Bitcoin is king — it is still the best performing asset of our lives. It has silenced its harshest critics and only continued to grow in adoption, usability and relevance. The fact that bitcoin has achieved all this in only 12 years is remarkable. However, there is a very real specter that has been haunting the Bitcoin blockchain since its inception: speed. As adoption continues to bring billions in institutional money, retail, venture capital and now even entire countries into the Bitcoin ecosystem, we are facing the congestion and throughput problems many feared would keep bitcoin from achieving all its lofty revolutionary goals. Despite this, and even despite the rise of altcoins and the scalability challenges facing bitcoin, it will continue to build upon its successes and inevitably become the primary digital reserve currency of the world economy. How? With a bolt of Lightning.
Bitcoin’s Scalability Challenges
If a blockchain network cannot scale to meet the needs of the global, digital economy, there is no hope of achieving mainstream adoption. There are many measures for scalability, but the most common is throughput (transactions per second or TPS). For context, Visa’s payments network can process an estimated 24,000 transactions per second, though in reality only needs to complete about 1,700/sec. By comparison, Bitcoin processes between four and five transactions per second—in other words, Bitcoin is painfully slow. Bitcoin’s latency is in large part what motivated the rise of altcoins: Cardano, Nano and Solana, to name a few, all advertise high transaction throughput in comparison to bitcoin.
Many Bitcoin users would argue that speed isn’t the ultimate aim for bitcoin, whose primary purpose is to serve as a store of value and a hedge against inflation. Admittedly, there is a real need for preserving wealth through time to dodge the ravages of fiat currency inflation that have wreaked havoc on countries like Venezuela, Zimbabwe, Argentina and Iran. However, Bitcoin purists never doubted that Bitcoin should also live up to the original vision of a peer-to-peer electronic cash system laid out in Satoshi Nakamoto’s Bitcoin white paper.
So, how does bitcoin arrive at this vision as a global currency and means of exchange, in addition to a store of value?
The Bitcoin Cash hardfork was one potential solution to scalability: By increasing block size, more transactions could be included at a time. However, Bitcoin Cash can still only process a meager 116 transactions per second (it also failed miserably in the adoption test). Enter: the Lightning Network.
The Lightning Network works by offloading capacity from the main Bitcoin blockchain onto a second layer of payment channels. Since Bitcoin’s scalability issues are driven by the fact that each transaction has to be broadcasted to the entire network and included in the main Bitcoin blockchain, by utilizing Lightning Network, two entities can open a payment channel between them to enable…
Read more:In A Flash, Bitcoin Can Become The Default Digital Reserve Currency Of The World
