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!
Bitcoin Scaling Solutions
Segregated Witness (SegWit)
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 compatible, does not require a hard fork, greater security, 2x increase in block space without actual increase in block size(blocks are coded to be read as 1 MB by nodes)
- Cons – Scaling may not be sufficient in the long-term
Currently in alpha phase of development and on trial in the Litecoin network, Lighting Network is an off-chain scaling solution for the Bitcoin network. Lightning is a P2P system for making micropayments of digital currencies through a scale-free network of bidirectional payment channels without delegating custody of funds or trust to third parties. Users open a payment channel on Lightning Network between two or more parties. Transactions are only broadcast on the blockchain with the final distribution of funds when the parties to a transaction channel opt to close the channel. Uncooperative participants are penalized to ensure trust and security.
- Pros – Instant transactions, Infinite scalability
- Cons – Some users may not warm to a secondary payment network
Ethereum Scaling Solutions
Scaling is not a problem exclusive to Bitcoin. The #2 cryptocurrency is seeking solutions as well. Raiden Network is a proposed off-chain scaling solution for the Ethereum network.
The goal of the Raiden project is to provide an easy to use conduit for off-chain payments without the need of trust among the involved parties. To achieve safety, all value transfers done off-chain must be backed up by value stored in the blockchain. Off-chain payments would be susceptible to double spending if that was not the case.
The big difference from Lightning Network is that in the Raiden Network, participants to a channel agree upon shared rules which are then coded into a smart contract. Raiden allows users to privately exchange messages to sign the transfer of value. Raiden is able to handle over 1 million off-chain transfers per second.
- Pros – Instant transactions, Infinite scalability, secure, customizable off-chain smart contracts
- Cons – Like Lightning Network, it is a secondary payment network
Bitcoin Cash Scaling Solutions
Bitcoin Cash was a hard fork of the Bitcoin chain activated on August 1, 2017. A majority of proponents of Bitcoin Cash are miners who refused to adopt BIP 91 without increasing the block size as they felt it would only delay confronting an inevitability and that smaller blocks favored people who wanted to treat bitcoin as a digital investment rather than as a transactional currency. Bitcoin Cash increases the block size to 8 MB with testing in progress for future implementation of significantly bigger blocks upto 1 GB.
Increasing the block size, while may seem a straightforward solution, brings with it various collateral complications. After 8 years, overall Bitcoin block size stands at just over 130 GB, currently increasing at the rate of 5 GB/month. On the Bitcoin Cash chain, with 8 MB blocks, the overall block size increases at the rate of 40 GB/month given the same rate of block generation. Full nodes would be required to download 8 times as much data. Consequent to this, centralized large-scale mining operations would start controlling majority of the hashrate. Centralized mining defeats Bitcoin's value proposition of trustlessness.
Lack of SegWit implementation and larger blocks, due to their slower rate of propagation, also make the network less secure with greater vulnerability to attacks such as finney attack, race attack and other manipulations by misbehaving actors.
- Pros – Straightforward solution to faster processing of transactions, Off-chain solutions are not yet ready, Reduces transaction fees in the short-term
- Cons – Full nodes are highly expensive to operate leading to centralized entities wielding power in the form of hashrate, Rapidly increasing block size(40 GB per month), Vulnerable to block reorganization, double-spend, various attacks due to slower propagation of blocks, no amount of maximum block size could support all the world's future transactions on the main blockchain
The highly controversial advocacy for Bitcoin Unlimited comes from mining pools such as ViaBTC, AntPool and investor Roger Ver, lobbying for miner flexibility to increase the block size limit. Bitcoin Unlimited proposal is different from Bitcoin Core in that the block size parameter is not hard-coded, and rather the nodes and miners flag support for the size that they want, using an idea they refer to as 'emergent consensus'. Those behind Bitcoin Unlimited proposal argue that from an ideological standpoint the miners should decide about the scaling solution, since they are the ones whose hardware secure the network.
Scaling Solutions Explained Conclusion
As things stand, the combination of SegWit and Lightning Network appears to offer the most secure, trustless, long-term scaling solution. Whether any of these proposed solutions, through wider adoption, ever allow you to use cryptocurrency to buy a cup of coffee, however, remains to be seen.