NOTE: The following was written specifically for a non-technical audience with a very superficial knowledge of Bitcoin
If Bitcoin were a company, it would have been shut down. Satoshi Nakamoto, its inventor, probably would be incarcerated or on the run.
However, Bitcoin is not a company. It is an ownerless entity, living on the Internet upon a network of computers all over the world. This decentralised nature allows it to operate outside of government control, ignoring borders and regulations. At this point, the only way to shut down Bitcoin would be to turn off the Internet.
This gives Bitcoin certain advantages:
- Bitcoin doesn’t care where you are so long as you are connected to the Internet (or even SMS)
- Bitcoin doesn’t care who you are (no AML/KYC, no need for a bank account, no age restrictions)
- Bitcoin can be sent person-to-person, like e-mail, globally
It also brings some disadvantages:
- Bitcoin is slow – to be sure you have received Bitcoin, you need to wait 30-60 minutes
- Bitcoin’s capacity has been limited due to the restrictions on computer power & Internet speed in developing nations
- Bitcoin’s value is volatile, as it is currently still very small ($12.5billion at the time of writing)
Bitcoin has already reached its maximum throughput of transactions due to the existing limits written in its software. The main limiting factor is the size of each block in Bitcoin’s blockchain. Currently the limit is for each block to be only 1Mb in size, thus creating a hard ceiling on how many transactions can fit inside a block.
There is a lot of debate around how best to ‘scale’ Bitcoin so that it can accommodate far more users.
Some want to simply increase the maximum size of a block, others want to deploy an enhancement called ‘Segregated Witness’ or SegWit to increase the effective size of a block and enable ‘second layer’ solutions to enable far greater scaling. SegWit also fixes a minor security bug.
The best way I can describe the two main spheres of thought, is to compare it to car engine design/improvement.
The obvious way to make an engine more powerful is to make it bigger … more capacity, more cylinders. The downside to this approach is that they guzzle fuel (expensive to run) and are heavy.
This represents the more simple scaling method preferred by some Bitcoin users, simply increase Bitcoin’s block size so that more transactions can fit inside each one.
The main disadvantage of this approach is that you need to completely remove and replace the engine … and there are 1000’s of engines out there to change, and everyone needs to agree to make the upgrade.
The more European/Asian way is to optimise an engine; increase efficiency (better air filters, reduce weight & friction, new exhausts, etc.) and maybe bolt on turbos/superchargers to meet the demand for power when required. More recently, some manufacturers have added energy recovery systems and electric motors.
The downside to seeking optimisations and bolt-ons is that the engine becomes more complex and perhaps more fragile as a result.
This approach represents the ‘Core’ development approach to Bitcoin; being very conservative with regard to increasing block size and seeking optimisations and/or bolt-ons which may result in far more ‘bang for your buck’ (more BHP per litre of engine size … or more transactions inside each Mb of block space).
Those of you with some familiarity with computers may think that 1Mb is very small these days, so why have such a low limit. It seems logical to increase the blocksize to a more ‘modern’ amount and optimise later.
The main two reasons against the simplistic ‘bigger is better’ arguments are:
1/ If you cannot reach unanimous support for a full engine upgrade, you risk having two different cars on the road … essentially two different Bitcoin networks. Very bad news! It would create uncertainty and huge price volatility is likely. If poorly managed, there is the potential for some to lose funds. It would be a lot of extra work for Bitcoin businesses to maintain two different ‘models’ of Bitcoin.
2/ Bigger may not be better in developing nations like China, India or in Africa … thus hurting decentralisation (an absolute requirement for Bitcoin to be resilient against interference from any overbearing governments). There is a reason they don’t drive around in 500BHP pick-up trucks in India … they can’t afford to buy or run one! If you’ve been to India, you will know that small hatchbacks are by far the majority of cars (massively outnumbered by scooters and motorbikes!).
As I write this, the Bitcoin miners are ‘voting’ on whether to activate ‘SegWit’, an exciting new technology which I hope activates soon. It is analogous to the second ‘optimise and bolt-on’ approach to engine design.
The new version of Bitcoin software will enable ‘second layer’ technologies to be bolted on to the ultra-resilient Bitcoin blockchain … enabling things like:
- Instant payments with zero counterparty risk, with no minimum size
- Good for micropayments, Internet of Things, real-time settlement, high frequency trading, etc. etc.
- 10,000’s transactions per second throughput (i.e. VISA size capacity)
- ‘Sidechains’ enabling innovators to build their blockchain ideas on top of Bitcoin’s security
- It will be possible to ‘peg’ other blockchains to Bitcoin’s in order to harness its security and immutability but have entirely different functionality. For example, Rootstock will be a sidechain which will enable smart contracts.
My view is that with this ‘SegWit’ upgrade, Bitcoin would become the go-to blockchain for any project … even for banks and governments. It would truly become the ‘World Wide Ledger’ for any use we can imagine.