How has blockchain improved the scalability of bitcoin?

Blockchain technology, the backbone for bitcoin, has vastly improved this scalability by providing globalized trust and transparency in a distributed ledger. In addition, platforms like 

It’s been 12 years since Satoshi Nakamoto introduced the technology to the world, but new blockchain-based applications are still emerging every day. This blog post will cover some of these innovations and their practical use cases for industry and academia. You can start your trading adventure with Bitcoin Sprint.

How has blockchain improved the scalability of bitcoin?

Cryptocurrencies have revolutionized money in recent decades, with new investors entering this market each year and venture capitalists pouring billions into it. However, the scalability of bitcoin’s network and solutions for scaling remain critical issues for its future success.

The public blockchain through which bitcoin transactions are processed, the Bitcoin protocol, is limited by block size and cannot process more than 7 transactions per second (fps) or 7 transactions per 10 minutes. For comparison, Visa processes 24,000 tips. This bottleneck means that a small country like Liechtenstein can never have its own national currency in use since its small economy would never be able to adopt the requisite number of coins as they are mined.

Consensus and data structure of bitcoin blockchain

Broadcast and consensus data structures on the 1MB block size limit bitcoin’s throughput to less than ​0.3 tsp (7 transactions per 10 minutes). The artificial limit of 1MB was established by Satoshi Nakamoto in 2010 when the block size was 8MB. Nevertheless, Bitcoin’s 7 tips are still used as a safe benchmark since it is what the network can do consistently without congesting. 

The congestion problems are mainly due to a single-threaded processing model. Each transaction must check all previous transactions on the blockchain, and this process is time-consuming and memory-intensive. Still, blockchain can verify an entire block in merely 10 minutes. While not entirely preventable, the bitcoin algorithm can use a simple script to reduce its duration by running multiple transactions. It means the actual number of transactions per second processed on the blockchain today is lower than 7 tps.

Blockchain improving scalability by introducing 24 tips:

One of the most prominent blockchains, Ethereum, can process 24 tps. It is because it has a hybrid consensus algorithm which combines two consensus mechanisms: mining immutable blocks with proof-of-work (Pow) and having users vote on the validity of transactions proposing new blocks.

The Pow consensus

Among the first issues that arose in bitcoin’s architecture is its reliance on miners verifying transaction blocks as they are received. These trusted third parties are called “miners” because they mine bitcoin by verifying one block after another in exchange for newly minted coins. The reward for doing so is new bitcoins which can be transferred directly to the miners’ wallets when the block is successfully verified. To incentivize the miner’s work, this consensus mechanism on the blockchain has correspondingly played a major in increasing the scalability of bitcoin. 

Factors influencing the performance of blockchain:

Many factors influence blockchain performance. For example, a transaction’s power consumption is related to the number of operations it needs to process. These operations include verifying a block’s contents, checking user balances and updating the state of smart contracts. In addition, all the data processing involves significant computing resources, putting pressure on the blockchain’s scalability.

It was an obstacle that needed to be overcome because miners alone could not handle all the data needed in each block. Transactions have been a critical factor in bitcoin’s capacity limitations since they result in several gigabytes of additional data that need to be processed by miners.

Ingenious contract complexity is another factor influencing the potential and performance of a blockchain. For example, smart contracts have facilitated bitcoin scaling by enabling enterprises to write and manage agreements and transactions without relying on a central authority. However, their complexity means it could still be difficult for innovative contract programming to become mainstream.

Consensus layer impact on performance:

A few proposed solutions include instant block consensus (also called “one-minute blocks” or “instant pay-outs”) that allow miners to prioritize transactions with the highest value based just on the order in which they’re received and using private blockchain systems that reduce transaction data by using a technology similar to public blockchains but restricted to enterprise clients. In addition, the Bitcoin Lightning Network promises payment channels for micropayments with thousands of users at once. 

The blockchain as a paradigm shift in technology

The blockchain is a different kind of network than the Internet: It’s a distributed network of public nodes (full Nodes) instead of one controlled by large companies (ISPs, Facebook, Twitter, Google, etc.) 

In contrast to the Internet’s centralized structure, the blockchain is a decentralized structure with a Trustless and peer-to-peer architecture. It means that all participants act as both clients and servers in the network. The first sector it has disrupted is finance, with its potential in smart contracts and digital currency applications.