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The bitcoin scalability problem refers to the discussion concerning the limits on the amount of transactions the bitcoin network can process. It is related to the fact that records (known as blocks) in the bitcoin blockchain are limited in size and frequency.
Bitcoin's blocks contain the transactions on the bitcoin network.:ch. 2 The on-chain transaction processing capacity of the bitcoin network is limited by the average block creation time of 10 minutes and the block size limit. These jointly constrain the network's throughput. The transaction processing capacity maximum is estimated between 3.3 and 7 transactions per second. There are various proposed and activated solutions to address this issue.
The block size limit has created a bottleneck in bitcoin, resulting in increasing transaction fees and delayed processing of transactions that cannot be fit into a block. Various proposals have come forth on how to scale bitcoin, and a contentious debate has resulted. Business Insider in 2017 characterized this debate as an "ideological battle over bitcoin's future."
Increasing the network's transaction processing limit requires making changes to the technical workings of bitcoin, in a process known as a fork. Forks can be grouped into two types:
A hard fork is a rule change such that the software validating according to the old rules will see the blocks produced according to the new rules as invalid. In case of a hard fork, all nodes meant to work in accordance with the new rules need to upgrade their software.
If one group of nodes continues to use the old software while the other nodes use the new software, a split can occur. For example, Ethereum has hard-forked to "make whole" the investors in The DAO, which had been hacked by exploiting a vulnerability in its code. In this case, the fork resulted in a split creating Ethereum and Ethereum Classic chains. In 2014 the Nxt community was asked to consider a hard fork that would have led to a rollback of the blockchain records to mitigate the effects of a theft of 50 million NXT from a major cryptocurrency exchange. The hard fork proposal was rejected, and some of the funds were recovered after negotiations and ransom payment.
Alternatively, to prevent a permanent split, a majority of nodes using the new software may return to the old rules, as was the case of bitcoin split on 12 March 2013.
In contrast to a hard fork, a soft fork is a change of rules that creates blocks recognized as valid by the old software, i.e. it is backwards-compatible. As for a hard fork, a soft fork can also split the blockchain when non-upgraded software creates blocks not considered valid by the new rules.
Segregated Witness is an example of a soft fork.
Technical optimizations may decrease the amount of computing resources required to receive, process and record bitcoin transactions, allowing increased throughput without placing extra demand on the bitcoin network. These modifications can be to either the network, in which case a fork is required, or to individual node software (such as Bitcoin Core).
Protocols such as the Lightning Network and Tumblebit have been proposed which operate on top of the bitcoin network as a cache to allow payments to be effected that are not immediately put on the blockchain.
In January 2018 Blockstream launched a payment processing system for web retailers called "Lightning Charge", noted that lightning was live on mainnet with 200 nodes operating as of January 27, 2018 and advised it should still be considered "in testing".
On March 15, 2018, Lightning Labs released the beta version of its lnd Lightning Network implementation for bitcoin mainnet, and on March 28, 2018, ACINQ released a mainnet beta of its eclair implementation and desktop application.
Transaction throughput is limited practically by a parameter known as the block size limit. Various increases to this limit, and proposals to remove it completely, have been proposed over bitcoin's history.
The second half of SegWit2x involved a hard fork in November 2017 to increase the blocksize to 2 megabytes. On November 8, 2017 the developers of SegWit2x announced that the hard fork planned for around November 16, 2017 was canceled for the time being due to a lack of consensus.
Bitcoin Unlimited's proposal is different from Bitcoin Core in that the block size parameter is not hard-coded, and rather the nodes and miners flag support for the size that they want, using an idea they refer to as 'emergent consensus.' Those behind Bitcoin Unlimited proposal argue that from an ideological standpoint the miners should decide about the scaling solution since they are the ones whose hardware secure the network.
The maximum throughput is the maximum rate at which the blockchain can confirm transactions. Today, Bitcoin’s maximum throughput is 3.3–7 transactions/sec . This number is constrained by the maximum block size and the inter-block time.