1.5.2024
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Bitcoin scaling efforts ramped up in 2023, triggering a race among projects to come up with the most innovative and efficient solutions.
Read on to learn about the Bitcoin scalability problem and what possible solutions exist to solve it.
The Bitcoin scalability problem refers to the blockchain’s limited ability to process large amounts of data quickly and efficiently.
That means every time the network experiences an increased level of activities, users have to wait longer for their transactions to be processed, creating congestion. This delay then forces users to pay more. This happens because miners must then prioritize their transactions, which they generally do by the transaction fee offered.
The other scalability issue with the Bitcoin network is its limited programmability. While the blockchain does have smart contract functionality, it cannot support dapp development.
Bitcoin’s smart contracts are simple and less expressive by design, which means their programmability is limited. This helps reduce programming errors and the potential for exploits and keeps the network secure and safe from DoS attacks.
The scalability or blockchain trilemma is a term first coined by Ethereum’s Vitalik Buterin to describe the tradeoff between the three main elements of a high-performing blockchain: decentralization, security, and scalability.
According to the trilemma, blockchains can only effectively achieve two out of the three properties at once.
Bitcoin has traded off scalability for decentralization and security. Therefore, it is limited in terms of scalability but highly decentralized, reliable and safe.
Bitcoin is limited in programmability and in its ability to process many transactions effectively and rapidly. These limitations are caused by the following factors:
Scripting language: Bitcoin’s smart contracts are written using Script, which has limited programmability since it’s not Turing-complete. Turing completeness is the ability of a programming language or machine to solve any computational problem when it has enough memory and time. Because Script is not Turing-complete, it is difficult to deploy complex smart contracts on Bitcoin.
The Bitcoin scalability problem can be solved by scaling the blockchain in different ways. Scaling means increasing Bitcoin’s throughput and improving its programmability. Bitcoin could achieve this by implementing the following solutions:
The easiest way to scale Bitcoin without making protocol changes is through off-chain protocols, such as Layer 2 networks and sidechains. These protocols are built on Bitcoin or run parallel to it, and they can operate without posing any risks to the underlying Bitcoin blockchain. Moreover, most Bitcoin layers use Bitcoin as the settlement layer, allowing them to inherit its security and decentralization properties.
The goal of Bitcoin layers is to improve transaction speeds, lower costs, and enhance programmability through complex smart contracts. They leverage different technologies such as rollups, sidechains, and state channels to achieve scale. However, this is not a straightforward process, and it could lead to the creation of new problems.
For example, while Layer 2 or sidechain transactions eventually settle on the Bitcoin blockchain, BTC held off the main chain may face centralization and security risks. Another possible issue that Bitcoin layers encounter is a lack of interoperability.
Fortunately, BitcoinOS is developing a solution that offers interoperability and near-trustless BTC rails. This new off-chain protocol leverages “sovryn” rollups to minimize congestion on the Bitcoin blockchain. The protocol is a superchain that can host multiple interoperable and composable rollups, allowing users to move from one dapp to another seamlessly.
BitcoinOS’s near-trustless BTC rails minimize the centralization and security risks associated with Layer 2 and sidechain bridges.
A blockchain’s consensus mechanism is the process the chain uses to achieve a unified agreement on the network’s state in a decentralized manner. Bitcoin uses the Proof-of-Work (PoW) consensus mechanism, requiring miners to invest a lot of computational power to secure the network.
PoW is based on a miner’s capacity to prove that a computational task is complete. This task entails finding a hash that is below a certain difficulty level. The miner that does this the fastest gets to add the next block of transactions to the chain. In return, they earn fees originating from the transactions in that block and a block reward in the form of newly mined BTC.
The problem with PoW is that blocks are only added to the chain every 10 minutes on average, slowing down transaction speeds. To improve this, Bitcoin could—in theory—shift to a different consensus mechanism with separate rules where the block time is shorter.
However, changing these rules would require both miners and Bitcoin code maintainers to agree on the shift. Attaining approval from all the relevant stakeholders is not an easy feat. Furthermore, many people in the Bitcoin community believe PoW is the best consensus mechanism, and it would be difficult to convince them to move to something else. Moving away from PoW would expose Bitcoin to many undesirable risks and would eliminate the fair distribution of new Bitcoin.
Due to these difficulties, it’s easier to implement a different consensus mechanism on a sidechain running parallel to Bitcoin. In order to achieve scale, the sidechain’s consensus mechanism would accept a shorter block time than Bitcoin’s. Sidechains are suitable for improving a Layer 1’s consensus algorithm because they are independent blockchains linked to the main chain by a two-way peg bridge.
Nested blockchains are Layer 2 scaling solutions where secondary chains are hosted within or on top of a Layer 1 blockchain. The main blockchain is the “parent” while the nested blockchains are “child” chains. The child blockchains run according to the parent chain’s rules.
However, the parent chain delegates different tasks to the child chains such as the execution of transactions to help reduce congestion on the main chain. In return, child chains are responsible for sending the result of the delegated tasks to the parent chain.
