Scalability is a Problem for Bitcoin, but for How Long?
May 29, 2018
Scalability remains one of the biggest hurdles to the widescale adoption of Bitcoin (BTC) today. As one of the first blockchains, created in 2009, the coding on which the Bitcoin blockchain runs is relatively inefficient. More recent blockchains, such as the Ethereum (ETH) blockchain, are recognized as being more well-organized and “coder-friendly”. As the volume of transactions conducted on the Bitcoin blockchain has increased, it has struggled to handle the increase in scope. Bitcoin’s blockchain has a block size limit of 1mb, and any block larger than 1mb is automatically rejected by the Bitcoin network. As a result, Bitcoin’s blockchain can only support 3 to 5 transactions per second. The Bitcoin Lighting Network is one of the most significant attempts to overcome the inefficiencies in Bitcoin blockchain.
Bitcoin’s Lightning Network adds an extra “layer” to the bitcoin blockchain, that enables Bitcoin transactions to occur instantaneously. The Lightning Network facilitates the Bitcoin blockchain by utilizing smart contract technologies to enable instant payments using Bitcoin. Smart contracts address the problem of scalability by giving users a secondary method for processing transactions. The Digital Currency Initiative (DCI) department at MIT has developed a potential breakthrough that builds off the Lightning Work, potentially making bitcoin even more scalable.
The DCI has created what they term “oracles”, trusted entities designed to collect Bitcoin transaction data from the lightning network and transmit it to smart contracts. Because data is not stored on the Bitcoin blockchain, Bitcoin transactions can be recorded and settled at much higher speeds. The data that can be broadcasted ranges from information about the weather all the way to the most recent price of a Satoshi (1 Satoshi = 0.00000001 ? -- the smallest unit of bitcoin) in US dollars. This data is accessible for anyone to use for Bitcoin transactions via smart contract.
Cryptocurrency investors generally value their privacy. MIT’s oracle network caters to this desire because oracles are unable to identify who is using the data they transmit.
While DCI’s development may significantly improve the scale and efficiency of the Bitcoin network, the are several hurdles that must be cleared:
- The oracle network is still in its experimental phase and according to DCI researcher Alin S. Dragos, “shouldn’t be used for real money”.
- The oracles that broadcast pricing data will need to be compensated for their work.
- Although oracles can be trusted now, further expansion of the network may raise concerns about users “double dipping” and using multiple oracles to transmit a single transaction.
- While DCI has demonstrated how the underlying technology works, they haven't produced a high-quality user interface (UI).
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