The endless debate between Bitcoin maximalists and altcoiner’s about whether or not altcoins should exist or be built on top of Bitcoin is endless. And almost always start with Bitcoins scalability issues. In this blog, we take a look at these issues, whether or not they are really a problem, and our alternatives for Bitcoin scaling and scaling the crypto space in general. If you are a very experienced technical reader this article might be a bit dull as we do not dive deep into the technicals. So we can keep it understandable for beginners alike. We will explain simply what the problems and solutions are. But not how they work exactly under the hood.
Now please do note that we do try to stay as neutral as possible. And will not show support for any side of the debate when it comes to the ideology of “the one chain” vs a multi-chain ecosystem. We do not know how it will play out and believe that only time will tell.
Let’s first take a look at…
Why is Bitcoin so slow?
Well, this comes from the fact that Bitcoin’s underlying system, the Bitcoin Blockchain has a pre-determined block time. Each block takes about 10 minutes to create and contains a limited amount of data. Because of this, you will have to wait at least 10 minutes for transaction confirmation. If your transaction is added to the block. As there exists a limit of the amount of data/transactions that can be in one Bitcoin block. This all has a reason we look into more later on.
This system does not just create a long waiting time for your transaction to confirm. But also makes transactions more expensive. This limited block space causes people to compete for some space for their transactions. Users can compete for this space simply by paying higher transactions fees. As the miners (who confirm transactions and receive the fees) will make more money from it. Now, there is a good reason for the system to function like this. More on that later.
Bitcoin sidechains
To solve the first most basic problem of Bitcoin, its scalability. We have to take things off-chain (for now). We can do this by making use of Bitcoin sidechains. These sidechains work an extra network connected to the Bitcoin blockchain. Many companies try to build the best Bitcoin sidechain so that the chain can scale. And all of them use different approaches. These approaches differ from having a different blockchain running besides Bitcoin’s blockchain or building a completely different payment infrastructure with Bitcoin locked on the mainchain.
The Lightning Network
For now probably the most popular Bitcoin Scaling Sidechain solution, the Bitcoin Lightning network. The lightning network uses a form of payment channels between the people supporting the network. These payment channels hold BTC and can transact millions of times between each other and only settle one final transaction on the Blockchain. This only happens when the person that originally locked their BTC into lightning wants to settle on the mainchain. Probably because they want transaction finality with security. Or because their balance one a payment channel does not have enough incoming or outgoing BTC left. Because channels need to have both incoming and outgoing liquidity to function. But that is irrelevant to know for the end-user. With this method, users of the lightning network can transact super fast and super cheaply with BTC. While the people holding up the lightning network nodes settle on the mainchain once in a while. And also pay the blockchain fee for that.
The Liquid network
Then we have the Liquid network created by Blockstream. Liquid works as a separate blockchain next to Bitcoin. The sidechain was mostly meant to facilitate transactions faster and cheaper between exchanges and other bigger players. But nowadays also tries to gain the adoption of smaller users with the use of Liquid assets. Basically, NFT’s and other game tokens build on top of the liquid network. With the Liquid network sending and receiving LBTC and liquid assets can go very fast at a cheap price. But does not seem to settle anything on Bitcoin except for the peg-in and peg-out transaction of BTC.
Bitcoin dust
A small but existing problem we face with many crypto networks and not just Bitcoin is dust. Dust reverse to the amount left on an account after we send our final transaction with it. The dust amounts are so small that they will not even be large enough to pay for the transaction fee. This makes it so that we can not get the dust amount of that specific address/account. Making it more or less lost coins forever. With an increasing amount of users on all the crypto networks, these accounts with a small amount of dust will keep on growing. Making up for a larger sum of lost coins over time. Although sidechains do not solve this problem. They do take a large volume of disposable addresses of chain. On networks like the lightning network, we do not have this problem as you can send any amount as small as just 1 Satoshi. So if transacting (small amounts) on a daily basis with new addresses each time (for privacy) is a thing you do. You might want to consider doing this on a sidechain. It could save you a lot in dust over time.
