Bitcoin (BTC) vs. Bitcoin Cash (BCH): The Bitcoin Scaling Debate
Let’s talk about the facts of the Bitcoin vs. Bitcoin Cash scaling debate. Off-chain scaling (lightning network) vs big blocks.
Bitcoin Cash forked on August 1st, 2017. The main idea behind the fork was to increase the block size from 1MB to 8MB to allow more transactions in a single block and thus alleviate the congestion on the network. Makes sense right? To keep the fees low, just add more capacity to the block and that is that, problem solved. It’s a simple solution that makes sense at a quick glance, but let’s take a closer look at some possible issues here.
At the current time of writing the average number of transactions that Bitcoin can process per second is around 3.5. This can vary from block to block, which is why we will be using the average for this purpose. Okay so Bitcoin can handle about 3.5 transactions per second, that means it can handle about 300,000 transactions per day. So how many people can Bitcoin currently support? Well, if Bitcoin is meant to replace all transactions a normal person would do in a day, and the average person does, let’s say, five transactions a day, then Bitcoin could support 60,000 people with each block being 100% full. Great, so 1MB blocks can handle 60,000 people, not bad, but not great. Considering there are over 7 billion people on the planet, we need to scale so every single person can use Bitcoin. Let’s take it one step at a time. First, we need to scale to 600,000 people, well that is simple. Increase the block size to 10MB. Now we need to scale to 6,000,000 people. Okay, 100MB blocks. Now 60,000,000 people, 1 GB blocks. Then 600,000,000 people, 10 GB blocks. 6 billion people, 100 GB blocks. Now, what happens when we have these massive blocks? Let’s go back to 10 GB blocks. 10 GB blocks with one block every 10 minutes, that is over 1 terabyte per day. That is a lot. It’s not just storage, but it’s also computing power and bandwidth. If you want to run a node or mine, you need a lot of resources to keep up with that. When you can’t process a block in time, you will be left behind and cut out of the network. This leads to centralization very quickly. Only groups that are able to handle these blocks will be able to mine and control the nodes. Bitcoin needs more distributed nodes, not less.
Well, let’s say that technology improves over time and you know what, 10 GB blocks are fine, we all have 1 gig connections and massive multi-petabyte hard drives. Storage is cheap, right? Great, no more problem, everyone can run a node and mine if they want to, no more centralization. What really concerns me here is we’re still stuck at everyone who can only use 5 transactions per day. What if we want to do more, what if we want to start doing hundreds of transactions a day or thousands? Well, time to increase the block size again and we push further into centralization. The regular person can’t keep throwing more bandwidth, computing power and storage at the problem. It just doesn’t work. Big blocks don’t scale.
What we need is a proper scaling solution like the lightning network, which can theoretically handle billions of transactions per second. Imagine the possible applications here. All of these transactions are handled off-chain with minimal transactions clogging up the main blockchain. Only one transaction to move your Bitcoin off-chain, and when you’re want to move it back on-chain, settle up and another on-chain transaction happens. To get to that scale, yes the block size does need to increase, but we need to wait and increase it at the right time, even the Lightning Network whitepaper suggests a 130 MB block size. That is way more palatable than 10 GB blocks and handles scaling in a much more elegant fashion. Blocksize increases need to happen with a hard fork, and doing it without a proper solution going forward is a bad idea. We need the proper solution planned out from the start, not some quick fix that will lead to a larger problem in the future, it’s dangerous and could irreversibly damage the network.
Read more about the lightning network