Problem and Verdict

We’ve touched on Bitcoin’s goal, the necessities to achieve it, and the roadblocks surrounding it. As we’ve alluded to, the most important roadblock Bitcoin must avoid is the roadblock of high fees and slow transaction times. Bitcoin will not be able to disrupt the traditional financial system or outcompete alternative cryptocurrencies if it loses these primary advantages. This is why, essentially, Bitcoin needs to be like Amazon.com. Amazon has thrived by combining the fastest delivery with the lowest prices possible. Amazon has scaled exceptionally well by adopting this strategy; and the reputation it gained from it causes people to start with them when shopping online.

Now imagine if Amazon switched gears and began significantly marking-up their products or stopped caring about how fast customers got their shipments. If they went this route, they would fall out of favor, and competitors like Wal-Mart would pick up the slack. Customers would likely convert for the simple reason that they have economic incentive to do so. After all, they are not going to pay higher fees or wait longer for delivery when they don’t have to. In that same sense, Bitcoin cannot lose its most important advantages either. Otherwise, the competition will take its “customers” away from it, just as Wal-Mart has hypothetically done to Amazon in this example.

• Bitcoin cryptocurrency market share prior to bottleneck: >80%

• Bitcoin cryptocurrency market share after bottleneck: <50%

Understanding the importance of retaining superiorities and fostering conditions needed to accelerate adoption growth, we can now determine how the two scaling options stack-up in relation to the problem and goal.

Blocksize increase (Bitcoin Cash)

Increasing the blocksize is a fairly simple method of scaling. It allows for far greater number of transactions processed within each block, and ensures transactions will not be backlogged. This method of scaling keeps Bitcoin’s basic transaction structure intact, and puts it on a path where scaling and high fees will not be an issue for the foreseeable future. This has been the scaling method used in the past, and this is the path that Bitcoin Cash chose. (Don’t fix what ain’t broke)

Segwit + Lightning Network

Segwit decreases the amount of data used in a transaction which effectively doubles the blocksize in its own right. However, this is a short-term scaling solution as the capacity increase alone will not scale Bitcoin to worldwide levels. As growth increases, the extra capacity that Segwit provides would fill up, and the cap would inevitably be reached again. Knowing this, the development team behind Segwit formulated a plan to scale Bitcoin using a sidechain called the Lightning Network. They are of the opinion that Bitcoin itself cannot scale to worldwide levels, but believe this network will give it that ability. This sounds great if a working implementation existed, but currently, it only exists in theory.

Without getting too technical, and to better understand why this is an inferior method of scaling, we will analyze how the Lightning Network works into the three “needs improvement” aspects necessary for accomplishing Bitcoin’s goal. First, a basic overview of how the Lightning Network operates:

Lightning Network = Conduct an on-the-blockchain transaction to get onto the Lightning Network > Open up payment channel(s) with others > Send money to others within the network > Close channel and leave network with an on-the- blockchain transaction