Sunday, November 27, 2022

Bitcoin Scalability Won’t Solve Anything, Here’s Why

Bitcoin Scalability Won’t Solve Anything, Here’s Why

The Bitcoin scalability debate. It has plagued the community for years, and has resulted in two versions of the coin, each with its own groups of supporters warring with each other on social media. Both have the same goal in mind: making Bitcoin scalable enough to take over the world without giving up too much decentralization. However, neither side’s solution will work — and here’s why.

Also read: Bank of England Head: Bitcoin “Has Failed” in Being Currency

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Big Blocks vs SegWit: Everyone Wants to Scale, But We Don’t Know How

One side wants to increase the block size to keep fees low and allow people to use the cryptocurrency as digital cash, while the other wants to take transactions off-chain and use intermediaries for everyday bitcoin use — leaving the blockchain for use as a settlement layer for large amounts of money.

Each scalability solution has its advantages and weaknesses. On one hand, raising the block size will keep the network trustless for the most part, at the cost of some mining and node centralization. On the other hand, using second-layer solutions — such as SegWit — will theoretically keep miners decentralized, while forcing users to trust third parties for most transactions.

Both solutions introduce the potential for mass scalability, but neither will solve the core problem they currently focus on: centralization.

Why not? Economics.

Why Neither Option Will Solve Centralization

No matter what technological solution becomes widespread, both miners and nodes will centralize. And regardless of what part of the network becomes consolidated, trust will enter the equation.

The answer to why exactly centralization seems inevitable is a simple economic concept called “economies of scale.”

In high-cost industries, such as bitcoin mining, firms benefit from consolidating and growing in size because it lowers their overall costs. In terms of miners and nodes, this means centralization occurs because it ultimately makes these operations more profitable — or at the very least less costly, in the case of node operation.

image via: Steemit

Thus, as long as mining and node operation costs continue rising, firms will continue to centralize. No scaling solution will fix this — even though proponents of both big blocks and SegWit will tell you otherwise. But why?

Because scalability has nothing to do with mining and node cost. The cost of those two operations is determined by power consumption and storage capacity requirements, respectively — factors entirely outside the realm of block size.

The only real way to solve both cases of centralization is to introduce technological innovation that cuts costs, that makes miners more energy efficient and storage devices cheaper with more capacity. Big blocks and SegWit do neither of those things.

As long as mining difficulty continues to rise, and the blockchain continues growing, operators will continue to consolidate and take advantage of economies of scale.

Why Pick Sides When it Comes to Scalability?

When considering scalability, then, centralization can not be used as a legitimate argument by either side. The real question is much more simple and straightforward: how do we want to scale?

A typical day on Bitcoin Twitter

It’s such a simple issue, and leaders of both scalability camps don’t want you to realize that, because then you would see how silly their arguments are, and that they simply want to manipulate you in order to win influence over the network.

With the sheer absurdity of this debate, one must ask: why pick sides at all? Why not have both forms of scalability on the same chain?

Bigger blocks will allow bitcoin to be used as digital cash, allowing the inclusion of developing regions, while second-layer solutions will allow blockchain-based services that may be more appealing in the developed world where a robust financial infrastructure already exists.

Therefore, wouldn’t combining both solutions bring ultimate scalability to the network? Isn’t two methods of scaling better than just one?

We all have the same goal, why not work together to change the lives of billions instead of fight for influence over a small group of social media users?

Do you think the community should stop fighting over Bitcoin scalability? Share your thoughts in the comments section. 

Images via Pixabay, Twitter, Steemit

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