and storing it elsewhere. By doing this, SegWit aims to increase the number of transactions that can fit into a block, thereby increasing the TPS on the network.
Another proposed solution is the Lightning Network. The Lightning Network is a second layer solution that operates on top of the Bitcoin blockchain. It aims to increase the TPS on the network by creating a network of payment channels between users. These payment channels allow for instant and low-cost transactions without the need for them to be recorded on the blockchain. This means that only the opening and closing of the payment channel need to be recorded on the blockchain, while all the transactions within the channel are off-chain. By doing this, the Lightning Network aims to reduce the number of transactions that need to be recorded on the blockchain, thereby increasing the TPS.
A third proposed solution is the Bitcoin Cash (BCH) hard fork that took place in 2017. This hard fork aimed to increase the block size limit on the Bitcoin blockchain to 8 MB. By doing this, BCH aims to increase the TPS on the network and make it more suitable for everyday transactions. However, it has been criticized by some in the community for not being a true solution to the scalability issue as it increases the block size limit but it doesn’t address the underlying problems of the network.
Finally, there is the concept of sharding, which is not yet implemented on the bitcoin network but it’s a scaling solution that is being studied by many researchers and developers. Sharding is a method of horizontal partitioning of the blockchain data. This means that the blockchain is divided into smaller parts, called shards, that can be processed independently. By doing this, the number of nodes that need to process each transaction is reduced, which leads to an increase in TPS.
In conclusion, Bitcoin’s scalability issues are a complex problem that requires a multi-faceted approach. Solutions such as SegWit, the Lightning Network, and sharding aim to increase the TPS on the network and make it more suitable for everyday transactions. However, it’s important to note that no single solution will completely solve the scalability issue, and the community will likely need to continue to work together to find the best approach.