Bitcoin Scalability Problem & Its Solutions in 2024

Since the release of the Bitcoin blockchain in January 2009, the Bitcoin network has continued to win users worldwide. However, there is a fear that its existing infrastructure could have an upper limit on how many users it can support. In short, Bitcoin’s continued growth raises questions about how scalable it is. While there are possible solutions, they all entail give and take to Bitcoin security, and decentralization and attempts to fix it have led to Bitcoin trilemma. This article discusses all issues and relevant solutions for the Bitcoin scalability problem.

What Is Scalability in Crypto?

Scalability in crypto refers to the ability of a blockchain network to process transactions within reasonable timelines. Essentially, it refers to the transaction speed of a blockchain, which is measured in Transactions per Second (TPS).

Bitcoin Transaction Rate Per Second Chart

TPS is an important metric when considering the mass adoption of Bitcoin, with Bitcoin having a theoretical TPS limit of 7 TPS at the moment. However, in real-world conditions, it averages at around 4 TPS.

That is quite low for a network that hopes to become the global decentralized network of value transmission. The Visa payment service has a top speed of 1,700 TPS. Since it is a centralized network, it could be scaled up to a bigger capacity if needed.

In practical terms, transactions can take longer to process when there is increased traffic on the Bitcoin network. At the current Bitcoin block confirmation of 10 minutes, a transaction can take up to an hour or two to confirm unless one is willing to pay higher Bitcoin fees for faster confirmation.

These delays mean paying for retail goods, such as a movie ticket or a coffee, could take exceedingly long to complete. Consequently, financial transactions would slowly stop if the world switched to the Bitcoin network.

Effects of Bitcoin Scalability

If Bitcoin wanted to improve its scalability to more than 7 TPS, it would need to compromise its security or decentralization. However, developers are looking into possible Bitcoin scalability solutions.

The effect of the lack of scalability in Bitcoin means that transaction costs can be astronomically high at times. Historically, transaction costs have reached as high as $20 per transaction. A good example is during 2017-2018 when everyone was rushing to acquire Bitcoin due to Fear Of Missing Out (FOMO).

Not everything about the Bitcoin scalability issues is negative. One of the positive outcomes has been that BTC is the most secure blockchain network in the world. With the numerous Bitcoin safety features built into it, users are assured of security during transactions.

The current architecture of the Bitcoin network means that it remains highly decentralized. No central actor can take control of the network at will.

The limited scalability of Bitcoin means that mass adoption has not been as effective as intended by its creator. Due to the high cost of conducting small transactions, many people who need it for microtransactions are reluctant to complete them.

Factors Affecting Bitcoin Scalability

Various factors affect Bitcoin’s scalability. They include:

Network Congestion

Network congestion refers to increased traffic on the Bitcoin network. This is when more and more people move their Bitcoin from one address to another. The result is that it takes longer to confirm transactions in the mempool.

Transaction Processing Time and Fees

With a block confirmation time of 10 minutes, users can expect their transaction to be complete in just 10 minutes. However, it can take longer unless one is willing to pay the higher processing fee. It makes sense to process transactions with high fees for huge transactions worth millions of dollars. However, users often have to wait an hour or more to complete a transaction for smaller transactions.

Hard Forks on the Crypto Blockchain

A hard fork is one of the solutions that have been put forth to deal with Bitcoin scalability issues. A successful hard fork of Bitcoin is Bitcoin Cash (BCH). The BCH blockchain developers try to solve the Bitcoin scalability problem by increasing the block size to 8MB instead of the 1MB of the original Bitcoin network.

Energy Consumption

The Bitcoin network runs on the proof of work algorithm, which consumes energy. It is also extremely slow compared to other financial transaction networks. At its fastest, it can only confirm a new block once every 10 minutes.

Solutions to Bitcoin Scalability

The Blockchain developer team has developed some Bitcoin scalability solutions over the years. These solutions attempt to strike a balance in the blockchain trilemma. The most popular are the lightning network, sidechains, and SegWit.

Lightning Network

Lightning Network is a layer-2 protocol that supports instant transactions at low commissions on the Bitcoin network. Its operation is based on the no-malleability of Bitcoin transactions, which was introduced with the SegWit upgrade, which will be discussed below.

Bitcoin Scalability Illustration

With the Lightning Network, it becomes possible to introduce payment channels on the Bitcoin network. These are a method of introducing micropayments to the Bitcoin network which could have been near-impossible in reality. Payment channels deal with this issue by creating direct channels between two wallet addresses and the transactions do not need to be sent to the main blockchain network as long as it is open. Consequently, instead of every small transaction going to the Bitcoin network, users bundle up several tiny transactions sent to the blockchain as one transaction.