Smart contracts on Bitcoin
Besides sidechains for scaling transaction speed and cost on the network. We also have sidechains that focus on getting more smart contract capabilities to the network. But because the BTC network has its limiteds this usually requires a sidechain solution. Some of these solutions like DefiChain. Have their own blockchain. But settle a transaction on the Bitcoin network to use the security of the mainchain. Other sidechains like Omni and Roodstock RSK have tried a similar idea. But all of them have their technical differences. Bringing smart contracts to Bitcoin has so far not been a huge success. But all of these chains do see some regular users and could grow into something more in the future.
Stacks
Stacks is one of the unique ways of bringing smart contracts to Bitcoin while also scaling Bitcoin. Their system anchors fully into the Bitcoin blockchain. And even pays out stakers of the STX tokens in BTC. Although they have a way to bring smart contracts to Bitcoin. Their system is not a sidechain or a layer 2. As their blockchain utilizes the miners and security of the Bitcoin blockchain. Learn more about how Stacks works in detail here.
Hosting smart contracts
As the crypto space constantly grows. New ideas and platforms come up all the time. One of the possibilities for bringing (more complicated) smart contracts to Bitcoin is with the help of other computing networks. Because not too long ago Bitcoin saw an upgrade with the implementation of Taproot. It could have the possibility to host a smart contract somewhere else and set BTC finality on the mainchain. Although much development still stands between this happening and now. With networks like Flux and ICP (Internet Computer), this could come to Bitcoin at some point in the future.
Should Bitcoin be scaled?
We will not give you a simple answer to this. We think you should answer that question fully with your own knowledge and opinion. The main reasons for which the Bitcoin network is not already upgraded to a super-fast transaction machine. Is because of the fact that Bitcoin has the main objective to be a secure and decentralized transaction layer. To work as one the network should try to not grow too large in size. While also avoiding risk by not making too many upgrades too fast. This all has made the network slow and expensive. But that does not mean the network can not scale or scale on the second layer level. We have seen the Bitcoin network receive some upgrades over the years with Taproot as its latest. These upgrades do make the network a bit more scalable and give it extra functionality. However to make it super fast, super cheap, and smarter we do need second layer solutions for now. Especially as scaling Bitcoin is not done in a second.
Bitcoin transactions off-chain
When we say off-chain here we do not mean transactions on a second layer. What we really talk about is the transactions that do not settle on any decentralized network. It’s a thing that some early Bitcoiners talked about and still, some people see it as one of the options to scale the network. Having a centralized entity take control of the funds and only settle its transactions on the main network when needed does take away all decentralization. This usually does not come at the benefit of its users’ rights. But does give a solution for scaling. On top of that, it also could make things easier with a better user interface. As the users would not have to deal with any technicality. Plus if they make a mistake a transaction is not directly final and could be reversed. In its essence, the current centralized exchanges like Binance and Coinbase already function like this in a way. Because all the transactions on the exchanges are not settled on-chain. But only put its finality on the blockchain when users withdrawal their funds. Both centralized and decentralized options have their benefits and which one works the best for you, depends on you. We do believe that it is important to have both options out there so we all have a choice and can go with the one that fits our needs the best.
Why bitcoin is so expensive?
Well simply, because it needs to be. The whole network has a limit of 21 million BTC and that can never change. These 21 million BTC are released over time through a process called mining. In the beginning, each block (10 minutes) would give the miners of that block 50 BTC. But this reward (the block reward) is cut into 2 every 4 years (more or less 4 years). This will result in a period in the future where the block reward will go to absolute zero. Making mining not profitable by means of the block reward. But it could still be profitable by means of the transaction fee rewards miners receive. This fact makes it necessary for the transactions and thus the Bitcoin network to be very expensive. Else the miners that support the network would not want to support it. To keep this incentive running the Bitcoin price must go up over time and thus also the price for the network’s transaction fee. If it would not do this. The computing power behind the network would fastly decline, halting the network to a stop.
Do we need altcoins?
