So over the past year the Bitcoin network has reached his maximum
Capacity all the blocks are becoming full and as a result there's been a lot of debate about how we can scale
Bitcoin in the future
So i'm gonna talk a little bit about some of those proposals, and what they could mean and what's the trade-offs?
Some of the technical solutions being proposed to improve the scalability of Bitcoin are so that it can handle more and more users
because if Bitcoin was to become mainstream then it needs a lot more scalability that it has right now and
The problem is that when Bitcoin was first created the founder of Bitcoin who originally published the code
About a year after he published a code. He inserted a block size limit well
What's called a block size limit in the code which means that each block has a maximum block size of one megabyte
So to give a quick recap of how the Bitcoin network works
The Bitcoin network is a decentralized system
where anyone can run their own node and these nodes will have a copy of what's called the blockchain and
The blockchain is essentially a series of blocks
That contain all the transactions in the system this creator of Bitcoin realized that there's a potential problem here of
What's called a denial of service attack
someone could potentially spam the network with transactions and make blocks that are very big and
so he
Created a limit that each block should be no bigger than one megabyte and this limit is hard-coded in all of the
Software that you use to run a Bitcoin client or node on your own computer so that means
your software will automatically reject any block that is bigger than one megabyte and
Now we've reached a point. Where blocks are becoming full
They've reached a maximum capacity of one megabyte and so no new transactions can be put in in the blocks so
That gives us a capacity of around three to seven transactions per second which isn't very much
Because there is now more demand for more transactions per second in the network as a network has grown
Is it a simple case of if we were able to make these blocks bigger you could fit more transactions in?
Sure, yes, you can do that if you make the blocks bigger
It's a naive and very simple way of increasing scalability, but the main
Argument against it from its critics has been that
if you increase the block size
Then the block chain itself would get bigger and that means
Every single person who runs a Bitcoin node on their computers,
What's called a full node,
Has to have all the data of the above the whole blockchain in order to verify the whole blockchain correctly
If we increase the block size
you would need more and more storage to store a copy of the blockchain and this is a problem because
The all point of Bitcoin is that as a decentralized system
Anyone should be able to run their own node when this limit was first added in 2009 2010
The Bitcoin wasn't as popular so it was much easier to modify the code and insert
new changes and
uncontroversial, or you know
Protocol rules like that. Now, It's a much bigger space so now each change needs a lot more
Consensus if you'd like because if you were to if you wanted to increase the block size this would create what's called a hard fork
You would essentially create a blockchain that's incompatible with all the existing nodes that run on the Bitcoin network
Because the existing nodes, they will reject any block that is bigger than one megabyte and everyone will have to upgrade all the
Software so this is the kind of change that requires every single person to agree to it or the majority of the ecosystem
To agree to it. People who want, who are thinking about how to scale
Bitcoin kind of really fit into two camps
Camps of the people who are advocates of what's called on chained scaling and people who are advocates of what's called off chain scaling
The idea of on chained scaling is that we want to increase the capacity of the Bitcoin network
by increasing the number of transactions that we actually put in the blockchain itself and
you and you would do that by increasing the block size and
Yes, that would make it more expensive to run a Bitcoin full node
but argument is that the majority of Bitcoin user they'll run Bitcoin anyway if you have a Bitcoin wallet on your
On your phone, or if you use a web wallet
It's not a proper Bitcoin node if your wallet
Trusts a different node or some centralized service to some extent
to get information about the Bitcoin network and get information out of blockchain so
one of the original things that the original creator of Bitcoin said is
that he expects that as the blockchain grows in size and
Ultimately people will no longer be able to run nodes and nodes will become super nodes
you will have to have access to data center to run nodes, and that was kind of part of the plan
But one of the things that the creator of Bitcoin anticipated was that Moore's Law
would catch up with the blockchain size
So that's regardless. It wasn't mega expensive for someone to store a copy of blockchain. But unfortunately Moore's law
hasn't, has been somewhat dead for the past few years. Hard drive storage
Has largely remained at roughly the same cost for the past few years
It's kind of stopped, and that's kind of created a problem
So that's what on chained scaling is about.The idea of off chain scaling is that let's move the transactions out of the blockchain
Do we really do we really need to put every small
Transaction like if you go to a coffee shop and buy coffee
Do we really need to put it on the blockchain and do we really want
Every single person who runs a Bitcoin node to have a copy of that little transaction
so the idea of off chain scaling is let's only put big or
important transactions on the blockchain and let's put all of those micro transactions off the blockchain and
One of Percival's for doing that is a system called the Lightning Network and the Lightning network is basically
using something called payment channels between different individuals
to facilitate off chain payments for example Alice might send Bob ten dollars
And then Bob sends at least five dollars in the next day
So what they do is instead of having every single payment on the blockchain?
They just keep a balance sheet between them and they put all the payments on their balance sheet and then for example after a month
They say let's see what is the final balance and let's set all that balance on the blockchain
So you only need to put that final payment on blockchain rather than every single payment in between
and
You can extend this at least as a payment channel with Bob and Bob has a payment channel with Charlie and let's suppose Alice wants
To pay Charlie Alice kind of route that payment through Bob, which would then send a payment charlie
And this is the idea of lightning network, you use a route or a network of payment channels
And you would find the route
between person-to-person that you can make that payment of the blockchain and
In theory it sounds like a really great idea, but there are some
controversies around it so
some people don't think that it would be very feasible if
This would be able to be used by millions of users, for every single person to find a route between
any other person in a decentralized way because one of the
Things with that network is that
In order to establish a payment channel you have to deposit a
certain amount of money, which is at least a minimum amount of money of how much you expect to
go through that payment channel and
That some people just don't have the upfront capital so people expect
What's called large payment hubs to facilitate that so you would have a large payment hub
That has a large amount of deposit inside of it, and yo you would route your payments to that so in some way
There's a bit of centralization involved with that if you have on chain scaling we have super nodes
But if you have off chain scaling we might have large centralized payment hubs
So it is still bit of centralization involved in both
Bitcoin cash when Bitcoin cash forks off from Bitcoin the value of Bitcoin cash on the first day was something like 500 dollars
So people were 500 dollars per coin for free out of thin air when this fork happened
So it's possible that some people but the value of Bitcoin has risen