Bitcoin Scaling Issue: What it means for common man and how they can escape from it?
There is a huge debate going on the bitcoin scaling issue in the bitcoin world but most of the common bitcoin users are either confused or not even aware of what is happening behind the scenes. Those who are engaged in bitcoin adoption to common users are still considering it as the best currency in the world despite of practical and serious problems occurring to Bitcoin very regularly these days.
In last 2 weeks bitcoin has gone through series of events which has raised a lot of concerns for its future and especially for the investors who have invested huge amount of money in it hoping that its value will increase. I will summarize all possible events to give snapshot of them and try to provide as simple solution for common man as possible so that atleast investments of common man can be saved.
What is the Bitcoin Scaling Issue for a common man?
Technically problem lies in a specific parameter called the “block size limit.” The current limit is 1 MB which is insufficient for the ever-growing transaction intensity. In general terms, Bitcoin can handle from 3 to 7 transactions per second as compared to 24000 transactions per second by Visa.
So one problem is that bitcoin cannot compete or scale upto 24000 transactions per second with given block size limit of 1 MB. But the demand and mainstream adoption is increasing very fast for Bitcoin since it has become universal currency to buy other crypto currencies and at the same time, being accepted by hundred thousands of merchants worldwide as a global currency. Transaction fees and transaction confirmation time is increasing day by day until block size is increased. Transaction fees has increased from 1-2 cents to 30-40 cents or even few dollars some days. Transaction confirmation time has increased from 10 mins to few hours and few days infact which is very frustrating and at the same time killing the real use case for what Bitcoin was made.
Other problem which is more worrying the whole bitcoin and blockchain community that in order to scale the bitcoin, the bitcoin developer community has divided up in two groups and both groups are playing the blame games both technically and politically to prove themselves right. Currently one team has proposed “Segwit” as the soft fork solution of bitcoin and other team has proposed “Bitcoin Unlimited” as the hard fork solution of bitcoin. The network has become really congested and needs an immediate scaling solution for bitcoin to survive.
Why community divided between segwit and Bitcoin Unlimited?
Before answering this lets understand what solution both are proposing!! To be honest, Bitcoin Unlimited and Segwit provides mutually exclusive solutions means both are providing different solution for different problems. To me, Bitcoin Unlimited provides the urgent and accurate solution on top of which Segwit can be implemented as a soft fork later on. But Why So? Let’s try to understand both of them first!!
Bitcoin Unlimited- As per name it removes the limit of block size and give this privilege to miners to decide which block size they want to mine to depending upon competition with other miners. But there are some problems that everybody is concerned about after implementation of BU.
Centralization– As per Bitcoin Core team’s argument bitcoin will become centralized becoz of two reasons.
- The transaction records that will be stored on the distributed nodes will become huge in size roughly of Petabytes that common man wont be able to afford to store such huge amount of data.
- Running a decentralized node itself will become a challenge for common man becoz it will require huge computing power and Internet bandwidth to keep running for 24 hours and keeping the network distributed in nature. Moreover there is no incentive of running such nodes that will discourage them to shut off the nodes.
So big companies will be able to afford such nodes and the control will ultimately come in hands of big corporates which itself will divert from the original idea of decentralization of Satoshi Nakamoto.
- Chain Split– This is more serious and complex issue that everybody is afraid of. With Bitcoin Unlimited, hard fork will happen, that means the change in the block size will be done in the original code and eventually there is a high probability of chain splitting to two parts that means, one chain will be running on original code that will be called as Bitcoin(BTC) and other forked chain will be Bitcoin Unlimited(BTU). The reason for chain split is that not everyone is ready for hard fork and there is no equal consensus for hard fork. If everybody gives green signal to Hard fork and support them then there wont be much problem but the problem has become so much political that it has been taken as most negative solution so far
- Successfully Attacked before– The bitcoin unlimited code has been attacked successfully before making it vulnerable to attack again but as per statements from Bitcoin Unlimited developer team, that the bugs which were found has been fixed now and we still are not sure until the final successful attempt of bitcoin unlimited is seen.
