One thing that Bitcoin fans hate about it is “Scalability.”
Bitcoin Scalability problem is a real concern that is bothering the community. The size of each block on a bitcoin network governs how much transactional data can be confined in it. And with ever-increasing bitcoin user base [As per statista reports the number of Bitcoin enthusiast are 16.95 million as in March 2018], it is affecting the transaction processing capacity of the bitcoin network that on an average takes 10 minutes to create a new block, and it can manage seven transactions per second [TPS] that costs around 2-10 USD+ .
If you compare this with other cryptocurrencies, they boast having a better TPS.
But as Bitcoin is most loved cryptocurrency, and has a market cap of $144,982,960,328, experts need to find a solution to Bitcoin scalability problem.
Tried and Proposed Solution to Bitcoin Scalability Problem
How could you probably solve the Scalability issue that is an inbuilt feature of Bitcoin?
Increase the Block size
Yes, the Bitcoin community in 2017 was keen to resolve Scalability issue and started working on 2MB block size increase. The project BIP 100 and BIP 101 where BIP stands for Bitcoin Improvement Proposal was initiated into two phases
- Segwit– Segregated Witness (SegWit) to separate signatures from transaction data, effectively allowing the network to “cheat” by creating larger blocks than 1 MB, yet still counting them as being below the cap. While Segwit received of only 30% miners, Segwit2x found its way in August 2017. As per cointelegraph – Segwit was launched to get rid of transaction malleability required moving some non-critical data, called “witness data,” out of transactions and off the Blockchain. This allows for an increase in the block sizes of up to 4MB, although most experts close to the development process say that the network is most likely to settle at about 2MB block sizes after SegWit is launched.
- 2MB block size increase – The phase had to be suspended because the community did not agree, maybe because it would lead to a higher transaction cost.
Even though the Blocksize increase did not happen, there are potential pros and cons of this approach
Pros of Increasing Block size to 2MB
- By increasing the size, the Bitcoin community is making space for new users, that could mean more adoption of Bitcoin at the global
- Large Blocksize results in more transactions that lead to more fees involved per block. So as the base block prize decreases, more fees would attract dedicated miners thereby making network secured
Cons of Increasing Block size to 2MB
- Large Blocks means slow movement of data, however, with faster internet speed, this could be kept
- The Unspent Transaction Outputs or UTXO, the database would increase rapidly as a result of the higher transaction cap. As per a stat of 2015, the UTXO size has doubled in the last year, and we are witnessing the UTXO growth to out space new memory chip technology. That means an issue for nodes which cannot increase their capacity and may drop off.
The Lightning Network
First proposed by Joseph Poon and Tadge, aka Thaddeus Dryja in 2015 in this white paper, it works like this. For example, two parties say A and B and transacting,
A —————————->B [ A gives B 50 $]
B—————————–> A [ B gives A 5 $]
A——————————>B[ A gives 15 $]
Then rather than broadcasting each recurring transaction, a net settlement at a later date could be published on chain network.
In Bitcoin’s case, it allows for things like micropayments that are entirely handled off-chain and then settled at some point on the chain, cutting down on the number of transactions sent while still allowing full utility and fund control. So it’s about creating a micropayment channel to enhance scalability thereby reducing on chain transactions. Sending many payments inside a given micropayment channel enables one to send large amounts of funds to another party in a decentralized manner.
Pros of The Lightning Network
- Due to reduced spamming, the transaction fees are diminished.
- As the network scales, it would help in increasing the number of transactions
Cons of The Lightning Network
- The blockchain is all about transparency, and as there would be off chain transaction, it questions the use of a blockchain network.
- As less transaction flow on a chain, the Bitcoin community that is fee-driven and finds incentive and keeps it secured via mining may find it hard to mine the blocks.
We all know that to perform any successful transaction on a bitcoin network digital signatures are required. Now considering the above example [under lightning network A transacting with B], for three transactions, the signature needs to be included that needs some space on the block and for using that space the individual need to pay miners.
Just imagine this signature floating around a network using space and you paying for it. Seems redundant?
That’s where Schnorr Signature is handy…
What is Schnorr Signature?
A new Schnorr-based multi-signature scheme, i.e., a protocol which allows a group of signers to produce a short, joint signature on a common message called MuSig.
So basically, you would still sign the transaction however with Schnorr signature scheme it would apply a series of mathematical rules that link the private key, public key and signature together, thereby freeing space and lowering fees.
According to developers working on the technology, the change would lead to an estimated 25 percent to 30 percent boost in bitcoin’s transaction capacity.
Pros of Schnorr Signature
- Increase in Capacity– The Schnorr signature that works on the principle of multisignature aggregation offers data advantage. With only one signature being transmitted, included in the block thereby resulting in more rooms for newer transactions. Yes Segwit also helps in segregating the signature part, but here is the comparison done by the Bitcoin Core groups
Segregated Witness, as proposed by Bitcoin Core, offers a (roughly) 75 percent discount on all data included in the witness rather than the original block. One megabyte of witness data is, therefore “weighed” as .25 megabyte, which would leave room for .75 megabyte transaction data in the original block, for a total of 1 megabyte.
If aggregated Schnorr signatures reduce the total size of witness data, say from 1 megabyte to .5 megabyte, this .5 megabyte would then be discounted to 0.125 megabytes, leaving room for up to 0.875 megabytes in the original block. (A capacity increase of about 17 percent.)
The exact amount of added room depends on the types of transactions included in blocks. But rough estimates by Bitcoin Core developer Eric Lombrozo suggest that Schnorr signatures could eventually increase total capacity 40 percent or more – that’s on top of the added 60 to 100 percent already offered by Segregated Witness.
- Enhanced Privacy – As the basic idea of Schnorr Signature work is that it allows multiple inputs to result in one transaction, controlled by the same Now you could switch between devices or people and still make a transaction as the Schnorr Signature allows you to craft a signature same as any other one.
The Cons of Schnorr Signatures are not yet clear for the apparent reason that the scheme is, however, to be implemented and tested. But with its key features and reg the scalability of Bitcoin, it seems a more viable solution of all the proposed solution in the near future.
We would love to hear your thoughts about Schnorr Signatures. Feel free to post your feedback here.
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References: Wikipedia Coinbuzz, Lightning Network, CrushtheStreet, Cointelegraph, Medium