This again you should answer yourself. As we do not know the future or give out any advice. All altcoins have their own use-cases and some even have no use-cases at all. They can be just funny tokens but also try to solve the problems that Bitcoin cant solve (yet). For now, many altcoins and the applications run on top of them can help many people. They have proven themselves to be useful and that there is definitely demand for them. However, it could also be entirely possible that many of these things will later on also be possible on top of Bitcoin or its layer 2’s. It is really difficult to say which way things will go. As everything is possible.
Other Bitcoins
Yes, other “Bitcoins” do exist. But they do not use the same network. So we could say they are not the same thing. As even networks that have Bitcoin in their name try to achieve more or less the same thing, with a different approach. It is important to understand that they are not the same thing. If you are interested in these other networks it is of importance that you research what they are and what they do. Other Bitcoins would not really describe well what they are. As they are completely different networks. A key fact that many mainstream media sources seem to miss.
Final thoughts
Yes, scaling the Bitcoin network could happen. But how we scale it and what that will look like is still a bit unclear. For now, we already have some wonderful products out there that achieve many of the things the whole crypto industry fights for. With super fast transactions on the lightning network and Defi and NFT’s running wild on Ethereum. How the future will look like, we don’t know. But it will definitely be interesting to see how the whole crypto space will evolve. We will be closely watching and hope you will too!
FAQ:
What is a Bitcoin maxi?
A Bitcoin maximalist is someone that believes Bitcoin is the one and only blockchain. And find that other blockchains and (depending on the maxi) tokens have no real use case.
What are smart contracts?
A smart contract is comparable to a normal contract but instead of it existing on a piece of paper it exists on a blockchain. Here when the terms of the contract are met the contract will perform a certain action by itself. Like if you would have an agreement with Tommy and Billy that if they both give one dollar to Freddy. You will match that with 2 dollars yourself. With a smart contract, you can lock those 2 dollars and when both Freddy and Tommy have given their 1 dollar. Your 2 dollars will be sent to Freddy as well. Making it not possible for you to back out or Tommy and Billy to lie.
Is it too late to buy Bitcoin in 2022?
A question you see about every your, “is it too late to buy Bitcoin in 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024. And will probably be asked for some years to come. We do not give any financial advice but do think that Bitcoin protects your purchasing power over time, meaning it is never too late to start protecting your monetary value.
How can I get free Bitcoins?
You could try earning some Bitcoin by playing Lightning games. These games give you some free Sats for playing their games. This can help you get into BTC basically for free!
What is Bitcoin Cash?
When in 2017 the debate of whether or not Bitcoins block should be bigger heated up. A part of the BTC community decided to do their own thing and for of the Bitcoin blockchain. Making their own bigger blocked Bitcoin. This blockchain with bigger blocks is called Bitcoin Cash. Note: These both function as different networks so do not try to send tokens from one to the other.
How can I use the Bitcoin Lightning Network?
That’s simple. You just get a Lightning network wallet. Earn some Sats by playing some games. Or get some of an exchange with lightning support. And tada you are ready to go!Check some of our lightning network waller reviews here!
Why is Bitcoin’s value going up?
Well, Bitcoin works as a scarce asset. Meaning there will never be more than the original 21 million Bitcoin’s. When traded against a (fiat) currency like the dollar that has new dollars being printed daily. We can only expect that the price of Bitcoin would go up. But remember that nothing is ever guaranteed and we do not give you any financial advice here.
Is Ethereum the next Bitcoin?
No, although we think Ethereum is great. They both focus on different things. Where Bitcoin has its focus on payments and being a store of value. Ethereum has its focus more on being a decentralized computer that facilitates a range of applications from Defi to NFT’s.
What value do Bitcoins have?
Bitcoin gets its value from the fact that there is a limited amount of BTC (and Sats). On top of the use cases for the network. Which is currently mostly focused on borderless payments.
What is off-chain?
Off-chain revers to any blockchain transaction that is not directly recorded to the main blockchain.
What is on-chain?
On-chain revers to any transaction that is recorded on the blockchain and will be on it forever.
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