Segregated Witness (Segwit)- SegWit offers a moderate increase of the block size to up to 4 MB moving some non-critical data out of the blocks. But actually it is not increasing the block size by hard fork, the block size will still remain as 1 MB. It was originally created to fix an unrelated issue – transaction malleability which means to get rid of the bug which changes the hash address of bitcoin although it does not affect bitcoin overall in terms of security. It is a bug which needs to be fixed upon but not urgent bug in front of block size issue.
Segwit too has some problems which are very complex in nature for a non-technical person but still I will try to explain in plain English to make users understand of the actual problem.
- Centralization- Segwit isn’t perfectly decentralized either. Due to sidechains and Lightning network built on top of blockchain will result in reduction of full validating decentralized nodes. That said, the developers will have the ability to make the changes on sidechains and lightning network as it won’t be directly part of bitcoin blockchain. There is a susceptibility that central bankers are trying to take control of bitcoin through this method through which all transactions can be tracked and user privacy will be finished with time“The problem here is that for many members of the cryptocurrency community, there is no real distinction between “a mutual settlement system maintained by a trusted third party” and banks, which are central points of authority that Bitcoin was supposed to make obsolete.” – By Andrew Marshall
- Block Size Limit– Block size as said before wont be increased actually. It will become capable to handle data upto 4 MB max by cutting out irrelevant data from the blockchain but still it can go max uptill 20 transactions per second from 3 to 7 transactions per second which still be a nightmare in the scalable reality of competing with Visa. That being said after 2-3 years this problem will come again because of further growth in Bitcoin community.
- Complex Code– Some experts have validated the code and came to the conclusion that the segwit code itself is so complex that it will be difficult to even reverse the soft fork or changes that if that being done, it can seriously affect the bitcoin.
- 95 % consensus almost impossible – To activate segwit, 95% consensus is required which according to me is nearly impossible to achieve and looking at the urgency of the block size solution for ongoing bitcoin problem, it becomes a nightmare that segwit can be activated.
- High Transaction fees– The transaction fees will remain higher for the bigger transaction size which will reduce the original use case of bitcoin for cross border business dealings.
- Mining Blocks and Nodes Stats- As per current scenario, around 37.1% of miners are supporting Bitcoin Unlimited and 27.1% of miners are supporting bitcoin core solution Segwit. When it comes to number of blocks mined in last 7 days around 62% of core blocks and 37.1% bitcoin unlimited blocks got mined but the BU blocks are increasing and core blocks are decreasing very fast. Interestingly 82% Bitcoin nodes belong to bitcoin core and 12 % of bitcoin nodes belong to Bitcoin Unlimited.
- Roger Effect- Roger Ver also known as “Bitcoin Jesus” is pushing hard for Bitcoin Unlimited hard fork and managed to bring the world’s biggest Mining Equipments manufacture and biggest mining pool Bitmain’s Antpool and Chandler Guo recently which has stunned the world and everybody is taking this hardfork as inevitable after such huge push.
- Bitcoin Contingency Plan– Due to this reason, all worldwide exchanges have released contingency plan regarding the hard fork. Indian exchanges have yet to respond for the same!!
- Alt coins gaining traction– In last two weeks, several alt coins like ETH, DASH, Monero, Augur, ETC, NEM have got almost doubled or trippled, especially Dash went from $16 to $106 in last 1 month, ETH went from $11 to $42 jumping Dash from 8th to 3rd position and tripling market cap of Ethereum.
- Bitcoin Market Cap and price reduction– Since the ETF rejection happened, Bitcoin price has been reduced from $1265 to $1065 and market cap reduced upto $3 Billion to $17.4 Billion. At the same time Global Market Cap increased upto $2 Billion. This means not just money from bitcoin moved to alt coins but fresh money also moved to alt coins thereby decreasing the Bitcoin dominance from 87% to 72% approximately.
