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The following article was chosen for publication as part of CoinTelegraph’s Super Writer contest
Note: The following article was chosen for publication as part of CoinTelegraph’s Super Writer contest
If you are reading this article there is a good chance you may have already heard something about Bitcoin’s scalability issues. The sad truth is that the Bitcoin network is fundamentally not scalable.
At the moment this is not an issue since the number of transactions is only about 220 million per year. This may sound like a lot but when you consider there are approximately 7 billion people on the planet that works out to a measly 0.0314 transactions per person per year. By comparison Visa and Master Card process tens of thousands of transactions per second.
Most Bitcoiners are exceedingly impatient for their currency to become a ubiquitous instrument of internet commerce. Unfortunately, Bitcoin is not even remotely ready for prime-time duty. Currently miners process 7 transactions a second by hashing 1MB blocks of data, but if everyone on earth executed just two transactions a day it would require 24GB data blocks, claiming 3.5TBs of hard drive space per day, which equals 1.27PBs per year.
This scenario, of course, is completely impractical and creates a host of problems for miners and nodes that I won’t get into during this article since that is not the focal point for my commentary.
So how can a network designed to process 7 transactions per second compete with a Visa network able to handle more than 45 thousand transactions a second?
To achieve this kind of transaction volume, a couple of software developers, Joseph Poon and Thaddeus Dryja, have proposed off-blockchain transactions in their white paper titled “The Bitcoin Lightning Network.” The Lightning Network was conceived back in 2013 when Poon employed the concept of using payment channels to facilitate transactions off-the Blockchain and Dryja joined him later, to compress scripting and transactions.
In a recent CoinDesk article Poon stated:
"We hope to help solve Bitcoin scalability and instant transactions, enabling Bitcoin to encompass all transactions, even many thousands of micropayments per person."
Bitcoin core developer Peter Todd also speaking to CoinDesk said, "If the bitcoin blockchain were a horse, ordinary hub-and-spoke payment channel proposals would be proposing to replace that horse with a truck; the Lightning guys are proposing to replace that horse with a rocket ship."
All this talk of a Lightning Network, payment channels and off-blockchain transactions may seem a bit confusing and even esoteric to the average Bitcoiner but the idea really is not all that complicated. The theory behind a Lightning Network is to conduct a large number of transactions within a payment channel for a specified period of time - say 3, 10, 30 days etc., and then broadcast them to the blockchain at the end of that period as one transaction.
Once bitcoins are sent to a payment channel, they can be spent during a specified period of time or they revert back to the coin sender’s wallet. The coins are protected by creating a timed hash-locked contract with an operation output that can only be redeemed by the sender’s intended recipient, thus preventing a payment channel operator from running off with a sender’s bitcoins while they are in the channel.
Blockstream recently hired Rusty Russell, an Australian Linux software programmer, to begin development of a lighting network. “They hired me,” said Russell in a recent Reddit blog post. “We agreed I’d be working on developing lightning. I set up a mailing list and am developing a toy prototype to explore the ideas. Will put on Github once that’s ready (two weeks?) but it’s a long long way from anything someone could use. I’m excited about lightning, but it’s a marathon, not a sprint.”
However, real world deployment of the lightning network is probably still a couple of years away, though some improvements could lead to an earlier than expected release, it would also require a soft-fork to the Bitcoin protocol in order to solve the issue of transaction malleability so that network users can reliably spend coins from transactions that haven’t yet been broadcast to the blockchain.
By Dwain Findlay
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