Bitcoin Faces Scalability Challenges as Use Grows

By Aubrey Hansen

Bitcoin, invented in 2008 by the anonymous Satoshi Nakamoto, offered a new way to transfer funds between individuals and businesses. The innovation of cryptocurrency allowed for a decentralized model of economic exchange that was no longer moderated and controlled by banks or other institutions, but by the users themselves. However, as the application of Bitcoin increases around the globe, the cryptocurrency is now facing issues of scalability.

The use of Bitcoin has now outreached its ability to keep up with demand. Currently, the rate of transactions that it is able to process is far below that of other major electronic payment systems, such as Visa or Mastercard. Bitcoin is going to have to address this challenge if it is going to fulfill the founder’s vision and become the dominant method of moving funds.  

Bitcoin Processing Limits

The amount of transactions on the Bitcoin network is limited to its processing capacity. Transaction data is organized into “blocks” that eventually become verified by other users. The total block size in the chain cannot exceed one megabyte, and on average it takes 10 minutes to create a block. Bitcoin’s transaction efficiency when handling average size transactions calculates at 3.3 to 7 transactions per second and theoretically maxes out at 27 transactions per second when considering minimal byte size and less complex transactions.

The Consequences of Processing Limits

The restrictions imposed by these figures ultimately limit Bitcoin from widespread ubiquitous use. As Bitcoin began to be utilized more frequently to make purchases or transfer funds a bottleneck developed. This not only increased the amount of time it took for a transaction to be processed and verified but also eventually led to greater fees by companies that provide Bitcoin services. The wave of enthusiasm that ushered Bitcoin into legitimacy was starting to falter.

Short-term Solutions

After much debate in the cryptocurrency community, Bitcoin implemented the Segregation Witness (SegWit) software upgrade that increased the block size limit by a factor of two. SegWit won out over the proposal for Bitcoin Unlimited, which would allow users to vote on whether a particular block needed to increase its size at a given time. Because the changes necessary for BitCoin Unlimited would make future blockchains incompatible with older chains, a “hard fork” in the blockchain system would have occurred, creating a new currency.

While the implementation of SegWit has improved Bitcoin’s scalability problem, user adoption of it has been relatively low since its launch in August 2017. Still today the majority of blockchains produced do not support SegWit.

Future Challenges

Even if SegWit becomes entirely integrated into the Bitcoin community, it is still only a temporary solution. As more people use Bitcoin, the blocks will once again become full and congestion issues on the network will persist. Currently, the problem of scalability is one of the greatest obstacles faced by Bitcoin in being adapted into widespread and everyday use.