During a recent presentation at Paralelni Polis in Prague, Czech Republic, Blockstream President Adam Back shared his personal vision for scaling Bitcoin to handle more users over the next few years. His plan is mostly based on the Bitcoin Core roadmap for capacity increases (originally written up by Blockstream CTO and Bitcoin Core contributor Greg Maxwell on the Bitcoin development mailing list).
If implemented, Back’s plan for scaling Bitcoin would double the on-chain transaction capacity on the network three years in a row, while simultaneously allowing for the development of layer-2 solutions, such as the Lightning Network, which, according to its creators, could allow for millions or billions of transactions per second across the network.
The first improvement listed on Adam Back’s proposed roadmap was Segregated Witness (SegWit), which provides a variety of improvements to Bitcoin’s scalability prospects. The improvement effectively increases the block size limit to roughly 1.7 MB (a 70 percent increase), and it also enables further scaling enhancements such as the Lightning Network and schnorr signatures.
During his recent presentation, Back briefly covered the incentives for wallet providers to implement this upgrade:
“It provides scale to those people who opt-in, so if I’m running a payment processor and I upgrade the library that I’m using and move to the new types of addresses, which are backwards compatible, then I get cheaper transactions or access to more scale.”
Back also pointed out that those who don’t upgrade also benefit from this change because those who implement SegWit will leave more empty space for non-upgraded clients to fill with transactions.
A pull request that implements Segregated Witness in Bitcoin Core (the reference implementation of the Bitcoin protocol) has already been made. The code is now going through vigorous review and testing.
A change in Bitcoin’s digital signature scheme used for signing transactions (currently ECDSA) could allow for up to two times as many transactions to fit in a block. This gain in efficiency is made possible by switching to Schnorr signatures. Adam Back explained, “We can make the transactions smaller. From the same block size, we can get more transactions if we use this different type of signature.”
When combined with Segregated Witness, Schnorr signatures would enable the throughput equivalent of a three to four megabyte block size limit.
Back also noted Schnorr signatures could be implemented in Bitcoin before the end of the year. He added, “This is relatively close technology. There are not too many unknowns about how to do this.”
After Schnorr signatures, Adam Back would like to see Invertible Bloom Lookup Tables (IBLT) and Weak Blocks implemented in Bitcoin. These improvements do not change Bitcoin’s consensus rules, so they do not require a hard fork or soft fork to implement.
The main issues addressed by these changes are related to block propagation and orphan blocks. With IBLT and Weak Blocks, the latency bottleneck on Bitcoin’s ability to scale is replaced with a bandwidth bottleneck. Back noted, “The network actually has excess bandwidth.”
The improvements in block latency made possible by these two improvements are accomplished by spreading out bandwidth usage over time. In other words, all of the information related to a block does not need to be propagated through the network in one chunk, which means it takes a shorter amount of time for full nodes to receive critical information about new blocks.
By solving the latency issues related to the propagation of newly-mined blocks around the network, it may become safer to increase Bitcoin’s block size limit further in the future.
The last scaling improvement on Adam Back’s proposed roadmap for scaling Bitcoin is an increase to the block size limit via a hard fork. This is a protocol change that has been at the heart of alternative Bitcoin clients such as Bitcoin XT and Bitcoin Classic.
By increasing the amount of data that can be placed into a block, the number of transactions allowed on the network also rises. Adam Back was unsure if this hard-forking change would be for a simple doubling of the block size limit or a more flexible, adaptive block size solution. Back explained, “Another potential is a kind of flexible size, so a block size that can grow over time automatically — maybe reacting to demand in some way.”
While all of these improvements are being implemented on Bitcoin’s base layer, various layer-2 solutions, such as the Lightning Network, can also happen in parallel. The Lightning Network only needs CHECKSEQUENCYVERIFY (along with two other related BIPs) and Segregated Witness to be accepted by the network before it can become a reality on top of the main Bitcoin blockchain.
There are currently four or five companies, such as Blockstream and Lightning, working on their own implementations of the Lightning Network. Most of this development is taking place in an open-source manner on GitHub and a Lightning Network development mailing list.
In the past, many have referred to Lightning Network transactions as off-chain transactions, but that definition doesn’t tell the whole story. Adam Back explained this point during his recent talk:
“It’s important to point out that Lightning Network transactions are real, native Bitcoin transactions. Each and every Lightning transaction could be posted to the Bitcoin blockchain and is a valid transaction; it’s just that there is a caching mechanism that collapses them, so they don’t all need to be sent to the blockchain.”
In addition to the scaling implications for Bitcoin, the Lightning Network also enables instant, finalized transactions with, perhaps, near-zero fees. Lightning may also enable a variety of new micropayment-related use cases for Bitcoin.