Bitcoin has been an unexpected and huge success, with a multi-billion dollar market cap, close to a billion dollars in VC funding, and many clone and spinoff currencies. The ever-increasing demand for Bitcoin transactions, however, poses a big problem. Because Bitcoin is a self-regulating system that works by discovering blocks at approximate intervals, its transaction throughput is effectively capped at blocksize divided by block interval.
Sooner or later, we will reach the point when the network is inundated with more than the 1MB of transactions per every 10 minutes that the system can clear. In fact, recent “transaction spam” attacks have given us a glimpse of how badly the system will be affected when transactions start backing up.
That there is an impending scalability problem in Bitcoin is no secret: there is unified agreement among miners, consumers, and developers with differing viewpoints that we need to deploy scalability measures, and there has been vigorous debate on how to improve Bitcoin’s scalability.
This at-times-acrimonious debate has so far centered around how big to make the blocks and how to schedule the block size increases in the future. All proposals that are on the table so far, however, suffer from a fundamental scalability bottleneck: no matter what block size is chosen, the system can at best achieve a modest transaction throughput, rising from ~3 transactions per second to ~6 transactions per second if the block size is doubled. This is far from the 30,000 transactions per second necessary to compete with the likes of VISA transactions. The same fundamental limitations apply to Ethereum, litecoin, dogecoin, and all other currencies that share Bitcoin’s blockchain management protocol.
Bitcoin-NG: Next-Generation Blockchains
We have developed a next-generation blockchain protocol, called Bitcoin-NG for short, that eliminates the scalability limits described above. Bitcoin-NG addresses the scalability bottleneck by enabling the Bitcoin network to achieve the highest throughput allowed by the network conditions.
Paradoxically, not only does it improve transaction throughput, it also reduces transaction latencies — it is possible to get an initial transaction confirmation in seconds rather than in minutes. And it does so without changing Bitcoin’s open architecture and trust model.
While the full details of Bitcoin-NG are now available as a white paper, this post describes the key insight behind its operation. To do this effectively and describe why the core idea behind Bitcoin-NG is both fresh and revolutionary, we first describe the traditional approaches that have dominated the scalability discussion so far.
The Scalability Challenge
Until Bitcoin-NG, the thinking was that there were, essentially, two options for increasing Bitcoin’s transaction throughput: increase the size of blocks, or decrease the block interval. Both options lead to various undesirable outcomes. Without rehashing (no pun intended) the entire blocksize debate, we’ll quickly touch upon some of the key arguments.
In essence, all the protocol problems stem from the same fundamental issue. Due to the nature of the distribution algorithm, increasing the blocksize or reducing the block interval both lead to an increased rate of forks. In a fork, the blockchain is bifurcated into multiple branches, and there is no single blockchain. The system is therefore in an undecided state. Eventually, the fork is resolved, one branch is chosen and other branches are thereafter pruned, or simply, ignored.
Forks incur two significant security risks. First, they reduce security against attackers. Bitcoin is secured by mining power, and mining power in pruned branches does not participate in securing the system. If 1/4 of the blocks are pruned, then an attacker can be 1/4 smaller to perform selfish mining, or a 51% attack.
Second, forks reduce fairness. Bitcoin and all blockchain protocols compensate miners for their effort, and the compensation should be proportional to a miner’s power. When forks are frequent, small miners and miners that are not well connected to the overlay network are at a disadvantage, earning less than their fair share. Miners are therefore incentivized to coalesce into larger and larger pools, and thereby pose acentralization threat.
And of course, larger blocks typically require more resources, effectively cutting certain kinds of peers out of the network. Since the Bitcoin network is quite bursty, and at the network level, operates by lying idle for long periods of time, punctuated with sudden waves when a block has to be propagated throughout the globe, well-provisioned nodes are a necessity. And certain geographic regions may be at a permanent disadvantage.
The scalability debate has revolved around these issues, and has been caught in a morass, as these concerns are genuine and the tradeoffs difficult to resolve. And even if a compromise is found, the tradeoffs involved mean that the throughput gains will be modest. Under the currently prominent proposals, Bitcoin does not become competitive with today’s VISA throughput for decades. The block-size/block-interval parameter adjustment is a difficult line to toe, as is clear from the tenor of the scalability debate.