Bitcoin, the first cryptocurrency in human history, has been the poster child for many other blockchain projects in terms of its decentralization and security, but it lacks in the scalability dimension and its transaction efficiency is still struggling to meet the standards for mass usage. For Bitcoin, which uses blockchain technology:
-
Transactions per second TPS = number of transactions per block / block out time
-
Transactions per block = Block size / Space taken per transaction
Currently, the Bitcoin network produces about 6 blocks per hour, which is about 1 block per 10 minutes, and each block is 1 Mb. Assuming an average transaction size of 0.25 kb, then a block contains about 4000 transactions. The TPS of the Bitcoin network can be calculated to be about 7, which means that only 7 transactions can be processed per second. In contrast, the commonly used settlement systems such as Visa and Mastercard can usually reach 1700 TPS (TPS, or Transactions Per Second, or the number of transactions per second) and 5000 TPS or more.
Various solutions have been proposed to solve Bitcoin's scalability problem.
Segregated Witnesses: Separating Signature Information and Freeing Up Space
When Bitcoin was designed, Satoshi Nakamoto limited the size of the block containing transactions to 1MB, and this transaction data contains both the basic information about the transaction and the signature information of the transaction participants. Segregated Witness, or Segwit, separates scripted signatures from transaction information and stores them centrally in the block header, thus disguising the number of transactions that can be contained in a block by about 40% without violating block auditing rules. Without isolated witnessing, the signature data can occupy up to 65% of a block. Using an isolated witness removes the signature data from the input of the transaction. This increases the effective block size from 1 MB to about 4 MB.
Bitcoin addresses that start with a character like 3 or bc are Segwit-enabled wallet addresses, as opposed to those starting with a "1", which are primitive (Legacy) addresses.
As the number of users of the Bitcoin network increases, more and more blocks are now using Segwit technology.
Bitcoin Lightning Network: Boosting Transaction Speed and Reducing Fees
The Lightning Network, also known as Lightning or LN,is a scalable solution built on top of Bitcoin.
The Lightning Network was first conceptualized as a "payment channel", which means that transactions are carried out off-chain and only the final transaction result is confirmed on-chain, thus increasing the efficiency of existing Bitcoin networks. However, using the Lightning Network still requires a fee to open and close the channel. Once the channel is on, users and counterparties can make a large number of transactions with no fees and unlimited volume for free. Once the transaction is complete, only the final state is posted to blockchain.
As a Layer2 solution for Bitcoin, Lightning Network pays in the smallest unit of a single Bitcoin (1 Bitcoin = 100 million Satoshi), which meets the needs of everyday micro-payments and helps users save money and increase efficiency.
Disclaimer
-
Crypto investment involves significant risks. Please proceed with caution. The course shall not be considered investment or financial advice.
Next: Lesson 6 - Importance of Bitcoin