Seed - Background on The Bitcoin Scaling Debate

Background

As the blockchain field matures from infancy to adolescence, the Bitcoin protocol faces more scrutiny and criticisms. Concerns regarding scaling have been addressed, with the Bitcoin network having two major forks in 2017 over scaling solution disputes.

However, Bitcoin’s flaws have not been a hidden problem. Hundreds of altcoins, alternative cryptocurrencies to Bitcoin, have been developed over the last few years, many of which attempting to solve issues with the underlying Bitcoin protocol. Some altcoins have succeeded in some ways but failed to attract a big enough following to prove their success, while others have proven to be successful while finding other flaws in the meantime. No cryptocurrency has yet proven to be scalable enough, nor fast enough, to power a real-time server with adequate performance. The cryptocurrency scaling problem is an estimated multi-billion dollar problem, whose solution has not yet been proven.

Implementation vs Protocol

There are many claims as to which parts of the protocol present the biggest bottleneck. Many believe it is not a protocol issue at all, simply an implementation issue, where Bitcoin’s implementation simply defined a block size that’s too small. They believe the solution is to simply increase the block size so blocks never fill up, and therefore the network never gets delayed. A similar group believes it is also an implementation issue, where the issue is the ten-minute delay between Bitcoin blocks in creation time, believing reducing this time is all that’s required.

On the other side of the debate, some believe the protocol itself to be flawed specifically. A common section of the protocol that is believed to be both a artificial bottleneck, as well as a generally inefficient piece computationally, is the proof-of-work mechanism. The proof-of-work mechanism requires multiple miners on the system to expend energy solving the same problem as one other, with the first one to solve it being the only user rewarded. Alternatives have been proposed, such as proof- of-stake and proof-of-activity.

Atomic Swaps & Second Layer Solutions

Another section of the Bitcoin protocol that has been under debate is if it should include the ability to atomic swap. Atomic swapping is a mechanism certain blockchains implement that allows for cross-communication of blockchains. This would allow work to be done on temporary blockchains following rules that are understandable by Bitcoin, and then submitting the results to the Bitcoin blockchain for permanent storage. It would also allow transactions across blockchains, allowing for coins such as Litecoin and Bitcoin to have their users transact with one-another through channels built on top of this upgrade. This is known as a second layer solution, as it suggests putting a compatible layer on top that is used directly, with that layer being the portion that communicates with Bitcoin.

These solutions, both for and against modifying the underlying protocol, all face heavy scrutiny. Many believe raising the block size or reducing the block time will increase the overall size of the blockchain excessively. Many also believe replacing proof-of-work with an alternative may present security risks that have not been fully addressed. Second layer solutions are also under heavy scrutiny, as users fear layers may become centralized. These concerns, and more, arise when solutions are proposed.

What's Worked?

The solutions that has seen the most success, as well as has been explored the most academically, has been those that try to replace the proof-of-work mechanism. The proof-of-work mechanism has successfully been replaced by proof-of-stake in many cryptocurrencies, often showing tremendous improvements in energy consumption. This removes a artificial bottleneck that is the mining process, which also reduces the energy usages to secure the network tremendously, however the system is still constrained by the rate blocks are created and the size of a block. This means other bottlenecks still must be addressed for a proof-of-stake system to scale adequately. In my literature review on the flaws of proof-of-work, we take a deeper look into these flaws, analyzing what has been tried and not.

The similarity between proof-of-stake and proof-of-work is the competitive nature in the mechanisms. Proof-of-stake simply bases the value of a users vote on their stake in the network, while proof-of-work bases the value of a miner’s block on the work put into its creation. Each have users competing against one another, proof-of-stake simply competes more efficiently. The competitive nature appears to cause the scenarios that require validation, opening a new avenue for discovery; What if a mechanism was cooperative, rather than competitive?

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Thank you for reading! I accidentally forgot to post this earlier, it was meant to go up before I posted the literature review, however I suppose the order is not the end of the world. Next up will be the problem statement I want to address, my hypothesis and our primary proposed solution to the network scaling problem.