By dividing labor among the different child chains, Layer 1 blockchains could achieve better transaction throughputs. Furthermore, child chains may be designed to communicate with each other, creating efficiency within the entire ecosystem. Another characteristic of child chains is that they may be allowed to operate a different consensus mechanism than the parent blockchain. This means they can process transactions faster under shorter block times.
Nesting is an emerging blockchain scaling solution that has been utilized on very few blockchains. For example, the technology has been implemented in Ethereum’s OmiseGo’s Plasma project. There have been no attempts so far to build a nested blockchain for Bitcoin.
Batching transactions entails compressing many transactions into a single transaction to lower costs and maximize storage space. This process involves creating and deploying a smart contract that can hold many transactions and process them as one. The cost is shared among all the transactions in the batch, reducing fees for users.
Moreover, batching multiple transactions together is storage efficient, allowing each block to hold more transactions. This results in more transactions being processed, leading to higher transaction speeds. Batching can be applied using various types of rollups, such as validity, sovereign, and optimistic.
Currently, projects are using different types of rollups to scale Bitcoin. For instance, BitcoinOS utilizes “sovyrn” rollups, which roll up multiple transactions into a single transaction. When applied to Bitcoin, batching could help the blockchain process bulk payments from millions of users across the globe.
Sharding is an on-chain scaling solution that divides a blockchain into smaller segments called shards. Each shard contains its own independent state and transaction history, effectively creating multiple smaller blockchain networks operating in parallel.
Also, each shard is responsible for managing a specific data segment, rather than having one single chain process all the transactions. Transactions that involve data spanning multiple shards are processed through special "shard chains" that allow the distinct shards to communicate and stay synchronized. Therefore, sharding distributes the workload among multiple segments. This helps the blockchain run faster, boosting transaction speeds and efficiency.
Besides enhancing transaction throughput, sharding is beneficial because network nodes do not have to store the entire blockchain history, saving them storage resources. Instead, nodes are only required to maintain the data of their shards.
Increasing the block size is another on-chain solution that could be applied to Bitcoin through a protocol upgrade. However, larger block sizes can also be implemented on Bitcoin layers, enabling them to process transactions faster. The upside with larger blocks is that they can hold more transactions, enabling a blockchain to process more transactions per second.
Bitcoin has an interesting history of attempts to increase the block size. Between 2015 and 2017, the Bitcoin community underwent a block size “war” where one side (the small blockers) wanted to keep it at 1 MB or raise it using the SegWit soft fork. The other side, the big blockers, wanted to change Bitcoin’s code to support a block size of 2 MB or even 8 MB. Since the big blockers were determined to have their way, several hard forks occurred, creating new coins. Ultimately, all Bitcoin hard forks were unsuccessful, and the SegWit upgrade was implemented, making small blockers the winner of the block size war.
It is unlikely that Bitcoin will ever undergo another soft fork to increase the block size. Therefore, the blockchain will have to rely on Bitcoin layers with larger block sizes to solve the scalability problem.
BitcoinOS is a superchain of rollups that scales Bitcoin by upgrading its smart contract functionality. That allows developers to build a wide range of interoperable dapps on BitcoinOS’s rollups, expanding the use cases for Bitcoin.
Interoperability is beneficial because different projects with dapps on BitcoinOS will be able to share users, resulting in a shared economy built on Bitcoin. Furthermore, users will be able to move from one dapp to another easily, leading to a better user experience. Overall, these features will be a plus for the entire Bitcoin ecosystem and will help boost adoption.
Besides interoperable rollups, BitcoinOS will feature a near-trustless bridge, allowing users to move BTC from Bitcoin to BitcoinOS and vice versa. Also, BitcoinOS transactions will be Bitcoin-secured and users can benefit from the ability of rollups to minimize transaction costs and boost transaction throughputs.
BitcoinOS is scheduled for mainnet launch in Q4/2024.
Buy SOV to participate in Sovryn’s Bitocracy and have your say in the new era of Bitcoin.
Bitcoin foregoes scalability to achieve optimum decentralization and security. As a result, it faces slow transactions and high fees when the network is congested. The blockchain also has limited programmability, meaning complex smart contracts cannot directly run on Bitcoin. Consequently, Bitcoin cannot support decentralized applications on-chain.
The scalability problem can be resolved directly on-chain or using off-chain protocols. On-chain scaling solutions could include sharding, increasing the block size, or changing the consensus algorithm. On the other hand,off-chain protocols can be built using sidechain technology, rollups, or state channels. The latter are beneficial because they can scale a Layer 1 blockchain without requiring protocol changes.
Yes, Bitcoin is scalable via on-chain and off-chain scaling solutions. However, on-chain scaling solutions require protocol changes which can take years before they are accepted through consensus and then implemented. Therefore, off-chain protocols are arguably the best solution to solve Bitcoin’s scalability problem now. This work is already being undertaken by multiple projects.
Sidechains are independent blockchains built to run parallel to a Layer 1 network. They have separate consensus mechanisms, enabling them to implement shorter block times and larger block sizes to boost transaction speed. Furthermore, sidechains can scale Bitcoin by supporting complex smart contracts that can power dapp development. Other than having an independent set of consensus rules, sidechains have their own native assets and are connected to the main chain through a two-way peg bridge.