The lightning network makes it possible to have a payment channel where anyone can make crypto payments via a few hops. For instance, A and B do not have an open payment channel, but B and C have an open channel, and A and C also have an open channel. B could pay A via the open channel they have in common with C.

Segregated Witness (SegWit)

SegWit was a soft fork to the Bitcoin network that led to a change in the transaction format. The upgrade was designed to protect against transactional malleability, which improves transaction speed via increased block capacity.

Transaction malleability is the possibility of changing small pieces of transaction data, which could invalidate a transaction block. Without SegWit, Bitcoin transaction speeds would have slowed to a crawl, making the network unusable.

SegWit works by dividing transactions into two segments.

The “witness” unlocking signature is removed from the original portion but remains part of the blockchain as a separate structure attached to the end. The original portion contains sender and receiver data, while the witness holds the scripts and signatures. Consequently, there is more space, which means more transactions can be added to each block.

Block Size Increase

SegWit was particularly innovative since the signature data accounts for 65% of block data. Another upgrade from the SegWit soft fork was the introduction of “block weight”, which technically increased the block size from 1MB to 4MB, comprising 3MB signature data and 1MB transaction data.

Some users in the crypto community have been calling for a Block size increase. While that could increase transaction speeds, it also has its challenges. Due to the many transactions on the Bitcoin network, it could reduce the number of people willing to host a full node.

Limited Centralization

Besides the solutions mentioned above, limited centralization of servers to process transactions is one major aspect of the Bitcoin scalability solutions. A good example is transactions on major exchanges like Bitstamp and Coinbase. When users send Bitcoin to another within the exchange, these transactions are not broadcast to the Bitcoin network. Instead, the exchange updates its internal ledgers. Only when users transfer their funds from the exchange is the transaction broadcasted to the Bitcoin network.

Thus far, it has been quite a success. Intra-exchange transactions are often confirmed almost instantly. However, it introduces the risk of centralizing the Bitcoin network.

Impact of Bitcoin Scalability on Crypto Users

There have been several ways the Bitcoin scalability issues have affected Bitcoin users. These include:

Faster Transaction Processing Times

Bitcoin scalability solutions such as payment channels allow users to conduct small transactions at high speeds without being held hostage by the slow confirmation times of the Bitcoin network.

Lower Transaction Fees

One of the direct effects of dealing with the Bitcoin scalability problem is that it lowered transaction fees to a few cents when using payment channels. For instance, without the SegWit Bitcoin scalability fork, the network would have ground to a stop due to high Bitcoin fees per transaction.

Greater Adoption and Usage

While the solutions to the Bitcoin scalability issues are imperfect, they have been important. Nevertheless, it has made it possible for more people to adopt Bitcoin. Today, its benefits would not be available to millions of people worldwide without these solutions.

Is Bitcoin the Most Scalable Cryptocurrency ?

Bitcoin is not the most scalable cryptocurrency in the world. Various crypto blockchains have created solutions to the scalability issue. One of the most famous is Bitcoin Cash (BCH). It attempted to solve the issue with a hard fork that increased the block size to 8MB successfully, and TPS increased to 250.

However, BCH is not the fastest Bitcoin scalability fork. Ethereum 2.0, forked from the Ethereum blockchain has a theoretical speed of 100,000 transactions per second. Additionally, it has a theoretical blockchain confirmation time of just 12 seconds. It is so far the most scalable cryptocurrency, and can also support smart contracts, which has increased the utility of blockchains beyond crypto transactions.

Bitcoin's Scalability Compared To Other Coins

Below is a table comparing the transaction speed and average block confirmation time for Bitcoin and other popular crypto coins.

Crypto Trans./s Avg. Trans. Time
Bitcoin 3-7 60 min
Ethereum 15-25 6 min
Ripple 1500 4 s
Bitcoin Cash 61 60 min
Stellar 1000 2-5 s
Litecoin 56 30 min
Monero 4 30 min
IOTA 1500 2min
Dash 10-28 15 min

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FAQs

Yes. However, it would greatly impact the decentralization of the Bitcoin network. Consequently, any move in that direction would split the community and lead to another fork of Bitcoin.

The fastest solution would be to replace decentralization with centralized control. It would entail ending the proof of work algorithm and placing control in a trusted third party, whom everyone using the network would trust to act in the best interests of the network.

Bitcoin security is determined by the number of active users running full nodes. The more active full nodes there are, the harder it is to run a fraudulent scheme on the network. Full nodes are huge, which will become bigger when block size increases. Consequently, it will mean more storage space will be needed. The result is that fewer people will be willing to run full nodes. It will cause the Bitcoin network to be more centralized, which will make it less secure.

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