The Bitcoin whitepaper just had its 9th anniversary on October 30th, allowing everyone in the community to reflect upon the massive and transformative impact the cryptocurrency and its underlying technology, Blockchain, have had on many industries worldwide. After all, this groundbreaking technology has restored hope in the simple concept of financial democratization that has eluded humankind as of late, and will surely change the world for the better. That is, assuming the project makes it far enough.
Bitcoin has had growing pains from the get-go. It’s taken years to develop a credible and legitimate name, and at times the layman still finds it difficult to understand the technology. To add insult to injury, Bitcoin has a scaling problem. The network has become too congested, and there’s not enough space to process the massively-growing influx of transactions in a timely manner. This Friday (11/17/17, block 494784) was going to be the day that part of the community would decide to split off and hard-fork from Bitcoin to create their own version with larger blocks, Segwit2X. The effort was contentious within the community at large to say the least, and for this reason most of the development team and supporters behind Segwit2X decided to cancel the fork (it has yet to be determined whether or not a smaller segment of the community will opt to continue with the scheduled fork).
The cancellation does not solve the problem outright. Bitcoin is still in need of upgrade. At BitQuick, we support existing scaling solutions for Bitcoin, but are not averse to potential future solutions either.
Segregated Witness (also know as “Segwit”) is a soft-fork change in the transaction format of Bitcoin. It changes the transaction format by splitting transactions into two different segments and removing something knowing as the “witness data” (or an “unlocking signature”), making it a separate structure at the end. In a nutshell, the original data segment would be counted normally, while the “witness” segment would essentially be counted as 25% of its real size. In theory, the overall effect of this would change the average block size capacity to 1.8 MB instead of the current 1 MB. At this time, about 10% of Bitcoin transactions are Segwit transactions, and we hope to see this number increase within the coming months. In the near future we will be joining the slew of companies and wallets that have implemented support for Segwit.
You can read the original Segwit proposal here.
The Lightning Network is a scalability solution that was proposed by a group of developers in 2015. Using off-chain payment channels, the network would allow for participants to transfer money without their transactions being settled on the Blockchain, and all participants will have at least one payment channel open, allowing for the possibility of a vast number of transactions (certainly more than a 1 or 2 megabyte block size would permit). Time-based script extensions such as CheckSequenceVerify and CheckLockTimeVerify allow for uncooperative participants to be penalized by having their transactions broadcasted to the network prematurely, rather than off-chain. The Lightning Network relies on Segwit in order to properly function, and has been experimented with by different wallet providers, namely Zap and Token. As of November 15, 2017, 96% of Lightning integration tests have passed and we hope for a launch soon. At BitQuick, we’re excited to have the opportunity to support Lightning as well once it sees more widespread adoption.
You can read the original Lightning Network whitepaper here.
The topic of larger blocks has been a hot-button issue within the Bitcoin community for several years now. As previously stated, technically Segwit will allow for larger blocks to be generated without needing to hard-fork and increase the block size, and Lightning will supplement Segwit by allowing a (technically uncapped) number of transactions to occur off-chain. However, increasing the block size is also a viable (and immediate) solution, albeit a temporary one that also requires a hard-fork. We would not write off a proposed block size increase, but would only feel comfortable supporting such a change if it had sufficient support by the Bitcoin community as a whole.
We hope to announce more updates about Segwit and Lightning support soon, please stay tuned!