Bitcoin Scalability: What Is It & How Is It Being Addressed?

Scalability has been one of Bitcoin’s biggest challenges as its protocol’s design only allows for a limited on-chain transaction throughput while retaining its most essential features of decentralization and security. As a result, Bitcoin scaling solutions are being developed to address Bitcoin’s scalability challenges.

Read on to learn about the Bitcoin scalability problem and how builders are looking to solve it to help Bitcoin scale to billions of users. 

What Is the Bitcoin Scalability Problem? 

The Bitcoin scalability problem refers to the limited number of transactions the Bitcoin network can handle, hampering the mass adoption of the world’s leading cryptocurrency. 

The Bitcoin blockchain can process between 7 and 10 on-chain transactions per second, with a block time of 10 minutes on average. That means only a limited number of people can efficiently use the Bitcoin network. 

However, as Bitcoin adoption has continuously grown over the past 15 years, transaction costs have gone up as a result of Bitcoin’s limited transaction throughput, as the cost of getting your transaction prioritized by miners to be included in blocks has gone up. 

Therefore, it has become more expensive to use the Bitcoin blockchain, while transactions with lower transaction fees can take longer to confirm as they are deprioritized by miners. 

Bitcoin’s underlying code is the reason for this because it favors security and decentralization over transaction throughput. 

How Does Bitcoin’s Design Create Scaling Limitations?

Bitcoin’s underlying blockchain is designed in a way that produces a new block, which contains a bundle of transactions, on average, every 10 minutes. 

The block time depends on the computational power, or hashrate, of the network provided by Bitcoin miners. It’s adjusted approximately every two weeks, or every 2,016 blocks to be precise, to maintain the 10-minute target.

Another aspect is the maximum size of each block in the Bitcoin blockchain. This used to be capped at 1 MB per block in the original design, but a 2017 soft fork called SegWit (short for Segregated Witness) effectively changed it to an estimated maximum of 4 MB. 

We say “effectively” because the implementation of SegWit meant moving away from a megabyte limit to a block weight limit, which doesn’t correspond exactly to the earlier megabytes. In practice, this means that the now-separate parts of transaction data take up less space than the previous whole but also that a block can fit more than 1 MB, helping Bitcoin scale.

How Can the Bitcoin Scalability Problem Be Solved?

There’s consensus in the Bitcoin community that on-chain scaling solutions, such as increasing the block size, could create security risks that could potentially derail the success of Bitcoin. 

After all, Bitcoin is the most decentralized and secure blockchain network in the world, and the Bitcoin community wants to keep it that way! 

But everyone agrees that Bitcoin requires scaling solutions to live up to its full potential. 

That’s where Bitcoin layer 2 solutions come in!

Bitcoin layer 2 protocols enable Bitcoin users to transact off-chain, reducing the load on the Bitcoin blockchain. As a result, off-chain transactions can be processed much faster and at a lower cost, which is especially relevant during periods of high demand for Bitcoin's block space.

Bitcoin layer 2 networks are built on top of Bitcoin but without changing the core of the Bitcoin software. Additionally, L2 solutions often add new capabilities that were not native to Bitcoin, such as complex smart contracts and decentralized applications (dApps). 

Types of Bitcoin Layer 2 Scalability Solutions

There are three main ways in which Bitcoin L2 solutions address the network’s scalability problem: sidechains, state channels, and rollups. Let’s take a look at each one. 

Sidechains

Sidechains are separate blockchains that run parallel to the main chain. They have their own tokens, while in some cases, they are pegged to BTC. By creating a blockchain with a different, faster consensus mechanism (as opposed to Bitcoin’s proof-of-work, which is the direct cause of the 10-minute block time) and a token, transaction speed is increased indirectly.

When using a sidechain with a token pegged to BTC, the required amount of bitcoin is locked up, while the sidechain creates (or mints) the same amount of the corresponding token within its own ecosystem rules that include faster transaction times. Once the user has completed whatever it was they needed to do in this way, a withdrawal request burns up the sidechain-based tokens and releases the locked-up BTC.

Among the most popular Bitcoin sidechains are Rootstock (RBTC) and the Liquid Network.

State Channels

State channels are peer-to-peer protocols, which means they connect two parties and enable them to make transactions amongst themselves. The only transactions recorded to the Bitcoin blockchain are the completely necessary ones, which deal with the opening and closing of these channels. This means that everything that happens in between is off-chain and, therefore, completed much faster.

