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As Bitcoin has become increasingly popular, some of its features have created bottlenecks - and in some cases lead to arguments over what direction the currency should head in. We look at the main problems with Bitcoin.
But sadly not everyone agrees on the best way forward. That has lead to a number of interesting developments in the currency.
Problems with Bitcoin: Speed
The present architecture of the Bitcoin network is capable of processing a maximum of seven transactions per second. For comparison, Visa’s network can handle a whopping 24,000 transactions per second.
That’s lead to delays in how quickly the network can validate transactions, which gets slower the more people use the network.
There’s also a speed issue when it comes to how often a new block is created on Bitcoin.
Satoshi Nakamoto allowed a new block to be created every 10 minutes, to help prevent fraud on the network. About 2,000 transactions can fit into a block, so backlogs of unconfirmed transactions are common.
Both of these have lead to a slowdown in how quickly the Bitcoin network can process transactions.
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Some people have had to wait weeks for confirmation of their transaction to arrive because of a lack of resources to process the backlog of transactions.
Problems with Bitcoin: Privacy
Bitcoin is only partially anonymous - experts call this pseudo-anonymity.
How? Web trackers and cookies: the small pieces of code sat on websites designed to tell third parties what you’ve been up to as you travel around the web.
Once someone has that information, they can then trace your activity on Bitcoin and work out what you’ve been spending your money on.
Some Bitcoin exchanges also require users to submit identifying information. If these databases get hacked, then someone can find out what you’ve been up to.
Problems with Bitcoin: Fees
Because space in a block is limited, and there are only so many miners on the network, users attach a fee to incentivise miners to include their transaction before others.
As the backlog of payments grows, spenders offer increasingly lofty fees to attract miners to their transactions. The fee is the same whether the transaction on Bitcoin was for £5 or £50,000 - making Bitcoin unsuitable for small transactions, like buying a coffee in the morning.
Problems with Bitcoin: 51% Attack
If someone or a group acting together controls more than half the computer power being used for mining, they could rewrite the financial history of the blockchain allowing them to double-spend currency.
Because of the consensus nature of how Bitcoin is managed and run, there have been some arguments that have lead to what’s called a ‘fork’ where the community splits.
In Bitcoin’s case, there have been several Hard Forks, where a new currency or network has emerged.
In under a year, Bitcoin Private, Bitcoin Cash, Bitcoin Gold all emerged from the original Bitcoin protocol.
While there have been issues, the development community has been active trying to iron out some of the early issues with the currency.
There have been a number of updates and upgrades to Bitcoin to help it run more smoothly. One of the most discussed was the Segwit update, activated in 2017.
This helped increase the number of transactions on the network, which has helped lower the fees charged by miners.
A group of developers have been working on a giant update known as the Lightning Network.
This is a network that runs alongside Bitcoin’s central network, but does not require miners to validate transactions.
Instead, payments take place in private channels between users - and they only back up the transaction log to the Bitcoin network when they need to.
This would make the current Bitcoin a fallback in case of disagreements in private channels. If it works, it could free up resources, eliminate fees and reduce the amount of energy the network needs to consume.
Read more about Read more about the Lightning Network.
Because of the consensus nature of Bitcoin, several developers, groups and companies have created their own currencies as a direct way of solving some of the Bitcoin’s problems.
While blockchain technology is here to stay, how Bitcoin progresses in future isn’t certain.