MIT Technology Review is weighing in again on the issue of Bitcoin scalability with an article titled “Technical Roadblock Might Shatter Bitcoin Dreams.” The question is whether the Bitcoin network could be scaled up to support thousands of transactions per second, like the world’s major payment networks. The answer is no, unless the Bitcoin code is radically re-engineered.
The debate has been going on for months. In May 2015, Bitcoin Magazine reported that Bitcoin Core developers were disagreeing on the optimal block size, a parameter that is directly related to the throughput of the Bitcoin network. As things stand, the Bitcoin network can process only a few transactions per second, which could strongly limit the ability of the network to handle high transaction volumes if the adoption of bitcoin payments grows.
On February 26 a team of researchers from Cornell University, The University of California, Berkeley, ETH Zurich, the National University of Singapore, and the University of Maryland, will present a paper titled "On Scaling Decentralized Blockchains" at the Financial Cryptography and Data Security 2016 conference, organized by the International Financial Cryptography Association and IACR.
Author Ari Juels, a cryptographer and professor at the Jacobs Technion-Cornell Institute at Cornell Tech and a director of the Initiative for Crypto-Currencies and Contracts (IC3), is persuaded that the scaling proposals currently on the table for discussion, centered on increasing the block size, would have little effect.
In fact, according to Juels, no tweak to Bitcoin could allow transactions at a scale close to the thousands of transactions per second processed by global payment networks such as Visa, without compromising Bitcoin's decentralized design. “We have to think in terms of a fundamental redesign if we’re going to see robust scaling in Bitcoin,” said Juels.
“Today’s representative blockchain such as Bitcoin takes 10 min or longer to confirm transactions, achieves 7 transactions/sec maximum throughput,” note the researchers. “In comparison, a mainstream payment processor such as Visa credit card confirms a transaction within seconds, and processes 2000 transactions/sec on average, with a peak rate of 56,000 transactions/sec.”
Bitcoin works by discovering blocks of confirmed transactions at approximate intervals, and its transaction throughput is limited by factors like the maximum block size, the average transaction size, and the block interval.
After an extensive analysis of the factors that limit the throughput of the Bitcoin network, the researchers conclude that reparametrization of the block size and interval in Bitcoin is only a first step toward substantial throughput and latency improvements while retaining significant system decentralization.
“More aggressive scaling will in the longer term require fundamental protocol redesign,” note the researchers.
A conclusion of the study is that, in the current design of Bitcoin Core, there is a fundamental conflict between throughput and decentralization. An optimal block size of four megabytes could permit a throughput of about 27 transactions per second in the Bitcoin network, but the price to pay for further increases would be making the Bitcoin system more centralized.
For example, using a standard Byzantine Fault Tolerant (BFT) replication protocol with a small number of pre-designated trusted entities would permit improved scaling, but decentralization carries a performance cost.
The discussion of the possible ways ahead is rather theoretical and generic, and the researchers don’t propose a solution. The goal, they say, “is not to propose an end-to-end system, but rather to paint the design space, suggest promising approaches, and pose open challenges to the community.”
The promising approaches outlined by the researchers include lightning networks and sidechains able to exploit faster and more efficient protocols while still using Bitcoin as a currency.
MIT Technology Review notes that many companies are developing private non-Bitcoin blockchains and “permissioned” blockchains where transactions can be validated only by vetted participants. Private blockchains that don’t require high throughput, for example those envisaged for inter-bank settlements, are less vulnerable to congestion than the public Bitcoin blockchain.
Legendary cryptographer Adam Back, a co-founder of Blockstream, a well-funded company active in the lightning networks and sidechains space, agrees that new technology is needed to scale up Bitcoin, but is persuaded that the community will be up to the challenge. “There’s strong interest from academia, lots of new technology coming in the next 18 months, and a lot of funding coming to the industry,” he says, as reported by MIT Technology Review.
A full version of the research paper will be available on the IC3 website. The URL given (ref. 10) isn’t active yet, but presumably the full paper will be there after the presentation on February 26.