Bitcoin Scalability Problem
For a broader coverage related to this topic, see Bitcoin . The bitcoin scalability problem exists because of the limits of the maximum amount of transactions the bitcoin network can process. It is a consequence of the fact that blocks in the blockchain are limited to one megabyte in size.  Bitcoin blocks carry the transactions on the bitcoin network since the last block has been created.  :ch. 2 In contrast to Visa's peak of 47,000 transactions per second,  the bitcoin network's theoretical maximum capacity sits between 3.3 to 7 transactions per second.   The one-megabyte limit has created a bottleneck in bitcoin, resulting in increasing transaction fees and delayed processing of transactions that cannot be fit into a block.  Various proposals have come forth on how to scale bitcoin, and a contentious debate has resulted. Business Insider in 2017 characterized this debate as an "ideological battle over bitcoin's future."  On 21 July 2017 bitcoin miners locked-in a software upgrade referred to as Bitcoin Improvement Proposal (BIP) 91, meaning that the controversial Segregated Witness upgrade activated at block 477,120.  A fork (referring to a blockchain) is what occurs when a blockchain splits into two paths moving forward. Forks on the bitcoin network regularly occur as part of the mining process. They happen when two miners find a block at a similar point in time. As a result, the network briefly forks. This fork is subsequently resolved by the software which automatically chooses the longest chain, thereby orphaning the extra blocks added to the shorter chain (that were dropped by the longer chain). A blockchain can also fork when developers change rules in the software used to determine which transactions are valid.  As per CoinDesk , a h Continue reading >>
Blockchain Scalability: When, Where, How?
Blockchain Scalability: When, Where, How? Angel Investors, Startups & Blockchain developers... Blockchain Scalability, a very real problem! Cryptocurrencies are becoming more and more mainstream. In fact, lets check out how popular bitcoin and ethereum have gotten over time. This is a graph of the number of daily bitcoin transactions tracked over the years: And here we have the number of Ethereum transactions per month over the years: Now, this may look very impressive, but here is the thing, the initial design of cryptocurrencies was not meant for widespread use and adaptation. While it was manageable when the number of transactions was less, as they have gotten more popular a host of issues have come up. The scalability problem of cryptocurrencies For bitcoin and ethereum to compete with more mainstream systems like visa and paypal, they need to seriously step up their game when it comes to transaction times. While paypal manages 193 transactions per second and visa manages 1667 transactions per second, Ethereum does only 20 transactions per second while bitcoin manages a whopping 7 transactions per second! The only way that these numbers can be improved is if they work on their scalability. If we were to categorize the main scalability problems in the cryptocurrencies, they would be: The time is taken to put a transaction in the block. The Time Taken To Put A Transaction In The Block In bitcoin and ethereum, a transaction goes through when a miner puts the transaction data in the blocks that they have mined. So suppose Alice wants to send 4 BTC to Bob, she will send this transaction data to the miners, the miner will then put it in their block and the transaction will be deemed complete. However, as bitcoin becomes more and more popular, this becomes more time-consu Continue reading >>
The Ideal Digital Currency Needs Scaling Solutions
The Ideal Digital Currency Needs Scaling Solutions This is part 3 of a seven parts series by Dr Ken Alabi, who has a Doctorate in Engineering from Stony Brook, a masters in Computer Aided Engineering from the University of Strathclyde, and is an IT professional, programmer, and a published researcher with over twenty publications in various fields of technology. Needless to say, all statements and views expressed below are solely those of the author. You might wish to read the introduction, part 1 and part 2 of the series before continuing. This is part of a series looking at issues that need to be solved in the next few months and years for digital currencies to grow to a reasonable size compared to the tiny segment of the global economic system that they currently occupy. This segment focuses on scaling issues. This one is probably one of the more obvious issues. As this article is being written, for instance, we are in a countdown to another potential split of the Bitcoin network. Scaling issues were put forward as the rationale for the changes necessitating the split. At the very least, there is consensus that solving the scaling problem is necessary ; although approaches vary. Several of these are reviewed here, with a focus on which solutions could actually end up driving the future. First, lets start off with a top-level listing of the characteristics of an ideal digital currency, independent of any currently proposed scaling solution. The ideal digital currency should in some way be able to support between 20,000 to 50,000 transactions per seconds; while maintaining the security of those transactions. Payments should be confirmed within at least ten seconds, or that currency will not be viable for live, in-person transactions. The size of the data and software Continue reading >>
As Fast As Lightning: Off-chain Scaling Solutions To Improve The Bitcoin Network
