With the advent of cryptocurrency and blockchain, a new system has created an ever-changing environment for these industries. Websites serve the best UI and trading tools suitable for novices and professional bitcoin traders. The challenge of bitcoin or any decentralized cryptocurrency is not only in scaling the network to accommodate more transactions per second but also dealing with the economic impact on companies who have established business relationships. If you are interested in trading Bitcoin, you may use a reliable trading platform like BitIQ.
Bitcoin scalability challenges are immense and have the potential to critically change both the finance industry as well as the technology industry. Bitcoin scalability concerns are more than just about transaction volume, it’s about running a global economy and financial systems. Many cryptocurrency skeptics view it as a fad or a short-term financial fix. It is an opportunity for those companies to better understand the positive impact this technology could have on their supply chain business relationships.
For decades, we have been used to the traditional centralized banking system where layers of review, approval, and regulation are in place around every transaction. That has changed; we are entering a new realm of digital currency and business relationships where trust has been removed from a central authority and placed into computers that run decentralized applications. The applications for this technology will grow exponentially as more companies distribute their trust from a central authority to decentralized applications on the blockchain.
In this environment, we see notable technological innovations in the cryptocurrency world from bitcoin, Ethereum, and others; however, there is also a need for scalability and regulatory-compliant solutions. Scalability on Bitcoin has always been challenging because of its limited processing power; however, it’s embedded into Satoshi’s vision of what cryptocurrency could become. Let’s explore some potential scalability issues on the bitcoin network.
Bitcoin network can process only seven transactions per second:
To make an actual purchase, you must wait for the bitcoin network to find an entire transaction block from all the miners who have submitted their work (basically, each miner must be rewarded with a free transaction).
For the bitcoin network to function, you need more than just a global money system powered by distributed trust; you also need to be able to run other decentralized applications on top of that trust layer. Unfortunately, the current difficulty for mining bitcoin is increasing, and we are still determining how long it will be before we can become adequately efficient in running other applications like Ethereum. In addition, the slow transaction speed increases the cost of mining a bitcoin transaction, which impacts the price of bitcoin.
Bitcoin was successful in its early stages because it allowed people to start to run their Bitcoin nodes and get rewarded for validating transactions on the blockchain; however, there is now a myriad of new decentralized applications, including projects like Ethereum, where you can build Apps that use smart contracts and run them on top of a global trust layer.
When Ethereum hard forks from the original chain again, we will see how well this whole system scales and works with decentralized applications. Right now, we don’t know how this system will operate; without scalability issues, we cannot test what will happen when companies want to link or trade assets using these intelligent contract protocols.
Bitcoin’s blockchain is very slow:
The speed of transactions is critical, as any disruption in the transfer of funds could result in severe consequences. Another challenge with bitcoin is it takes 10 minutes to clear one transaction; if you have a huge order, your payment can be delayed by people for a long time.
This duration could be reduced over time as the size of the block increases; however, the underlying problem is that there are now a lot of transactions on the blockchain, and at some point, you will reach a capacity limit and have a significant backlog. When bitcoin runs into its capacity limit, it could start seeing users losing money from stuck transactions that never get cleared on the network.
Bitcoin mining is very energy intensive:
Another problem with bitcoin is energy consumption; it took 18 months to consume as much energy as all the banks in the world combined. That’s a lot of wasted energy. In addition, mining and transactions on the bitcoin network require a lot of hardware which uses a lot of electricity and generates a tremendous amount of heat to compute the SHA-256 hash functions used by bitcoin.
For example, Ethereum can only do 15 transactions per second; however, that transaction speed could be increased in future iterations, particularly if they decide to use Proof-of-Stake like Ethereum Classic.