It seems as if the world has gone just a bit Bitcoin crazy over the past couple of years, with Bitcoin and other cryptocurrencies headlining newspapers and carrying out their fame on social platforms across the globe. But just what exactly is Bitcoin and how does its blockchain technology work?
To take us briefly to Bitcoin’s roots: Bitcoin was invented by a man or group under the pseudonym of Satoshi Nakamoto. Its aim was to provide a decentralized currency and from 2009, when the crypto first started, it has grown exponentially.
Blockchain – Bitcoin’s Premium Technology
The Blockchain is the technology that Bitcoin is famed and praised for, with many other cryptos attempting to reinvent and innovate it. The Blockchain can be seen as a giant ledger, where every transaction that takes place within the Bitcoin network is stored. But the data, unlike other forms of information sharing online, is decentralised- that’s what makes it so unique. The records are not kept in a particular location, but are rather accessible to the public, making this technology transparent and highly secure. The high level of security is because of the fact that the entire network is decentralised, so hackers cannot hack into a single location in order to steal funds.
The Blockchain is made up of many different nodes. These nodes are essentially the many different computers that are connected to the Blockchain at any given time. Their job is to validate and relay all info and transactions on the Blockchain, creating a secure and trustworthy network.
The nodes are mining Bitcoin, which means that they are solving complex algorithms using specialized computer equipment (which can be quite expensive). Each algorithm needs to be solved by a variety of miners before it is deemed good enough to be added to the Bitcoin ledger. In return for their hard work, miners are rewarded in Bitcoin, which further increases the Bitcoin economy.
What Does The Block Size Do Exactly?
The block size is the amount of data that a block in the Blockchain can carry and it is a very important aspect in the Blockchain. For a long time the size of blocks on the Blockchain were a standard 1mb, meaning each block could contain 1 megabyte of data. Only once 1mb of transactional data is confirmed and checked, will it be added to the Blockchain. Before the standard 1mb, blocks actually did not have any size limitations on them but this created a problem of security as certain parties could flood the Bitcoin network, putting it at risk of attacks. Thus the 1mb limit came about.
But after a while it became apparent that the 1mb block size came with its own limitations. There was the worry of scalability and put Bitcoin transactions way behind other, popular methods. So, in September last year, Bitcoin came up with a new block size to cater for the massive amount of transactions taking place. SegWit was activated with a soft fork, next to hard fork, in order to increase the Bitcoin block size to 2mb- doubling it and now catering for many more transactions and speeding up transaction times.
Transaction times are a highly important factor to any payment method. Most people would choose an instant method over one that can take up to a few minutes every time. Transaction times for Bitcoin transactions can vary as they depend on a number of factors. Each and every Bitcoin transaction needs to be checked and approved and checked by the miners (6 in total) before it can be added to the ledger and considered completed. And, unfortunately, this can take time. The time this takes will depend on how many other transactions are taking place on the network at the time of your transaction. The more transactions taking place, the longer you can expect to wait for your transaction to process.
Another factor that makes a difference is transaction fees. You have the option to pay a higher fee to the miners in order to give your payment priority and thus speed up the transaction.
Because of these different factors, Bitcoin transactions can range anywhere from 10 minutes to a good couple of hours. While before the massive crypto boom, you could rely on payment processing taking between 10 and 20 minutes, that is no longer true because of congestion on the network. Bitcoin is said to be able to handle around 7 transactions a second, this fairs quite badly in comparison to services like Visa that can handle around 56,000.
The longer transaction times are becoming a bit of a problem in the community and there are many Bitcoin enthusiasts who are looking for ways to solve the problem.
As amazing as Bitcoin and its technology is, it certainly comes with its fair share of limitations, as we saw in the transaction time discussion. Unfortunately there are a few more limitations (which could be solved), to discuss. The main limitations include:
- Scalability- Bitcoin is still experiencing scalability issues as it continues to increase. Many wonder how Bitcoin will cope with its continuing exponential growth.
- Security- although Bitcoin was once deemed one of the safest payment methods, it has experienced various cyber attacks that proved this not to be the case. Mining pools need to be closely monitored at all times.
- Speed and costs- users are having to pay higher transaction fees for transaction times that are not much faster.
- Regulation threats- more and more governments, countries and establishments are attempting to regulate cryptocurrencies and therefore placing limitations on the network that was once completely ungoverned and decentralized.
Bitcoin and its Blockchain are both incredible inventions – truly the first of their kind that gave rise to many other similar technologies and hundreds of applications and uses worldwide. Their small beginnings have evolved to take the world by storm and have become a global phenomenon. While there are still issues that arise, especially due to the exponential growth, it seems as if the Bitcoin network will continue to put in dedicated research to iron these issues out.