Should Bitcoin block size increase? A look at both sides of the debate

Introduction

The Bitcoin block size − it has been, and still is, a highly disputed topic within the Bitcoin community. The introduction of Bitcoin ordinals, which deploy additional data on the blockchain, has reignited the debate. With ambitions to propel blockchain technology and cryptocurrencies to a higher level of widespread adoption and everyday use, the obstacle of Bitcoin’s limited blocksize has never been more relevant. It is one of the biggest problems for increasing the network’s scalability, and thus for bringing down transaction fees and waiting times. 

The debate about whether the block size should be increased or not revolves around a core element of Bitcoin, and the community is utterly divided over the issue. In this article, we want to shed light on this debate and on the arguments that both sides bring forth. We will take a look at what blocks are, why the size limit is in place, and how this is a fundamental aspect of Bitcoin. After that, we will dive into the reasons behind the need for increasing the block size, as well as the arguments against and in favor of this. By the end of the article, you will have a comprehensive overview of both the issue and the debate – both which should be resolved sooner rather than later to ensure a future for the world’s first and most successful cryptocurrency network.

What is the issue with Bitcoin’s block size?

What are blocks?

In order to understand the issue with Bitcoin’s block size, it is helpful to understand what blocks are and why they have a limited size on this network. 

Blocks are collections of transactions that are confirmed and validated by the network’s nodes, and then added to the blockchain, which is a public ledger of all activities on the blockchain. Each one of these transactions is a piece of data, which takes up space in the memory of every block. The amount of transactions that can be taken up in one block depends on the size of each individual transaction. This is the case for every blockchain network. 

Because these blocks are literally the building blocks of a blockchain network, their characteristics, such as size, have far-reaching impacts on the network in question.

Why is Bitcoin’s block size limited?

When it comes to Bitcoin, the network’s block size is limited to 1MB. With many of today’s devices being able to store up to hundreds of GB’s, 1MB is an incredibly small memory, so why does the Bitcoin network have such a limited size for its blocks? 

In 2010, Satoshi Nakamoto, the creator of Bitcoin, put a limit in place for the blocks on their network. The main reason behind this was to reduce the threat of spam and denial-of-service attacks. The limit had to ensure that the network remained stable and decentralized, because a larger block size could lead to an excessive growth of the blockchain. This could make it difficult for nodes with limited resources to keep up, which would erode away at the decentralization that is key for Bitcoin.

Why did the limited block size became an issue?

Back in 2010, the network was much smaller than it is today, so the 1MB block size limit was perfectly fine. However, over the years, the network’s popularity skyrocketed, and with this came a rapidly increasing user base. With the growing amount of transactions, the block size limit started to present increasingly serious scalability issues. With the limited block size, the network can only handle a limited number of transactions per block. At times of busy traffic on the network, which occur more and more often as its popularity continues to grow, not all transactions that people conduct fit in a block right away. Miners, who create new blocks out of new transactions, choose the transactions that pay the highest fees first. This resulted in higher fees and longer waiting times for transactions with lower fees during periods of high demand. 

Scalability issues hinder widespread adoption of Bitcoin

The scalability issues, resulting in longer waiting times and higher fees, hinder the widespread adoption of Bitcoin. For day to day use, it is incredibly impractical to perform transactions that have a waiting time that can take up to 10 minutes or longer. For example, when someone pays for their groceries in the supermarket, they would not want to wait a few minutes or even longer before the transaction is confirmed.

What has been done so far to address the block size issue?

The issue of the block size limit is not new. In 2017, a first attempt was made to resolve some of the scalability issues by implementing one of Bitcoin’s major upgrades: the Segregated Witness upgrade, often abbreviated to SegWit. 

The SegWit protocol reduced the size of transactions by changing their structure. It separated the transaction data from the signature data, allowing more transactions to fit within a 1MB block. SegWit deploys a mathematical trick that results in blocks that are able to store 4MB of transactions. 

However, not all miners within the Bitcoin network were happy with this upgrade. Many of them decided not to update their mining equipment with the SegWit protocol, which resulted in a soft fork of the Bitcoin blockchain. Over the years, the adoption rate of SegWit has increased, but a small group of miners remained unhappy with the new protocol: they created a hard fork on the network, splitting of Bitcoin Cash from the original Bitcoin network.

The SegWit upgrade definitely improved Bitcoin’s scalability by fitting more transactions in one block, but still, scalability remains a big issue. SegWit merely decreased the size of the problem a little bit, but further drastic changes are needed if Bitcoin wants to keep up with its growing user base. 

What solutions are there for Bitcoin’s scalability issues?

As mentioned earlier, the implementation of SegWit improved scalability a little bit. Furthermore, Layer 2 solutions that operate on top of the Bitcoin blockchain, such as the popular Lightning Network, can offer relief for the network. The digital signatures can also be improved upon, for example by making use of Schnorr Signatures, which offer a more efficient way to validate transactions. 

However, there are many people that argue that the problem should be solved at its base: the block size.

Why increase Bitcoin’s block size: Arguments in favor of larger blocks

Why increase block size?

As explained before, the limited block size means that only a limited number of transactions fits into one block. Therefore, increasing the block size means that more transactions can be mined into a block, consequently reducing transaction fees and waiting times. There are several arguments in favor of increasing Bitcoin’s block size.

