Bitcoin has come a long way from its beginnings in 2009. It has become a global phenomenon, with thousands of transactions done daily in bitcoins. These range from simple micro payments to large-scale financial deals. With its success, many people might think that it will be all smooth sailing for the cryptocurrency. That is where they would be wrong.
With Bitcoin not even a decade old, the cryptocurrency is undergoing quite a few growing pains and is still marching forward to maturity. It has not even reached its maximum amount of 21 million, with the current amount hovering around 15 million. Bitcoin faces challenges from governments, who want to see it regulated, and financial institutions that see it as a competitor. These are not the main problems that plague the cryptocurrency, though.
The tech difficulties Bitcoin faces
The biggest test that Bitcoin faces is rooted in its own technological core. Bitcoin uses blockchain technology, which ensures the value of individual bitcoins by helping maintain a complete ledger of Bitcoin transactions through the use of a network of computers. This allows Bitcoin to exist without needing a central authority to guarantee its worth. With the use of cryptography, transactions and records are kept valid and tamper-free.
The problem is that blockchain technology processes transactions in a set of “blocks,” thus the name. Currently, blocks are limited to the size of 1MB and are added every 10 minutes to the network. The block size limits the seven transactions per second for each block.
Considering that most banks handle hundreds of transactions per second, this is a noticeable drop in processing speed for Bitcoin. This also has noticeable effects on Bitcoin performance, with Gavin Andresen, a leading Bitcoin developer, noting that some transactions are becoming delayed with the increased load caused by Bitcoin’s increasing popularity.
Many researchers point out that Bitcoin’s current design can handle 27 transactions per second, but with an increased block size of 4MB. This is the most that it can be raised before possibly excluding the many computers mining the blocks by making it unprofitable to be part of the network.
Fewer computers processing transactions means the Bitcoin network becomes more centralized, which many agree is a bad thing. It is possible to process more transactions, which many companies who use Bitcoin want, but this would fundamentally change the nature of Bitcoin.
MIT’s Joi Ito chimes in
Joi Ito, the director of MIT Media Lab, is confident that the Bitcoin development community would be able to meet the challenges of scaling up, which he stated in a recent article. The trouble is that he is worried that the pace of development will not be enough to match the expectations of many investors and Bitcoin startups.
Ito notes that the core Bitcoin development team was primarily focused on cryptography and network security, which was ideal in the early days of Bitcoin. These are not as effective in interfacing with the commercial interests that are starting to take interest in the cryptocurrency as a medium of exchange.
Additionally, Ito worries about the current trend to bandwagon on to blockchain technology by many institutions. He was quoted, saying:
“If you try to build ‘something like Bitcoin but better!’ it will probably turn out insecure, underwhelming, and will go against the fundamental principles that give Bitcoin the potential to be as impactful to banking, law and society as the Internet has been to media, communication, and commerce”
Ito hopes that the community would craft a process that would enable robust development in Bitcoin, but also handle any future disagreements that are bound to pop up.