In the early days of Bitcoin, we were promised near-instant, low-cost transactions from anywhere in the world. Bitcoin began to revolutionize everyday purchases and disrupt the way we exchange value. Bitcoin ATMs popped up in major cities allowing entry points to the network for average users. Coffee shops, pizza parlors, and other businesses started accepting Bitcoin, and making news because of it. We all remember the two pizzas worth millions now. However, times have changed. Even Bitcoin's earliest adopters and strongest proponents realize there's a problem. Transactions can take hours, and fees have made small payments unpractical. No one wants to buy a $20 pizza in Bitcoin if the fee is nearly half that. The "peer-to-peer digital cash" is struggling to perform well in its main use case. While many are bullish on Bitcoin's ability to scale in the future, it is apparent that scalability needs to be addressed sooner rather than later. Other blockchains have realized these issues and are introducing new protocols to try and solve them. So far none have been able to overtake Bitcoin for the top spot, but this does not mean Bitcoin should not address its own issues. The Bitcoin network mines blocks every ten minutes. This is intentional. However, it means that the fastest, on-chain transaction between two parties is 10 minutes. Even then it is only one confirmation. To ensure that a transaction is written to the blockchain in the next block (ten minutes), users must pay higher fees. Network congestion, the desire for fast confirmations, and limited block space massively increase the fees associated with transactions. If users don't want to pay higher fees, their transactions will not be included in the next block, and they may have to wait a long for a long time before Continue reading >>
Microsoft Favors Layer-two Blockchain Scaling Solutions Over Block Size Increases
There have been a lot of interesting discussions regarding the scaling of blockchain technology. So far, a lot of progress has been made in this regard, even though it seems there is no perfect solution in place. According to research by Microsoft, on-chain scaling is best seen as a temporary solution, but in the long run, it will not be enough. To tackle real-world use cases, a different approach will need to be taken. In an ideal world, blockchain technology would disrupt any business model one can think of right now. To do so, however, we need proper scaling solutions for this innovative technology. In its current state, there is no such thing as a scalable public blockchain. Private chains, on the other hand, seem to achieve great success in this regard. Microsoft is not tookeen on using private chains for real-world use cases, though, which comes as a bit of a surprise. Over the past few months, the company has conducted some internal researchon how things will need to evolve when it comes to blockchain technology as a whole. Rather than on-chain scaling solutions such as a block size increase, Microsoft seemingly leans toward layer-two solutions. This is a rather surprising disclosure, even though they seem to have some solid evidence to backit up. Their recent blog post on the topic explains how an increase in on-chain transaction capacity degrades the decentralized state of the network. To some people, such a comment may not make a lot of sense, even though it is technically correct. A higher block size means some players will be able to support bigger blocks, whereas others will not. As such, those supporting the increase will account for more transactions over time, leading to a degree of centralization. Moreover, unless infrastructure and internet bandwidth Continue reading >>
Blockchain Scaling Solutions Explained: The Lightning Network, Raiden Network, Andplasma
Blockchain Scaling Solutions Explained: The Lightning Network, Raiden Network, andPlasma The problem is, the current mechanism is not sufficient to maintain these levels of growth. Right now, the state of all blockchain protocols involves every node storing all states and processing all transactions. While this provides a high level of security, it also severely limits scalability. Over the years, there have been many repeated attempts to scale this mechanism so that only a small subset of nodes would be required to verify each transaction. To be a success, there must be enough nodes to verify each transaction so that security is not compromised, but few enough so that the system can process many transactions in parallel. But so far, every attempt to implement this has been unsuccessful. Despite the appeals from developers since 2011, Bitcoins block size of 1MB has never increased. This limit has created a bottleneck in Bitcoin, which has led to increased transaction fees and delayed the processing of transactions. As a result, the Bitcoin blockchain currently only supports approximately 37 transactions per second. To put this number into perspective, Visas peak is approximately 24,000 transactions per second. Developers working on Bitcoins main GitHub repository are in agreement that a block size increase is necessary in order for us to use the blockchain to its full potential. However, they have not agreed on how it should be implemented. The Lightning Network: A Solution to Bitcoins Scalability Problem? The Lightning Network is one proposed of the solutions to Bitcoins scalability problem and is currently under development. It uses an off-chain protocol and relies on SegWit. Lightning wouldnt require making updates to Bitcoins underlying software. Instead, it would Continue reading >>
Making Sense Of Ethereums Layer 2 Scaling Solutions: State Channels, Plasma, Andtruebit
