Understanding Bitcoin Scalability
Bitcoin scalability is all about whether Bitcoin will be able to handle the large number of transactions necessary for it to compete with existing payment networks.
In a previous blog that looked at what the Lightning Network is, we described what is probably the most established Bitcoin scalability solution. However, there are other options, as well as an important backstory that is worth knowing.
The Story of Bitcoin Scalability So Far
Even though the full title of the Bitcoin whitepaper is “Bitcoin: A Peer-to-Peer Electronic Cash System,” most people think of Bitcoin as more analogous to digital gold than digital cash.
One of the reasons is it cannot currently handle a large number of transactions at the speed required for it to work like cash. This is because the amount of transactions that can be added to a Bitcoin block and the time it takes for a block to be mined both restrict the network’s scalability.
There have been attempts in the past to change these to increase the number of transactions that can be processed. One of the most famous resulted in a hard fork of the Bitcoin blockchain, which became Bitcoin Cash and was subsequently forked again into Bitcoin SV.
However, the popularity of these different chains shows how most have accepted the limits of Bitcoin’s scalability in order to keep it secure and decentralized.
The Current Bitcoin Scaling Landscape
Although these attempts were rejected by most of the Bitcoin community, that doesn’t mean it has given up on trying to scale the network by other means.
The Lightning Network
The Lightning Network is a layer 2 solution that aims to increase scalability by letting users establish one-to-one payment channels that are separate from the Bitcoin blockchain. As these one-to-one channels increase, individuals can start to send payments to those they are not directly connected to, via other users who are connected to both of them.
The Liquid Network
The Liquid Network is slightly different in that it is a sidechain rather than a layer 2 solution. This means it is a unique blockchain with its own Liquid Bitcoin or L-BTC tokens that are one-to-one exchangeable with bitcoins. Since one Liquid block is processed per minute (as opposed to Bitcoin’s 10-minute block time), this solution allows for increased transaction speed. However, it’s worth noting that the Liquid Network is more suited to moving many bitcoins quickly and privately than it is to enabling small payments.
Will Bitcoin Be Able to Scale?
While it’s always difficult to say this with certainty, the signs are looking good for Bitcoin scaling. Both scaling solutions are growing gradually, with various entities around the world starting to use them and no major issues having occurred so far.