Good day! This is the second p[art of my latest article posted a week ago, which is BCH for beginners. I would suggest that you read it first for you to understand this part of my article. here is the link.
When you consider the average Bitcoin transaction size, you'll find that a block is able to hold about 2700 transactions. 2700 transactions every 10 minutes means 4.6 transactions a second, and that's not a lot.
Visa, for comparison, can confirm 1,700 transactions per second. This means that when a lot of people want to send Bitcoin, during price rallies, for example, transactions get stuck in a very long queue waiting to enter a block and get confirmed.
Of course, Bitcoin allows you to pay a higher transaction fee if you want to jump the queue, but this might cause fees to reach ridiculous levels as more and more people try to "cut the line" with their transactions. This isn't something you want to have happened if you're building Bitcoin to become a global payment method.
As a result of this scalability issue, two different camps emerged. The first camp was the BIG BLOCKS camp. This camp was led by Chinese mining giant Bitmain and Roger Ver, an early Bitcoin investor who was involved with a number of startups when Bitcoin was just gaining initial adoption.
Big blockers were afraid that Bitcoin's scalability issue would prevent it from becoming what Satoshi Nakamoto, Bitcoin's inventor, initially intended a peer-to-peer payment system. With such long confirmation times and high fees, people wouldn't use Bitcoin for day-to-day transactions and would instead treat it as a store of value like gold. The supporters of this camp suggested a very simple solution, and that is increasing the block size.
If we increase Bitcoin's block size to 8mb, we'll be able to confirm as many as 8 times the number of transactions per second. And this will reduce the existing congestion of the network, and in the future, we'll increase the block size as much as needed s Bitcoin achieves further adoption.
Opposing them was the "Small Blocks" camp. The supporters of this camp rooted in keeping the current 1mn block size, while finding solutions for optimizing transaction size and handling, in order to enable scaling.
One such solution was Segregated Witness or Segwit for short. Segwit is an upgrade to the Bitcoin protocol, which among other things effectively reduces the transaction size by 75%. This means that a 1mmb Segwit block can hold the same amount of transactions as what would be a 4mb nonSegwit block.
Additionally, Small Blockers talked about the development of the Lightning Network, a second layer on top of the Bitcoin protocol that allows for instant and feeless transactions.
Now, the lightning network is a pretty broad topic on its own, I will explain it in my upcoming articles on detailed explanation on how it works.
But why would the small blockers against increasing the block size, to begin with? The reason is that small blockers believe that in the long run, this would hurt Bitcoin's decentralization and functionality.
Here are some of the arguments to justify their claim;
For one, an 8mb or even 32mb block takes more time to travel through the network than a 1mb block. Additionally, once the block reaches a computer on the network, that computer now needs to verify all of the transactions inside that block. If the block is too big, it might not be able to finish verifying all the transactions before the next block arrives within 1o minutes or so. This means the network will start lagging behind new transactions, which can create disputes about the current state of the Bitcoin ledger.
On top of that, by not optimizing transactions, you're also not optimizing the size of the Blockchain which already takes up several hundred Gigabytes. Forcing computers to verify oversized transactions, reduces the number of computers that can store the Blockchain on their hard drive and therefore diminishes the network's decentralization.
To make it simple to understand, consider this analogy;
Imagine a street that's suffering from heavy traffic. The obvious solution would be to increase the number of lanes, effectively the same solution as increasing the block size. But what would you do once the street becomes more popular and even more cars come in?
Eventually, there's a limit to how many lanes you can add before running out of land to build it. On the other hand, you could reduce traffic congestion by promoting public transportation routes or carpooling.
A solution similar to optimizing the transaction size and how transactions are handled by the network.
This heated argument between the two rival camps went on for several years until it climaxed in August of 2017. Back then, Bitcoin was making the first steps over the $1200 mark and the network was pretty crowded due to an overflow of transactions.
As a result, many transactions got delayed, and transaction fees skyrocketed as people were outbidding each other to "cut in line" and get confirmed faster. The average fee around that time was as high as $37 per transaction!
Now, you may be wondering why nobody took action to avoid this situation. Well, in order to answer this question, we need to understand who actually decides anything on the Bitcoin network. You see, Bitcoin is decentralized and this means there's no one person that decides anything. Participants in the network vote through their actions. Their vote is actually whatever version of the Bitcoin protocol they choose to run on their computer.
There are several players on the Bitcoin network.
First, there are the miners and mining pool operators. They are the ones in charge of creating blocks and updating the ledger of transactions. Some would argue that they have the ultimate say in what changes are finally accepted to the Bitcoin network.
Then we have the developers, which are a group of individuals collaborating together to maintain Bitcoin's source code. Some believe that this group has the ultimate power since they are the ones writing the actual code that runs the network.
We also have the exchanges, which are the gateways for cryptocurrency adoption. They can decide which version of Bitcoin to list under the ticker symbol BTC. They have the power of connecting people with the actual coins.
Another important groups are the wallet providers. They write software that allows user to manage their coins.
Additonally, we have the nodes, which are the different computers that run the Bitcoin code and make sure no one is breaking the rules. These nodes are the backbone of the Bitcoin network. Owners of the nodes can decide to only accept transactions that support specific changes.
And finally, we have the Bitcoin users, who get to choose which coin to buy, which exchange to use, and which wallet to download. Without even knowing it, they actually have the most power. The coin that users decide to adopt will have a brighter future.
Miners, exchanges, wallet providers, and even developers all rely on the acceptance of the public to survive.
That is why in the end, the users have the final say.
to be continued....