Construction of the Tunkhannock Viaduct railway bridge in Pennsylvania ( cc ). Roman engineering principles being extended to newuses. Making Sense of Ethereums Layer 2 Scaling Solutions: State Channels, Plasma, andTruebit For ethereum 2018 is the year of infrastructure . This is the year when early adoption will test the limits of the network, renewing focus on technologies built to scale ethereum. Ethereum is still in its infancy. Today, it isnt safe or scalable . This is well understood by anyone who works closely with the technology. But over the last year, the ICO-driven hype has begun to far exaggerate the current capabilities of the network. The promise of ethereum and web3 a safe, easy to use decentralized internet, bound by a common set of economic protocols, and used by billions of people is still on the horizon, and will not be realized until critical infrastructure is built . The projects working to build this infrastructure and expand the capabilities of ethereum are commonly referred to as scaling solutions. These take many different forms, and are often compatible or complimentary with each other. In this long post I want to dive deep into one category of scaling solution: off-chain or layer 2 solutions. First, well discuss the scaling challenges of ethereum (and all public blockchains) in general. Second, well cover the different approaches to solving the scaling challenge, distinguishing between layer 1 and layer 2 solutions. Third, well delve into layer 2 solutions and explain how they work specifically, well talk about state channels , P lasma , and Truebit This article focuses on giving the reader a thorough and detailed conceptual understanding of how layer 2 solutions work. But we wont dig into code or specific implementations. Rather, we focus on Continue reading >>
Bank Of China Moves To Patent Blockchain Scaling Solution
Bank of China Moves to Patent Blockchain Scaling Solution Feb 23, 2018 at 12:00 UTC |UpdatedFeb 23, 2018 at 12:34 UTC Bank of China,one of the four largest state-owned commercial banks in the country, has filed a patent application for a process it says is better able to scale blockchain systems. According to a document released on Feb. 23 by China's State Intellectual Property Office (SIPO), the application was first submitted on Sept. 28 last year and invented by Zhao Shuxiang. The application details that, instead of letting a new block store transactions from its previous one, a data compressing system could be used to pack transactions from multiple blocks into what the patent calls a "data block." For instance, as the patent application describes, once the system receives a request to compress transactions from block 1 to 1,000, it causes a new data block to be formed and temporarily hosted on a different storage system. The system will then run the packed data through a hash function with a hash value. Further, the compression system will give labels to identify blocks on the blockchain, newly formed data blocks and the compression event. The corresponding relationship among the three labels is also recorded on the blockchain. Using this method, the patent claims a reduction in the amount of the data stored in new blocks as transactions mount in a blockchain, while ensuring that data from all previous transactions will still be tamper-proof and traceable. While the patent is currently in the review process and is yet to be granted, it comes as part of a wider effort by the country's state-owned commercial bank in advancing its businesses through using distributed ledger technology. As reported by CoinDesk last year, Bank of China has already partnered with China Continue reading >>
Bank Of China Patents A Blockchain Scaling Solution
By Carlos Terenzi in Cryptocurrency News Home Apparently, Bank of China , one of the most important commercial banks in the country and the fourth largest, has the intention to work on a solution to scale blockchain systems. The bank has filed a patent application for this process that may help blockchains to scale. Bank of Chinas Blockchain Scaling Solution On February the 23rd, a document has been released by Chinas State Intellectual Property Office , known as SIPO. The document explained that the application submitted by the bank was presented on September the 28th, 2017, and invented by Zhao Shuxiang. The new system would work in different way that todays blockchains. Instead of letting a block store the transactions from a previous one, with a specific system that compress the data, the new block could be used in order to pack transactions from multiple blocks. This is what the patent calls a data block. If the system receives a request to compress transactions from different locks (1 to 1,000), it creates a new data block that is temporarily hosted on a different storage system. Once it will be needed, the system will run the packed data using a hash function with a hash value. In this way, and according to the registered patent, the amount of data stored in new blocks will be reduced as transactions mount in a blockchain. At the same time, it ensures that data from previous transactions is still tamper-proof and traceable. At the moment, different financial institutions and governments are using blockchain technology in order to improve their products and services. At UseTheBitcoin we have written several times how governments and enterprises are using distributed ledger technology on a daily basis. Blockchain is able to reduce costs, increase efficiency, reduc Continue reading >>
Bitcoin Blockchain Scaling Solutions Explained Whats The Latest?