This could theoretically introduce security concerns, which is why this L2 solution uses multi-signature contracts that lock in a required amount of funds. These funds are the only significant restriction on the transactions that the two parties can do. Once they’re done, they send the data reflecting the updated transaction status to the blockchain and close the contract. State channels are especially useful for multiple small transactions that would take a long time to process on-chain.

The biggest state channel in the Bitcoin ecosystem is the Lightning Network, which, in theory, can process up to 1 million transactions per second.

Rollups

Rollups do exactly what their name implies: off-chain, they process and then roll up several transactions into one and submit the bundle to the base blockchain. The rollup compresses the transactions to ensure they take up less space than they would if they remained separate.

However, this approach gives rise to the question of the validity of transactions. Different rollup types approach this problem in different ways. 

Optimistic and zero-knowledge (ZK) rollups use smart contracts to submit proof of validity. Where optimistic rollups consider all transactions valid until challenged and proven otherwise, zero-knowledge rollups validate the transactions in a way that doesn’t require the disclosing of sensitive information, which, in turn, also helps decrease the size of a transaction. An example of zero-knowledge rollups is Citrea, which also allows building upon the blockchain.

Sovereign rollups, meanwhile, use nodes and don’t need a settlement layer. Some argue that sovereign rollups could be the most secure of all, as they don’t use smart contracts that could lead to bugs.

For now, sovereign rollups and optimistically verified rollups are being developed on Bitcoin, while other solutions are also being explored. Build on Bitcoin (BoB) is another example of an L2 that uses rollups to help Bitcoin scale.

With the vibrant Bitcoin layer 2 ecosystem that’s currently being built, it’s hard not to be optimistic about the future of Bitcoin. 

‍Not only does bitcoin have the opportunity to become the global money of the future but the Bitcoin blockchain could also emerge as the infrastructure that the future of finance will be built on. 

Explore Bitcoin Layer 2 With Xverse

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Xverse is a Bitcoin Web3 wallet that enables you to securely store your Bitcoin assets, including BTC, Ordinals, Runes, and Rare Sats, as well as Bitcoin Layer 2 assets, such as Stacks (STX).

What’s more, Xverse allows you to connect to decentralized applications (dApps), earn bitcoin rewards by stacking STX, and swap Runes tokens in a decentralized manner - all directly within the app.  

‍Download Xverse today to interact with the Bitcoin layer 2 ecosystem. 

FAQs

What is scalability in blockchain?

Scalability is the ability of a blockchain to adapt to user needs. This refers to its ability to handle a growing number of transactions, but also to keep fees affordable to users. It becomes especially important as blockchains grow beyond their initial user base. Ideally, the blockchain should be able to handle a huge number of users with as few issues as possible.

What does the scalability of Bitcoin mean?

The original Bitcoin network only produces a block every 10 minutes, which comes up to around 7 to 10 transactions per second on average. The scalability of Bitcoin refers to the different solutions developed to tackle this issue. They are meant to make using Bitcoin faster and more efficient for a greater number of people.

What are the problems of Bitcoin scalability?

To ensure that transparency, security, and decentralization, as the core tenets of the project, remain unchallenged, the Bitcoin network can handle a specific number of transactions. Increasing this number without any fundamental changes that would jeopardize the network requires taking the solutions off the base network (layer 1) and implementing them separately (layer 2) but still anchored to the base layer.

How can sidechains help to solve the scalability problem of Bitcoin?

Sidechains take some of the transactions off the main network, handle them through different, faster consensus mechanisms, and feed them back to the base layer once done. They are called sidechains because they work side by side with the original chain. They are still connected to it, but they help offload it when necessary.

What are the scaling issues of Bitcoin?

Bitcoin’s main scaling issue is that its throughput is limited by its blockchain’s design, and additional solutions, such as layer 2, are needed to help this blockchain accommodate its growing user base.

What are the scaling solutions for Bitcoin?

Bitcoin scaling solutions mostly refer to layer 2 solutions, which offer different ways to relieve the main network while still processing transactions in a timely and efficient manner. The most common layer 2 scaling solutions are sidechains, rollups, and state channels. These solutions are geared towards different user needs. However, they all have the same goal: to improve Bitcoin scalability.