Lower transaction fees and more capacity to compete with other payment systems

Lower transaction fees would make the Bitcoin network more attractive for users that are now being deterred by high fees. Especially for smaller transactions, the relative fee can become quite high. As a result of this, many day-to-day users of digital payments stick to traditional payment systems, such as Visa, who offer very low fees. With high transaction fees, Bitcoin cannot compete with such traditional payment infrastructure. 

In addition to this, traditional payment systems like Visa handle hundreds of millions of transactions per day. With a 1MB block size, Bitcoin is nowhere near this processing capacity. Therefore, increasing the block size can further consolidate Bitcoin’s position on the traditional payment infrastructure market.

Increased block size can boost daily use of Bitcoin

So far, Bitcoin is mainly viewed as an investment opportunity. However, Satoshi Nakamoto created it to be a decentralized alternative to traditional money, said to revolutionize the financial system as we know it. But that requires many people to adopt Bitcoin for payments. Not only for large sums of money, but also for micropayments on a daily basis. As we touched upon before, high transaction fees and long waiting times hinder the use of Bitcoin in everyday life. Therefore, an increased block size might boost the daily use of Bitcoin.

Leave the block size alone: Arguments against larger blocks

The 1MB block size limit is at the core of Bitcoin’s scalability issues. Resolving these issues at that point might seem like a logical choice. However, the Bitcoin community is very divided over this solution. Let’s take a look at the arguments that opponents of a larger block size use.

Higher costs for full nodes might threaten decentralization

With larger block sizes, it becomes more expensive to run a full node in the Bitcoin network, because it requires better hardware and bandwidth. These nodes are essential in maintaining Bitcoin’s key feature: decentralization. When the number of nodes reduces because people stop due to higher costs, the network is at risk of centralization. Less nodes also mean that a 51% attack is more likely to be successful. 

Because decentralization is the single most important value of Bitcoin, opponents of a larger block size argue that the risk of centralization is not worth it, and another solution should be found.

Larger blocks are not a sustainable long-term solution

While increasing the block size may provide a short-term scalability boost, it is not a sustainable long-term solution. As the number of Bitcoin users and transactions grows over time, even larger blocks may become insufficient to handle the increasing demand, leading to a recurring need for further increases.

Increased chance of single points of failure

When the block size is increased significantly, the size of the blockchain grows proportionally larger. As a result, running a full node to maintain a complete copy of the blockchain becomes more resource-intensive. To cope with the increased demands, some individuals and entities might resort to setting up grouped or shared full nodes. These are instances where multiple users or entities pool their resources together to collectively run a single full node.

The concern with this approach is that it creates single points of failure. Instead of having many independent nodes distributed throughout the network, the grouped full nodes consolidate the validation and verification processes into a limited number of locations. If these grouped nodes experience issues or go offline, it can result in significant disruptions to the network’s consensus mechanism and security.

What other solutions are available for Bitcoin’s scalability issues?

Opponents of increasing the block size argue that the community should look into other solutions to target the scalability issues. So, what other potential solutions are out there?

Layer 2 solutions

We briefly mentioned Layer 2 solutions before already. They enable off-chain transactions, thereby reducing the burden on the main blockchain. Developers build Layer 2 protocols on top of the base layer (Layer 1) of the Bitcoin blockchain. Layer 2 solutions are especially helpful for handling smaller daily transactions, which they then periodically settle on the main chain. Layer 2 can provide processing of transactions against lower costs and with lower waiting times.

Side chains

Another potential solution for improving scalability are sidechains. Sideschains are separate blockchains that are interoperable with the main chain. They allow for the transfer of bitcoins from the main chain to the sidechain and back, creating a two-way peg. Sidechains can be used for various purposes, such as experimenting with new features, enabling faster transactions, or implementing smart contracts.

However, it is important to note that sidechains are not about scaling. They mainly aim at improving the functionality of the network and in this process, some of their features may help with scaling.

Schnorr Signatures

Also mentioned earlier, Schnorr Signatures offer a more efficient way to validate transactions. They aggregate multiple signatures into a single one, thereby reducing the amount of data. This means that a block can store more transactions. However, as Bitcoin continues to grow, it is only a matter of time before Schnorr Signatures will no longer be sufficient to deal with all the transactions. 

There are more alternative solutions out there, and more will likely be developed as the community continues to try and solve the scalability problem. Each of these alternative solutions come with their own pros and cons. Therefore, the process of improving scalability and choosing whether or not to increase block size, depends on the values the community finds most important.

Conclusion

In conclusion, the Bitcoin block size debate remains a complex and contentious issue within the cryptocurrency community. The limited block size has resulted in scalability challenges, including higher transaction fees and longer confirmation times, hindering widespread adoption and daily use of Bitcoin for transactions. 

Proponents of increasing the block size argue that larger blocks could accommodate more transactions per block, leading to lower transaction fees and faster processing. They contend that increasing the block size is a straightforward way to handle scalability challenges without relying solely on additional layering solutions.

Opponents of increasing the block size voice concerns about potential centralization, security risks, and long-term sustainability. They advocate for other solutions that prioritize decentralization and maintain the security and integrity of the Bitcoin network, such as further development of Layer 2 solutions, more efficient signature algorithms, and innovative ideas like sidechains.

Balancing the demands of scalability with the core principles of decentralization, security, and usability will be essential in shaping the future of Bitcoin as it aims to become the widely adopted and efficient payment system that Satoshi Nakamoto envisioned.