Launched in 2009 by Satoshi Nakamoto, Bitcoin is the pioneer cryptocurrency, which has become a global phenomenon. Within a single decade, the world’s first cryptocurrency has reached a market capitalization of $1 trillion, which is undoubtedly impressive. However, since its inception, there have been questions surrounding its ability to scale effectively. A digital ledger referred to as blockchain is used for processing, verifying and then storing the transactions made with bitcoin.
Blockchain is regarded as a revolutionary technology that maintains a complete record of transactions and is being used in numerous industries nowadays. This is due to the fact that manipulating ledgers is nearly impossible because the reality of what has occurred has been verified by majority rule, not by an individual. Furthermore, the network itself is decentralized, which means that it exists on computers throughout the world and is not under the control of a single authority.
However, the problem with the blockchain technology used in the bitcoin network is that it is quite slow, especially when you compare it with banks that perform credit card transactions. For instance, approximately 150 million transactions are processed every day by notable credit card company Visa Inc., which is around 1,700 transactions every second. The capability of the company actually surpasses that, as they have the resources to process around 65,000 transactions per second.
How many transactions can be processed by the bitcoin network for the same time period? It takes a total of seven seconds and it can take several more minutes. Over the years, the bitcoin network has continued to grow and the increase in the number of users has meant that people have had to deal with long waiting times because there are more transactions that have to be processed and there hasn’t been a change in the underlying technology that does so.
This central problem of scaling has been the hot topic of ongoing debates around the technology powering bitcoin and how to increase the speed of the transaction verification process. Cryptocurrency miners and developers have come up with two primary solutions to this problem. The first is to reduce the amount of data that needs to be verified for every block, which will result in cheaper and faster transactions. The second solution requires increasing the size of the blocks themselves, which would allow more information to be processed at a time.
The cryptocurrency that was developed out of these solutions came to be known as Bitcoin Cash (BCH).
Mining companies and pools that represented around 80% to 90% of the bitcoin computing power came together in July 2017 to vote to incorporate a technology called Segwit or segregated witness. The purpose of introducing this technology was to reduce the amount of data required to be verified for every block. It accomplished this by removing signature data from every block and attached it to an extended block. This signature data accounted for almost 65% of the data that was processed in every block, so this wasn’t exactly an insignificant shift in technology.
In 2017 and 2018, there had been an increase in talks of doubling the block size from its original 1 MB to 2 MB and the average block size of Bitcoin was increased to 1.305 MB, as of February 2019, thereby surpassing all previous records. However, the block size had declined by January 2020 back to 1 MB. The larger block size is helpful in improving the scalability of Bitcoin. Crypto exchange BitMex conducted some research in September 2017, which showed that the block size had increased due to the implementation of SegWit, due to a steady adoption rate. The proposals for implementing Segwit and for doubling the block size were called Segwit2x.
Bitcoin developers and miners who were equally concerned about the future of the cryptocurrency and its scaling ability came up with the concept of Bitcoin Cash. These people had their reservations about the adoption of the SegWit technology and believed that it failed to address the problem of scalability in a meaningful way and was not in accordance with the roadmap that had been initially outlined by Satoshi Nakamoto, the anonymous individual or group that had come up with the blockchain technology behind Bitcoin.
In addition, they opined that introducing SegWit2x wouldn’t give any transparency and there were concerned that its introduction undermined the democratization and decentralization of the cryptocurrency. Thus, some developers and miners initiated what is referred to as a hard fork in August 2017, which effective created a new cryptocurrency called Bitcoin Cash. It boasted its own blockchain and unique specifications. The major feature that distinguished it from Bitcoin was the 8 MB block size that was introduced for accelerating the verification process.
It also had an adjustable level of difficulty for ensuring the transaction verification speed and the chain’s survival, regardless of how many miners support it. The maximum block size was increased in 2018 to 32 MB, but actual block sizes haven’t reached that far as yet. Nevertheless, the cryptocurrency is able to process transactions a lot faster than Bitcoin, which means that there are shorter wait times and processing fees is also reduced.
But, there are downsides of the larger block size as well, since the security of Bitcoin Cash can be compromised. Likewise, Bitcoin still remains the leading crypto in the world by market capitalization, which means that Bitcoin Cash’s real-world usability and liquidity is lower than the pioneer cryptocurrency. Moreover, the debate regarding transaction processing, scalability and blocks has continued beyond Bitcoin Cash. Therefore, in November 2018, Bitcoin Cash saw its own hard fork occur.
This resulted in another derivation of Bitcoin known as Bitcoin SV, which was created in an effort to stick to the original vision that had been outlined for Bitcoin by its founder, Satoshi Nakamoto. However, it did make some modifications for facilitating faster transaction speeds and scalability. It appears that the debate about the future of Bitcoin is still ongoing and there are no signs that it will be resolved any time soon.