The Bitcoin Scaling Problem

Blockstream Inc proposed an interesting solution to the Bitcoin scaling problem The Bitcoin network has serious scalability problems that pose a real threat to mainstream adoption. In order to increase speed and the rate that transactions can occur at, the group proposes micropayment channel networks, the idea is not too dissimilar to that of Ethereum’s Raiden Network. However, it is required that funds are locked into specific channels.

What Is The Bitcoin Scalability Issue?

The bitcoin scalability problem is a consequence of the fact that blocks in the blockchain are limited to one megabyte in size. Blocks larger than one megabyte are automatically rejected by the network as invalid. Bitcoin blocks carry the transactions on the bitcoin network since the last block has been created. This allows for around three transactions per second maximum capacity rate.The space available in the bitcoin blockchain doesn’t currently allow for scaling to take place at a world wide payment systems level. 

Scaling Bitcoin Is a Major Issue Preventing Mainstream Adoption


bitcoin scaling problems
Fixing bitcoin’s scaling problems

Fixing Bitcoin’s Scaling Issue

The group Blockstream Inc, propose a new layer that sits in between the blockchain and the payment channels. The new layer addresses the scalability problem by enabling trust-less off-blockchain channel funding. It consists of shared accounts of groups of nodes that flexibly create one- to-one channels for the payment network.

The new system allows rapid changes of the allocation of funds to channels and reduces the cost of opening new channels. Instead of one blockchain transaction per channel, each user only needs one transaction to enter a group of nodes – within the group the user can create arbitrary many channels. For a group of 20 users with 100 intra-group channels, the cost of the blockchain transac- tions is reduced by 90% compared to 100 regular micropayment channels opened on the blockchain. This can be increased further to 96% if Bitcoin introduces Schnorr signatures with signature aggregation.