Many people are trying to understand what’s going on with Bitcoin.
Its conversion value with fiat currency (like USD, EUR, etc.. ) goes up and down day by day, and now it’s currently impossible to say if it’ll ever stabilize on a regular growth.
That’s mainly because of rumors, investments, and a design problem of Bitcoin and Blockchain. Today a debate is dividing every people around the bitcoin world, and in this post I’ll try to give you a clear explaination on the problem and the current models proposed to fix it.
When someone sends bitcoins to another people, it does a transaction: this one goes to the mempool , which is just a place like a “waiting room” where it’ll be taken and inserted into a block. These blocks were created by miners who, using a mathematic expression, produce the space needed to incorporate transactions waiting to the block to attach them a chain maided of blocks. This chain is the famous Blockchain, where all the transactions are saved, since the beginning.
“ So, what’s the problem here?”
Today the space included into a block is limited to 1 MB.
How much transactions can be stored into a block?
Every transaction occupies at least some houndreds of bytes: with a simple calc, in a block we can include around 1800 transactions.
Of course is easy to think about a scenario where the mempool is composed by more than 1800 transactions: what will happen then?
Miners will say to you, who are waiting for the inclusion of your movement into the chain, that you need to wait until the new block.
Of course every miner looks to his own profit. So if you’re in a hurry you can pay more in fees to finish your transaction earlier than any other.
This is a serious problem: the net is running really slow and it’s becoming really expensive.
Everyone looking for a solution gets fast into a conclusion: why we can’t increase the space of a block? This is known as an HARD FORK, appears to be the easier solution, but it has got several problems.
The first one is the deal: every miner needs to increase the space to the same size. If it doesn’t be equal, every differences will create more chains.
To be more clear: if on the network there’re blocks of 1 MB and blocks of 2 MB, the entire network will be splitted into two kind of chains.
Is this scenario possible with Bitcoin?
The answer is simple: just NO.
If a miner uses blocks of 2MB and one other uses blocks of 1MB, they cannot attach their blocks to the same chain, because they’re following different rules about size: two different chains will be created starting from this difference.
And what about the “old” bitcoin, created before the splitting?
They’re attached to the old blockchain, and as a consequence of the splitting, they’ll be duplicated because they’re a part of the two chains. So there will be two different “Bitcoin” (in this scenario, of course blocks can be increased also in 3 or more different sizes) , creating than confusion into users: which is the “correct” one? I need to use the one with 1MB or 2MB?
This solution isn’t bad at all. With a common sense of action, and a deal between all the miners, we can still remain with a single chain.
The second one is a structural problem: which is the correct size of a block?
Just to compare: VISA are able to do 24k transactions / second ; Bitcoin is unable to do more than 3 transactions for second.
To get the same “transaction power” of VISA, block size needs to get increased to 8GB: stop a second, and start thinking.
If every 10 minutes a new block is created, in a day the size will increase to 1TB. As seen in current storage technologies, no one (as a common user) is able to store a complete archive of all the blockchain, and it’ll be stored only by big companies that have this kind of hardware.
Bitcoin became famous as a “decentralized currency”: isn’t this a way of centralizing the whole system.
Some people says that is not mandatory to increase the block size now: infact the current 1 MB size can be used with more efficiency.
A part of the transaction, known as “witness” doesn’t need to be included into the block: it can be stored into a segregated space, freeing more space into a single block. This is the reason of the name: SEGWIT as Segregated Witness.
It doesn’t put finish to the problem of block size: infact with this solution the space will duplicate, but it still remain insufficient.
Beside the SegWit, these people propose to create a new network, still based on Bitcoin, to lighten the Blockchain.
How it works?
This will be a “signing network”, where you’ll do a single transaction instead of more.
Imagine to be a client of a shop: you go everyday here, and so in order to buy something with Bitcoin, you need to do a transaction every day, and this will plug the Blockchain.
Why not make a deal with the vendor: he’ll sign every purchase you made, and at the end of the month, you’ll pay the bill by using a single transaction.
This is convenient to both of them: client and vendor will pay only one time the bill of transaction, instead of 30 times.
Obviously, there’re problems here.
By using SegWit, the block size will be too little to meet the needs of users: to avoid the costs of transactions, people will be encouraged to move all on Lightining Network, that will increase its size as much as needed, causing a scenario where companies create an hub of share where all clients use LN to pay traders, and these companies will record only big transactions with big fees.
This will cause again a centralization problem.
Today this debate is really on fire and divides the network.
Developers in favour of SegWit are trying to force the network to adopt the solution without the favour of miners. How? By using the UASF, also known as a User Activated Soft Fork. Read more here.
It seems that on the 1st of August, Soft Fork will be reality.