Bitcoin has a relatively small 1 MB block size limit; making its transaction capacity slower compared to some of the newer types of crypto. This means that bitcoin is capable of processing approximately seven transactions per second. A large proportion of bitcoin enthusiasts believe an increase in speed is important, if BTC is to be used as a point of sale transaction currency.
The block limit size of the bitcoin blockchain can be considered a hindrance to bitcoin’s growth if we are looking at it through a lense of everyday usage and not a store of value. However, the downside to increasing block limit size is the reduction in ability for smaller miners to help validate transactions. This can lead to the major miners centralizing the mining power and therefore potentially creating influence.
The scaling of bitcoin has been a fiercely debated topic since its inception and the lightning network is considered a potential solution to enhancing bitcoins transactional ability. The lightning network is an external network that interfaces with bitcoin to make transactions between users faster. It is therefore not a ‘fork’ of bitcoin.
What the lightning network proposes is allowing transactions to occur outside of its blockchain using bitcoin scripting (smart contracts). This makes it possible to create a fast and secure network of participants to transact with.
Once implemented, the lightning network enables participants to send each other micro transactions at high speed without the need for the transaction to be updated on the blockchain on every occasion. When a ‘channel’ is opened up between participants this allows the transaction to take place. Only when this channel is closed again, will the blockchain update. This minimises transactions that require full verification on a block and theoretically reduces transaction times. To connect everyone together, the lightning network utilises already existing relationships to find others. The lightning network summarises it’s advantage as the following: (the lightning network) “is similar to how one makes many legal contracts with others, but one does not go to court every time a contract is made”.