Even as far back as 2010, it was fairly apparent that scaling would be somewhat of a gnarly conundrum for decentralized networks. As Jeff Garzik, lead developer for the abortive SegWit2x implementation , proposed a patch to increase block size limit back in 2010, Satoshi wrote on the Bitcointalk forum, Don't use this patch, it'll make you incompatible with the network, to your own detriment. We can phase in a change later if we get closer to needing it. While Satoshi agreed in principle that an increase in block size limit was necessary as the network burgeoned, he was highly cautious of its backward compatibility. A heated exchange ensued and the matter was deferred as not an issue of immediate exigency. However, over the last 2 years in particular, it is unanimously agreed that scaling has become a real problem. Various solutions have been proposed and none has garnered unanimous consensus. The scaling problem has become so contentious that it has lead to formation of fractious factions within the network, each positing a different solution. What are the major scaling solutions and what are their pros and cons? Let's delve into it! Activated on August 24,2017 in a backward-compatible soft fork , Segregated Witness splits a transaction into two segments, removing the signature(witness data) from the transaction data(addresses of sender and receiver) and appending it separately at the end. This would reduce the witness segment's footprint to a quarter of its size, thereby admitting of blocks to hold twice as many transactions. By moving signatures out of transaction data, thereby making it impossible to falsify signature, SegWit also fixes transaction malleability that has been a roadblock for other bitcoin projects. Pros Fixes transaction malleability, backward compat Continue reading >>
Sharding, Raiden, Plasma: The Scaling Solutions That Will Unchainethereum
Sharding, Raiden, Plasma: The Scaling Solutions that Will UnchainEthereum And how REX is positioned to grow with the blockchain of tomorrow Cryptocurrency heavyweights such as Bitcoin and Ethereum are beginning to garner the attention of mainstream media in thanks largely to their monstrous rise in value over the past year. This coverage has piqued the interest of people all over the world who are eager learn more about the underlying technology and how to get involved. However, it also raises concerns of scalability growing the capacity of blockchain networks to handle the massive influx of traffic that comes alongside mainstream adoption one of the biggest challenges facing blockchain technology today. In our previous blog post , we discussed how the current throughputs of Bitcoin and Ethereum are limited, which results in a backlog of unconfirmed transactions when their networks are at full capacity. This issue was laid front and center just this week, and provides a perfect example of the challenges facing the extreme growth of blockchain technology CryptoKitties, a recently launched dApp upon which users trade virtual kittens, went viral and tested the networks capacity, providing essential scaling data and a valuable case study for Ethereums viability in asset management, and for the Ethereum blockchains current transactional capabilities. In the span of four days,CryptoKitties went from accounting for 3% of all Ethereum transactions to 11.77%. This resulted in transaction backlogs, network delays and higher gas fees. Real estate, a 217 trillion dollar global asset class, will be among the largest industries to benefit from the blockchain. However, blockchain technology will struggle to reach its full potential if it fails to overcome this obstacle and facilitate Continue reading >>
Blockchains Dont Scale. Not Today, At Least. But Thereshope.
Blockchain Engineer. I have a passion for understanding things at a fundamental level and sharing it as clearly as possible. Blockchains dont scale. Not today, at least. But thereshope. The first Bitcoin paper was first released in 2008. My excitement about the potential of blockchain technology has been building ever since. Decentralized digital currency, once just a far-fetched goal, is finally making inroads into the mainstream. While thats exciting on its own merit, Im personally most excited about the potential for decentralized applications. Financial exchanges, prediction markets, and asset management platforms all carry enormous potential. The trustless systems supporting them are no less intriguing; identity verification systems, smart property, censorship resistant social platforms, and autonomous structures and governance models like DAOs . The most disruptive use cases probably havent even been dreamt up yet. But this dream still remains a dream for the foreseeable future while a few early enthusiasts and entrepreneurs are experimenting with building such applications, theres still a big missing piece that prevents us from seeing these applications come to fruition: scalability. Blockchains, as it stands today, are limited in their ability to scale. Thats not to say that this will be the case forever, but its definitely true today. In fact, Id argue its one of the biggest technological barriers we face with blockchain technology today. Its quickly become a very active area of research among researchers in the community and cryptocurrency in general. Currently, all blockchain consensus protocols (eg. Bitcoin, Ethereum, Ripple, Tendermint) have a challenging limitation: every fully participating node in the network must process every transaction. Recall that Continue reading >>
Multi Layer And Other Blockchain Scaling Solutions.
