Bitcoin was first introduced by Satoshi Nakamoto when he published a paper about it in 2008. The paper gained a lot of attention as he managed to solve the double spending problem which researchers were attempting to solve for over a decade. Satoshi Nakamoto introduced the concept of a distributed ledger called blockchain to do so. The conceptual bitcoin was made a reality within one year.
Bitcoin was designed to be a digital currency that can be used for making transactions in place of fiat currency. However, bitcoin and the technology behind it has grown bigger than itself. Blockchain technology has outgrown bitcoin and now we have bitcoin companies that are trying to find different uses of bitcoin technology.
Attempts to use the blockchain technology for other applications has given rise to the terms Bitcoin 2.0 and Bitcoin 3.0. The developers and bitcoin companies have made some promising improvements, repurposing the blockchain technology for other applications. The use of blockchain technology now extends to not only bitcoin but for various other fintech applications. We all know about the banking consortium which has collaborated with a New York-based fintech solutions firm, R3CEV to develop private blockchain technology for the banking sector. The consortium consisting of over 40 banks is still growing and they intend to use the blockchain technology for transferring funds across branches in a faster and cheaper way compared to the current SWIFT network.
Various international stock exchanges like NASDAQ and Australian Securities Exchange are adopting blockchain technology for trade settlement and other securities related applications. Not to mention the demand for blockchain technology in data management, rights management, records keeping, internet of things and other industries.
There is a phenomenal increase in the use of blockchain technology, especially bitcoin blockchain itself for various applications, but at what cost? No one has stopped to think about it, or have they?
The bitcoin blockchain is already plagued by the block size debate. The block size was initially limited to a maximum of 1 MB and it has stayed unchanged ever since. The smaller block size poses its own set of problems to the bitcoin network. 1 MB block size means there is only so much information each block can store in them. Be it transactions or other data from blockchain-based applications (increasing every day). The optimum transaction rate for the bitcoin network is less than 7 transactions per second (at 1 MB block size). The additional load exerted by bitcoin blockchain-based applications further reduces the transaction rate.
Current Blockchain Technology Needs an Upgrade!
Recently, researchers have concluded that the bitcoin network is not an ideal network and it is impossible for bitcoin to replace fiat in the mainstream economy anytime soon unless drastic improvements are made to bitcoin itself. They estimates that the bitcoin architecture is capable of conducting a maximum of fewer than 30 transactions per minute with an optimal block size of 4 MB. These numbers do not look promising at all! Visa, the well-known worldwide electronic payments network is estimated to process about 2000 transactions every second. It is also believed to have the capacity to handle over 50000 transactions per second.
The additional burden exerted by Bitcoin 2.0 and Bitcoin 3.0 applications further reduce the capacity of the decentralized blockchain network to process bitcoin. We have various other alternatives that can be used instead of bitcoin blockchain, but many startups and even big companies choose to stick to blockchain technology as it is a hot thing in the tech sector right now.
While people have high hopes for the bitcoin blockchain, it is still not too late to focus resources on developing a better version of bitcoin and the blockchain technology. Something that is more flexible, robust and fast. New companies entering into blockchain technology-based products and services should rather focus on improving the existing bitcoin protocol itself instead of attempting to find new applications of the already overstretched bitcoin blockchain.
Increased VC funding in these areas is making it worse. Late comers to the blockchain rat race, backed by VC money are splurging their funds to create things that may not survive the harsh conditions and tough requirements.
Disclaimer: The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of NewsBTC.