In the world of Bitcoin, as in many information systems, there exists a trilemma composed of three main factors:
- Security: The ability to protect the network from attacks and fraud.
- Decentralization: The distribution of network control across multiple nodes, without a central entity.
- Scalability: The ability to handle an increasing number of transactions efficiently.
Typically, it is possible to optimize only two of these three factors simultaneously, accepting compromises on the third. Bitcoin prioritizes security and decentralization, but faces significant challenges in terms of scalability.
Current Limits of Bitcoin
The maximum block size in the Bitcoin blockchain is 1 MB (expandable to 4 MB with Segregated Witness, or SegWit). This limit was set to keep the blockchain lightweight, allowing anyone to download and verify transactions, thereby preserving decentralization.
However, this restriction limits Bitcoin’s capacity to about 7 transactions per second (TPS), a value too low to compete with traditional financial infrastructures. This issue was at the heart of intense debates within the Bitcoin community, culminating in the 2017 “Block Size War.” This war ended with the integration of SegWit, which potentially expanded the block size to 4 MB under certain conditions, and the creation of Bitcoin Cash, a version of Bitcoin with larger blocks. However, Bitcoin Cash has not gained wide acceptance within the conservative Bitcoin community.
Attempts to Improve Scalability
Numerous solutions have been proposed to improve Bitcoin’s scalability. Among these:
- Sidechains: These are separate blockchains connected to the main blockchain via a protocol that allows the secure transfer of assets between the two chains. Sidechains enable the experimentation with new features without compromising the security of the main blockchain. Notable examples include:
- Liquid Network: A federated sidechain designed to facilitate fast and confidential Bitcoin transfers.
- Rootstock: A sidechain that brings smart contract functionality to Bitcoin, enabling the execution of decentralized applications (dApps).
Despite these solutions not always being well-received by the community, the fact that they are external to the main protocol allows for a broad space for experimentation without causing significant friction.
- Lightning Network: Proposed in 2015, the Lightning Network is an off-chain scalability solution that is gaining popularity. This protocol allows for fast and inexpensive Bitcoin transactions through the use of off-chain payment channels. Transactions occur off the main blockchain, and only the final balance of the channel is recorded on the blockchain, thereby reducing congestion and fees.
The Lightning Network offers several innovative features, including the ingenious management of channels. A payment can make up to 20 hops through different nodes before reaching the final recipient. This increases privacy and decentralization, improving scalability since it is not necessary to open a channel with every participant.
BOLT, which stands for “Basis of Lightning Technology,” is a set of specifications that define the functioning of the Lightning Network, including protocols for opening and closing payment channels, transaction management, and security.
Addressing the blockchain trilemma is an ongoing challenge for Bitcoin. While security and decentralization remain fundamental pillars, scalability is the area where development efforts are most concentrated. Solutions like sidechains and the Lightning Network represent significant steps towards a more scalable and versatile Bitcoin network, while maintaining the core values of security and decentralization.