While Bitcoin has been gaining popularity since its launch in 2009, it has also been receiving a lot of bad press. From the US to China, Warren Buffet to JP Morgan, some prominent figures have shared their hatred for the cryptocurrency. To be fair, bitcoin is not entirely perfect.
Bitcoin’s pseudo-anonymous founder Satoshi Nakamoto designed the network to store transactional data in blocks. Each block is 1MB in size. Many blocks form put together the blockchain—a digitized, decentralized public ledger.
The blockchain grows in size as the community increases. When Satoshi launched it, the blockchain was small in size. And perhaps because the founder did not think it would grow to its current status today, he set the network to produce one bitcoin block in ten minutes.
Consequently, Bitcoin is faced with a scalability problem. 1MB of data size holds an average of 2500 transactions. On average, Bitcoin processes four transactions per second. With more than 200,000 transactions a day, most bitcoin transactions are delayed for an average of 30 minutes.
So, why not Increase the Block Size?
Increasing Bitcoin’s block size would speed up transaction times. Doubling the blocks to 2MB would mean an average of eight transactions per second instead of four. Increasing it to 8MB would lead to 32 or more transaction processed every second.
On the surface, increasing the block size looks like a good idea. Renowned bitcoin proponent Roger Ver strongly supports increasing the block size. He has the support of popular developer Gavin Andresen and Dr. Adam Back. The latter is one of six people cited by Satoshi Nakamoto in his whitepaper.
Of course, many of the pro block size members don’t have bad intentions against the network. But irrespective of their intentions, increasing the block size may be damaging rather than uplifting for the network.
The Threat of Centralizing Bitcoin Mining
Bitcoin miners are paid per every block they produce. They also get the transaction fees paid for all the transactions contained in the block. But with the block size increased, the miner’s fees will go down. Traders set the fees. Late last year, the fees went exceptionally high as people rushed to trade bitcoins. When bitcoin’s demand decreased, the fees lowered.
Increasing the block size would increase transaction times but lower the fees. Small miners would likely stop mining in the process since they would receive less pay in fees. Large mining companies would take more control of the mining business, which is bad for the network.
As crypto investors have witnessed in recent years, miners hold a lot of power. When the Bitcoin last held a vote to adopt SegWit (more below), miners unilaterally voted against the move. It didn’t matter that only a few mining pools dominate the industry. They own the largest market share.
Increasing the block size will only increase the market share to a small group of mining pools. Bitcoin mining is already expensive as it is. With increased blocks, it will cost more. Manufacturers will have to design bigger and more expensive mining machines. The electrical costs of mining will increase also, pushing small miners out of the business.
Larger Blockchain, Less Decentralization
An obvious effect of increasing Bitcoin’s block sizes is that the blockchain will become bigger. Already larger than one terabyte, doubling the block size would take the decentralized ledger to 2TB. Eventually, the blockchain will be too large to store on personal computers.
The only people who might have the size to hold the BTC node will be the rich and interested businesses. With fewer people running bitcoin nodes means the bitcoin will go in the direction of centralization. And that’s against everything Satoshi stood for.
Of course, node operators can choose to increase memory capacities to handle the large blockchain sizes. But it would come at little to no profit. The best solution is to leave the block size at 1MB. The network’s decentralization won’t be threatened and there will be no economic losses to anyone.
Bitcoin developers against increasing the block size propose the SegWit technology in its place. The technology doubles up the block size without affecting the blockchain. Traders only require to use wallets that support the technology to get its full benefits.
Besides increasing the network’s transaction time, SegWit leads to lower fees. It is estimated the fees saved can be as much as 80% and with almost no negative effects. As already mentioned, there was a vote to adopt SegWit into bitcoin last year but the motion failed. Less than 51% of voters supported the technology.
Those against SegWit argue that it is a temporary solution. It only increases the block size to 2MB, meaning it doesn’t solve the scalability issue entirely. And while that may hold some truth, SegWit opens doors for better technologies like the Lightning Network which could solve the problem.
Increasing the Block size is not a Permanent Solution
Forward-thinking Bitcoin supporters know the network has infinite growth. There was a time when the 1MB block size was enough to cater for all of the network’s transactions. Now it’s not enough. But doubling or tripling the block size will only be helpful for a short period of time.
Ten years from now, 10MBblock sizes may be too little to handle the transactional loads at the time. Of course, the community can keep increasing the block size. But it’s risky to the bitcoin consensus and time-consuming.
Any damage done to the bitcoin network while changing its block size consensus could be catastrophic. Doing it a second time to meet expanding demands will be more damaging. Bringing bitcoin’s stakeholders to vote for increasing block size could also take years,
The only viable solution as some developers have stated is to use off-chain methods to increase the block size. The lightning network is still in a theoretical stage. But it holds the ability to increase transaction times and solve the scalability problem. Other off-chain solutions could also be adopted. But they must not affect the bitcoin consensus and must be practical.