Posted in January 2016

For the past few months, questions about the scalability of Bitcoin has been increasing and the developer community has attempted to come up with a solution. But the Bitcoin community is divided over the solutions and as mentioned here, it seems like an election where things are getting heated. As Bitcoin is based on consensus, a change cannot be made if a consensus is not reached.

Currently Bitcoin handles about 7 transactions per second while it has been claimed that the number is lower. Compare this to the 4000 transactions/second that VISA can handle, we see the gap in scalability. In order to scale Bitcoin, increasing the maximum block size (which is currently 1MB) is a necessity. More complex solutions, such as Segregated Witness proposed by Pieter Wuille at Scaling Bitcoin Conference in Hong Kong last December has found support in the community. Segregated Witness removes the signature from the transaction and stores it in a separate data structure, thus reducing the size of the transaction.

Gavin Anderson describes in his blog,

For example, the simplest possible one-input, one-output segregated witness transaction would be about 90 bytes of transaction data plus 80 or so bytes of signature– only those 90 bytes need to squeeze into the one megabyte block, instead of 170 bytes. More complicated multi-signature transactions save even more.

But why is Bitcoin scalability important? The Bitcoin network is congested and small increase in traffic leads to “dramatic changes in network conditions”. Transactions take minutes and sometimes hours to be executed. How many users find it acceptable to wait that long for their transactions to be executed?