Possible Time for Segwit or Bitcoin Unlimited Activation
There is no confined date for segwit or Bitcoin Unlimited but as per the recent aggressiveness of Bitcoin Scaling issue and price reduction due to recent announcements and sudden increase in Bitcoin Unlimited support by Miners especially from China, it seems Bitcoin Unlimited to be inevitable now and possibly can be activated within next 3 months. This is just my prediction based on my understanding of current market scenario but it should not be taken as granted. Still this is the right time to take some important steps in order to not lose our money.
What investors should do with their Bitcoins?
Believe me this is my first ever article but in order to help investors in saving their hard earned money to be wiped off due to the political heat of Bitcoin scaling, pushed me to provide the possible solutions below. Even popular bitcoin Entrepreneur Vinny Lingham who is famous for accurate bitcoin price prediction has nearly sold his 90% of bitcoins. But I don’t say to sell the bitcoins bluntly. I would recommend different methods depending upon different type of investors whichever will suite you best, you can follow it.
- Convert to safe Alt coins- First and most recommended suggestion is to convert their bitcoins into safer and authentic alt coins which are good enough to be recognised as a cryptocurrency in case of any trouble to bitcoins. I will recommend the currencies which I have converted my Bitcoins into as well as which are good projects. But I would recommend you to do your thorough search before investing into these coins. Beware of some scam coins like Asia Digicoin, Onecoin or any other possible coins which don’t have good technical team or background or market presence. Some recommended coins are Ethereum(ETH), Dash, Monero, Zcash, ethereum classic, litecoin, nemHow to convert Alt Coins- To store coins like Ethereum(ETH), Ethereum Classic(ETC), Dash, Zcash, litecoin, you don’t need to look for different apps. Just search for “coinomi” wallet on Android Play Store or Apple’s App Store. It has built in exchange from where you can convert Bitcoins to these alt coins and keep these coins saved.
- Sell Bitcoins in exchange of fiat currency- Yes you read it right, if you think that converting your bitcoins to alt coins can be a mess for you which actually wont, you can sell your bitcoins to your local exchange from where you bought in exchange of your local currency. I don’t want you to do this until you don’t have any other alternative available. Keep your fiat money saved until bitcoin scaling issue gets resolved.
- Hold your bitcoins to double the quantity of your bitcoins- Yes again you read it right. But double!! How come? Actually if hard fork happens, which anyways is inevitable according to me, the chain will split into two chains as mentioned earlier that means, BTC will split to two coins one is the original BTC and the other one is BTU. But this will be little cumbersome process for most of the people, so I advise to follow either of the two methods as mentioned above. But if you want to follow this method and want to take a risk which may double your money too, then hold or short sell your bitcoins as per the below guildlines.
Generating money out of thin air: Bitcoin is currently at $1050 and has a $17 billion market-cap. If due to hardfork, the coin gets cloned on the blockchain (database) as bitcoin core and bitcoin unlimited on all exchanges (bank accounts) for a fraction of a second the total market cap will be 17 + 17 = $34 billion effectively generating $17 billion out of thin air guaranteed by the exchanges (that is if everyone chooses to cash out from the exchange and convert btc and btu to fiat instantly). This implies the BTC price might fall to market correct itself (unless it’s not artificially pumped up by whales to profit). You can check the video by clicking here how to profit from a price fall including stop limit orders. Shorting bitcoin – You borrow BTC @ $100 from broker, sell instantly, make $100, price declines you buy back same stock@$60 with the proceeds from the original sale. If price of said stock is lower, you keep the difference (100 – 60 = profit 40). If you pay higher price the difference will be (100 -140 = loss 40).
Disclaimer: I do not trade much so I’m not an expert. I do know complex trading terms because I hang out with friends who trade.
All in all everybody wants bitcoin to succeed but the lack of formal governance has put a big question mark on future of Bitcoin again but if we go through history of Bitcoin, it has survived many battles very strongly, I hope that it will survive the recent scaling issue too and bitcoin community will solve the problem wisely either through compromise or in some other way. If anybody feel there is anything missing or wrong information in the above article, feel free to contact me at email@example.com where I head the Blockchain development and Data Analytics departments.