Bitcoin Scalability

What Is Scalability?

System scalability is how well a system can handle increased demand. Adding more servers may be necessary if your website gets a lot of traffic. Upgrade your computer's components if you wish to run more demanding programs.

The word refers to the simplicity with which a blockchain may be upgraded to execute a greater number of transactions in the context of cryptocurrency.

Why Does Bitcoin Need To Scale?

It is essential that Bitcoin be quick if it is to be used for everyday transactions. The current throughput is minimal, so only a small number of transactions can be handled in a single block.

Transaction fees are part of the block reward, as you learned in the last chapter. To encourage miners to submit their transactions to the blockchain, users attach them to their transactions.

Since mining equipment and electricity are expensive, miners prefer transactions with larger fees. Fees can skyrocket if the network's "waiting room" (also known as the mempool) becomes overcrowded with transactions. The worst-case scenario saw an average cost of $50 or more.

How Many Transactions Can Bitcoin Process?

At the moment, Bitcoin can handle about five transactions per second based on the average number of transactions each block. As a decentralized currency, it has several drawbacks, such as a cheaper transaction fee.

Due to the lack of a central data center where upgrades may be made at will, Bitcoin's blocks can only be so large. An additional 10,000-transaction-per-second block size may theoretically be implemented, but it would have a negative impact on the network's decentralization. It is important to keep in mind that complete nodes must download new data every ten minutes. If it becomes too difficult for them to keep up, they'll probably stop using the Internet.

Many Bitcoin proponents feel that if the protocol is to be used for payments, it must be scaled effectively in multiple ways.

What Is The Lightning Network?

In order to make Bitcoin more scalable, the Lightning Network has been proposed. Transactions are no longer processed by the blockchain, hence its designation as a "layer two" solution. Transactions are handled by a protocol implemented on top of the base layer rather than being recorded there.

Instant and free money transfers are possible because to the Lightning Network. In terms of throughput, there are no restrictions (provided users have the capacity to send and receive). The Bitcoin Lightning Network requires two users to store some of their bitcoins in a specific address before it can be used. If both parties agree, the address will only release the bitcoins.

With this secret ledger, the parties are able to redistribute balances without telling the main chain about it. As soon as they've completed a transaction, they post it to the blockchain The protocol then makes the appropriate adjustments to their accounts. They don't even have to trust each other. The procedure will penalize anyone who tries to cheat.

Only two on-chain transactions from the user are required for this type of payment channel — one for funding their address and another for dispensing the coins. In the interim, tens of thousands of dollars can be sent. The technology has the potential to become a major part of massive blockchain systems with additional development and optimization.