- Bitcoin’s scalability issues led to the block size debate.
- A portion of the Bitcoin community wanted to increase Bitcoin’s block size.
- A sidechain solution called “SegWit” was suggested to free up space in the blocks but was rejected by this section.
- Bitcoin eventually split into Bitcoin (BTC) and Bitcoin Cash (BCH).
- Bitcoin implemented SegWit, which Bitcoin Cash increased block size to 8 MB.
- Bitcoin Cash was later further divided into Bitcoin Cash and Bitcoin SV.
- Bitcoin Cash increased its block size to 32 MB, while Bitcoin SV has a 128 MB upper cap.
If you were active in crypto around 2016-2017, you would be aware of the whole block size drama that led to the split between Bitcoin and Bitcoin Cash. The bone of contention that caused this heated debate was BTC’s lack of scalability.
Bitcoin vs Bitcoin Cash: The Scalability Problem
One of the biggest problems of the Bitcoin protocol is its lack of scalability. Even now, Bitcoin can only manage 7-10 transactions per second and has a block time of 10 mins. Most of these problems stem from the fact that Bitcoin blocks have a size limit of 1 MB. This limit was hardcoded into the code because Satoshi Nakamoto believed that a larger block size would fill up the blockchain with spammy transactions.
Back then, Bitcoin was used by gamers or programmers in seedy forums as a means of transactions. Now, BTC is one of the most talked-about asset classes in the entire world, with billion-dollar corporations actively researching and investing in it. Times have changed and how.
However, with this increased demand, the scalability issue becomes a significant issue. After all, how can Bitcoin be a viable method of payment if you need to wait minutes at the convenience store waiting for your transaction to go through?
Of course, there is a way to speed up transactions by paying higher than normal transaction fees. But, this simply bumps up the system’s overall transaction fee, making Bitcoin more expensive to use.
The graph above shows you the median transaction fees for Bitcoin transactions. As you can see, there are some significant spikes in this chart, reaching as much as 28 min for a single transaction.
So, what is the solution here? Well… some folks in the Bitcoin community believed that the solution is to simply increase the block size from 1 Mb to 2 Mb. However, this is where the great block size debate reared its head.
The Block Size Debate, aka, Does Size Matter?
Alright, so why not just increase the block size of the individual blocks? Well, let’s look at this issue from both sides of the debate.
Pro-block size Increase
- Since large blocks could take in more transactions, the miners could potentially earn more through transaction fees.
- Bitcoin’s inflated transaction fees could stop the “common man” from conducting BTC transactions. Increasing the block size helps meet the demand and reduce transaction fees, as a result.
Anti-block size Increase
- The limited block size actually works in the miner’s favor since the increased demand spikes up the transaction fees. If these fees go down, it could disincentivize the miners.
- Some believe that Bitcoin’s low throughput actually cements its position as digital gold. After all, gold shouldn’t be used for everyday transactions.
- Increasing the block size will cause increased centralization since the increased size will increase the amount of processing power required as well.
Trying To Appease Both The Sides
Blockchain forks are essentially a split in the blockchain network. It is up to the miners which blockchain they continue to use. Now, this fork could either be a soft fork or a hard fork. A soft forked blockchain is backward compatible with the original chain, while a hard forked chain is an entirely different entity and no longer backward compatible.
To better understand the difference between a soft and hard fork, think of a vegetarian restaurant. If this restaurant decides to add steaks to their menu, that will be a hard fork – a change in rules that makes the newer version of the restaurant utterly incompatible with the older version. However, if this restaurant decides to add vegan options, it will be a soft fork.
So, the Bitcoin community originally wanted to do a soft fork to accommodate both sides. However, this approach led to code vulnerabilities, and Bitcoin was forced to settle for a hard fork instead.
Before we go any further, let us talk about another incident that drove a deeper wedge between these two parties.
SegWit or Segregated Witness is a sidechain attached to the Bitcoin blockchain. It stores the cryptographic signature data and frees up space in the main chain. So, why is this important?
Think of any transaction that you have ever done wherein you needed to sign something. After completing the transaction, did you need to go back and check your signature? The answer is probably going to be “no.” This is even further true for irreversible transactions like crypto. As far as you are concerned, the trades are one and done. For future audit purposes, your signature holds no value whatsoever.
However, here is the kicker.
Cryptographic signatures are really really bulky and take up a lot of space. So, we have a bunch of data that’s not useful in the long run and takes up a lot of space in a block with a limited size. So, SegWit simply takes up all this signature data and stores it in a sidechain, freeing up space in the main blocks.
Pro-Block size people mostly hated the SegWit solution. For them, it’s nothing more than a cop-out. Plus, adding an extra sidechain goes against the original vision Satoshi Nakamoto had.
Anti-Block size folks were all for SegWit. According to them, SegWit presents an elegant solution to the block size problem.
Anyway, long story short, the two parties couldn’t reach a resolution. and the inevitable happened.
Bitcoin vs Bitcoin Cash: The Ugly Divorce
On August 1, 2017, the pro-blocksize team led by Roger Ver and Bitmain’s Jihan Wu completely split off from the original BTC protocol to make Bitcoin Cash. This new system had an 8 MB block size and didn’t implement SegWit. Bitcoin Cash had since gone through another hard fork in November 2018, wherein it split into Bitcoin Cash and Bitcoin Satoshi Vision (BSV). BCH has since increased its block size limit to 32 MB, while BSV has a block size of 128 MB.
Bitcoin vs Bitcoin Cash: An Overview
|Creation||Created by Satoshi Nakamoto in 2008||Created in August 2017 as a result of a hard fork.|
|Block Size||1-2 MB||32 MB|
|Transactions Per Second||7-10||~100|
While Bitcoin Cash may have forked off and gotten their 32 MB block sizes, it seems like they are hardly using any of this extra space. According to BitInfoCharts, it seems like they have barely used 4 MB once, forget 32 MB.
BTC, in the meantime, has continued to rule the roost as the premier cryptocurrency.
Where Do I Buy BTC and BCH?
If you are interested in Bitcoin and Bitcoin Cash, you can buy the tokens via CoinSmart. Buy cryptocurrencies with ease via CAD, EUR, and USD.