Bitcoin in front of a computer screen
Transaction costs are getting higher because of the difficulty of scaling up. (Photo by André François McKenzie on Unsplash)

Bitcoin Scaling and What You Need To Know About It

While the decentralized nature of cryptocurrency offers a lot of benefits, there are a few downsides.

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Bitcoin in front of a computer screen

While the decentralized nature of cryptocurrency offers a lot of benefits, there are a few downsides.

One of the most debated topics, as of the time of writing, is the question of whether Bitcoin can be scaled or can increase its transaction capacity. A one-megabyte block in Bitcoin implies that the daily transaction capacity is less than 500,000. The consequence of this level of transaction is that the fees have increased rapidly over time. The implementation of Segwit, a promising technology, could lead to a four times increase of this daily transaction capacity, yet there seems to be a strict limit on the number of transactions the Bitcoin blockchain can process, owing to the decentralized nature of the network.

High Costs of Keeping Transaction Records

Each transaction is recorded with every network node and they must keep a copy of the complete ledger of transactions. This implies that there will be a significant increase in the cost of recording transactions than in a centralized system that requires just a record and few copies.

The most effective transactions are centralized for one major reason: The cost of keeping a central record is markedly lower than what is needed to keep lots of distributed records — as in the case of a decentralized system. Centralized payment systems, including MasterCard and Visa, make use of a central ledger that records all transactions.

To explain this further, Visa can process over 100 billion transactions a year. In contrast, Bitcoin can process around 120 million transactions annually. This huge difference shows how faster transactions get completed in a centralized system. However, for Bitcoin to hit the 100 billion mark, its present one-megabyte block must be upgraded to an 800-megabyte block. This implies that for every 10 minutes, every Bitcoin node must add 800 megabytes of data to the blockchain. Annually, this number rises to 42 terabytes of data (or 42,000 gigabytes). Of course, there is no commercially available computer — in this present age or the foreseeable future — that can possess such impossible processing power. Further explanations on this are available on the Bitcoin prime official website

The High Cost and the Large Volume of Data Involved Push Scaling Up Out of the Realm of Possibility 

Granted, Bitcoin’s decentralized system accommodates the presence of several nodes and this makes every one of them non-critical, requiring less security — as in the case of a centralized system. Yet, a node that can add 42 terabytes of data to the Blockchain annually would require an incredibly expensive computer and the feasibility of that is low — at best — since the cost of setting up a network bandwidth that is needed to process those transactions daily would prove too high. This makes a distributed network too expensive to maintain.

Final Verdict 

It is inconceivable that Bitcoin transactions could be scaled up to the same level that a centralized system supports — it is out of the question and beyond possibility. This explains why the costs of transactions are getting higher and it will, most probably, keep rising as the Bitcoin network expands. The biggest hope, however, of scaling Bitcoin transactions will probably come off-chain and several simpler technologies can be adapted for small and relatively trivial transactions.

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