Bitcoin shines as one of the most impactful, secured, and trustworthy cryptocurrencies amongst the crypto enthusiasts even after eleven years of its inception in the industry. It has been subjected to some of the biggest ups and downs of the marketspace in its small crypto journey. In 2017, the coin enjoyed a bullish trend with its price value surging to a significant high of all times. This encouraged a lot of investors from around the world to put in their funds into Bitcoin to reap in lucrative profit returns. However, soon they faced a downward trend in BTC value and bore huge losses.
The Bitcoin whitepaper explains the virtual currency as a peer-to-peer decentralized money system that works as a potential substitute for the traditional payment settlement mechanisms. Just like any other industry, Bitcoin too has its supporters as well as critics. Where some address it to be “highly profitable,” others condemn it saying it to be “highly speculative.” However, in the past few years, it is observed that Bitcoin is losing its charm and is heading away from its core objectives. The cryptocurrency that was launched to work as a mainstream currency is now evolving as a commodity. Some of the prime reasons for Bitcoin losing its currency attributes include:
- Highly dynamic or volatile nature
- Sky-rocketing transaction fees
- Limited scalability
- Slow execution of transactions
- Complex methodologies causing limited access
The scalability issue is the most significant limitation of Bitcoin. When the network gets flooded with operation requests, it takes an average of more than one hour for settlement, which is undoubtedly not acceptable for organizations requiring movement of hefty payment in equal intervals of time. In December 2017, the average transaction fees on the Bitcoin blockchain were $40 while it shot up to a value of $55 by 2019 end. The high fee charges and slow processing rate often restrains investors from using Bitcoin as a currency.
A potential solution to the problem:
Bitcoin is in its development stage and so it forms a part of the research for a huge number of bright minds who are keen to know more about the crypto coin. An array of researches in the field affirm that the scalability of the Bitcoin network can be improved with the introduction of the bigger block size. Presently, Bitcoin mining is done on a block size of 1 MB. However, the management of a bigger block will be quite challenging in terms of maintenance and operations. To solve the scalability issue, Bitcoin Cash was developed through a hard fork on August 1, 2017. BCH has a big block size of 8 MB, and it is capable of performing a huge volume of transactions at lower rates.
Why Bitcoin fails as a scalable solution?
Scalability refers to the capacity of a network to grow in size, enhance its operational capabilities, and manage increased demand to cater to the requirements of all the users diligently. Bitcoin suffers immensely because of its limited scalability feature. The two main criteria which govern the processing capacity of the Bitcoin blockchain are:
- Block creation time- The miners can create and secure a block of over 2,000 Bitcoin transactions in nearly 10 minutes. This indicates that only a fixed amount of transactions can be dealt with on the Bitcoin network at a particular given time.
- Block Size- As mentioned above, a Bitcoin block size is limited to 1 MB, and so only a certain amount of transactions can be added into a block for processing purposes. The creators designed a small block to prevent hackers from creating huge blocks which are prone to hamper or paralyze the Bitcoin network.
Bitcoin V/s Conventional Payment Networks:
Before drawing a comparison between Bitcoin and its competitor payment firms, we must understand what TPS (Transactions Per Seconds) is. TPS is a common measurement metric that defines the number of transactions that any network or system can process efficiently.
Bitcoin has a meager value of 7 TPS while the other financial players stand much ahead of it. America-based PayPal boasts of a TPS score of 193. It has a whopping customer base of 19 million users hailing from across the world who enjoy its secured, quick, and economical online transfer services. However, the undisputed leader in the TPS race is yet again, America-based, financial services giant, Visa. Working as the world’s leading payment settlement network, Visa processes transactions at a speed of 24,000 TPS, which makes it a clear-cut winner in all respects.
Bitcoin has the full potential to live up to its core objective of providing a decentralized network replacing the central authority in all its forms. This achievement is only possible if the network enhances its scalability level and processing time. With innovations and developments, Bitcoin will likely find a solution to all its loopholes and evolve as the people’s favorite new-age currency while satisfying the goal set up by its creator, Satoshi Nakamoto.