This is chapter 6 in The Blockchain Economy serialised book. For the index please go here . Last weeks chapter looked at alternatives to Blockchain using Directed Acyclic Graph (DAG) technology that are designed to scale better. This chapter focusses on Blockchain approaches to scaling using technologies such as Segwit, Lightning Network, Sidechains, MimbleWimble and Schnorr Signatures. The scaling challenge is easy to define in comparison with Visa. VISA handles on average around 2,000 TPS (Transactions Per Second) and has a peak capacity of around 56,000 TPS. Bitcoin handles an average less than 2 TPS and has a peak capacity around 7 TPS. A blockchain based alternative should be 10x or 100x or more than what Visa can do today. We need massive scalability. That will enable totally new types of transaction such as Micro/Nano Payments and mobile money for the Unbanked. Linear scaling is not enough. It must be the kind of non-linear scaling that powered the Internet. Of course all these transaction also have to be done reliably. Nobody will thank you if you handle 200,000 TPS but leave a lot of those transactions open to fraud. It also has to be done fast. Consumers expect digital transactions to be human real time (the time it takes for somebody to say/text did you get that? and the other person to respond y/n i.e few seconds). And cheap.It must be cheaper than credit cards and cheap even for very small transactions as a cash alternative. Massively scalable, totally reliable, fast and cheap. Nobody said that this would be easy! Smart non-tech guide decrypted tech jargon It is traditional to label these explainers Dummies or 101. We need a new label. The Daily Fintech community is super smart (no dummies in our 21,000 subscribers), but they may not come from a technical Continue reading >>
Bitcoin Has A Huge Scaling Problemlightning Could Be The Solution
Sign up or login to join the discussions! Bitcoin has a huge scaling problemLightning could be the solution The Lightning network could enable much cheaper and faster bitcoin payments. Three startups are getting ready to launch one of the most ambitious and important cryptocurrency experiments since the creation of bitcoin itself. Called Lightning, the project aims to build a fast, scalable, and cryptographically secure payment network layered on top of the existing bitcoin network. Essentially, Lightning aims to solve the big problem that has loomed over bitcoin in recent years: Satoshi Nakamoto's design for bitcoin is comically unscalable. It requires every full node in bitcoin's peer-to-peer network to receive and store a copy of every transaction ever made on the network. Initially, that design was vital to achieving Nakamoto's vision of a fully decentralized payment network. But as Purdue computer scientist Pedro Moreno-Sanchez told Ars,it creates a big challenge as the network becomes more popular. "We have reached a point where it's not suitable any more to keep growing," he said. Lightning could offer a way out of this bind. It shifts routine payments outside of the blockchain, clearing away the most significant obstacle to bitcoin's continued growth. In fact, the Lightning project could potentially do much more than that. Lightning payments are expected to be faster, cheaper, and more private than conventional bitcoin payments. Proponents see Lightning as a new, second layer in the bitcoin software stack. They hope Lightning will expand the appeal of bitcoin in much the same way the Web helped the Internet go mainstream. The key ideas behind Lightning were proposed byJoseph Poon and Thaddeus Dryja in a 2015 white paper , but it's taken three years to translate Continue reading >>
Buterin Presents Blockchain Scaling Solution That Could Make Exchanges Hack Resistant
Buterin Presents Blockchain Scaling Solution That Could Make Exchanges Hack Resistant Vitalik Buterin has revealed a new Blockchain scaling solution, Plasma Cash, at the Ethereum Community Conference in Paris. Vitalik Buterin , co-founder of Ethereum , presented a Blockchain scaling solution called Plasma Cash, an even more scalable version of an existing solution called Plasma , during a talk live streamed on YouTube at the Ethereum Community Conference in Paris on Friday, March 9. Plasma Cash was developed by Buterin and developers Dan Robinson and Karl Floersch. Plasma itself is an on-chain scaling solution for Blockchains, introduced by Buterin and Lightning Network creator Joseph Poon in August 2017. Plasma works by optimizing data that is passed onto the root Blockchain, reducing the transaction fees for smart contracts and decentralized applications (DApps). The problems with the scalability of Plasma, according to Buterin, is that every user must download and authenticate each Plasma block, which prevents exponential scaling. To explain the Plasma Cash model, Buterin gives the example that if a user deposits some amount of ether to a crypto exchange or any third party service, a Plasma coin would be created with the same value of ether and a unique ID that cannot be merged or split. In contrast with Plasma, Plasma Cash would only require users to pay attention to the blocks that contain coins they want to keep track of: A user actually only needs to verify the availability and correctness of the Plasma chain only  at the specific index of the coin, of any coins that they own and any coins that they care about. As for the current practical applications of Plasma Cash, Buterin sees a possibility for crypto exchanges to take advantage of the technology to make t Continue reading >>