Blockchain is a distributed public ledger technology that allows for safe cryptocurrency transactions as well as fast and secure database administration and management. The ledger is dispersed throughout a peer-to-peer network and there are no intermediaries such as a bank or government.
Bitcoin—the world’s first decentralized digital currency—utilizes blockchain technology to enable peer-to-peer transactions. Bitcoin transactions are stored in blocks on the blockchain and verified by Bitcoin miners.
However, what many crypto traders don’t know is that although one block stores a limited number of transactions, the Bitcoin blockchain is unbounded in size. Namely, as long as there is at least one computer included in the process of mining bitcoins, a block with a maximum size of 1MB will be added to it every ten minutes. In this way, the blocks are still limited to a certain number of transactions, but the blockchain continues to grow in size.
In order to understand the processes that led to the way the size of a Bitcoin block is determined, let’s brush up on some of the basic concepts related to this innovative technology.
What Is the Block Size Limit?
Satoshi Nakamoto, the anonymous inventor of Bitcoin, did not impose a limit on the block size in the original Bitcoin whitepaper. It was during their active engagement as a Bitcoin developer later on that they introduced the block size limit of 1MB per one block unit, but have never provided an explanation as to why they did that.
The 1MB block could process between 3 and 7 transactions per second. In contrast, traditional financial services that utilize fiat currency such as credit card terminals are able to process over 24,000 transactions for the same amount of time, which makes them more efficient.
The block size constraint together with Bitcoin’s Proof of Work consensus mechanism is the bottleneck of transaction processing. This results in higher transaction fees as well as delayed processing of transactions that exceed the block limit.
As soon as Bitcoin reached staggering popularity among cryptocurrency traders, the 1MB block size became unable to accommodate the increasing volume of cryptocurrency trades.
When Bitcoin’s block size restriction to 1 MB was replaced with a block weight limit by some of the Bitcoin developers in 2017, it effectively altered the amount of encrypted data, resulting in a block size increase of around 2-4 megabytes. The increased transaction data per block is expected to result in a shorter transaction confirmation time as blocks grow in size to accommodate more data.
The Link Between Blockchain and Cryptocurrencies
Blockchain technology is a new type of decentralized platform upon which various programs may be built. In this regard, blockchain is the basis for the creation of all sorts of cryptocurrencies by providing an opportunity for safe, swift, and highly confidential transactions of digital assets.
How Does Blockchain Provide Security for Cryptocurrencies?
Secured by cryptography methods, the exchange of cryptocurrencies via the Blockchain platform is one of the safest methods of conducting an online transaction. The Blockchain Network is designed as a chain of encrypted transaction data blocks that are additionally secured by users’ private and public keys, i.e. cryptography elements used as digital signatures that enable safe handling of the private data among the users of the network.
Linked in the chain of blocks, each block containing encrypted transaction data is updated at the same time. In case any of the blocks becomes an object of data modification, all other users will be instantly alerted of the chain’s security breach. This makes the blockchain virtually invulnerable to cyber-attacks.
Furthermore, there are several more elements that provide security for cryptocurrency transactions on the blockchain. The invention of the Ethereum smart contract, for one, and its rapid acceptance in a number of fields have contributed to the openness and security of the technology.
The Bitcoin miners also add to the heightened security of the blockchain by solving extremely complex mathematical algorithms. In the following passages of this article, we’ll briefly explore Bitcoin miners’ helping hand regarding the blockchain’s security.
Bitcoin miners contribute to the security, authorization, verification, and secure storing of Bitcoin transaction data by mining new coins on the Bitcoin blockchain network. The computers that are used for the mining process, also dubbed ‘Bitcoin nodes’, consume a significant amount of computing power in order to run the specialized software that links them to the Bitcoin network and resolves complex mathematical concepts.
Basically, the miners encrypt the transaction data into blockchain units that are lined up for verification before they could be added to the network. This information is added to blocks that are chained together chronologically. Since the miners verify the transactions in groups instead of one by one, the process is both faster and more cost-efficient.
The Bitcoin transaction algorithm, i.e. the Bitcoin Core protocol, is an open-source protocol constructed as a version of the distributed ledger technology. Bitcoin Core has been programmed in such a way that it determines which block contains legitimate transactions.
Blockchain transactions represent encrypted data files that include information like the monetary value of a transaction. When a transaction is certified by the sender of the crypto assets, this encrypted data is then transmitted to the blockchain network’s nodes, which verify the authenticity of the new transaction and further transmit it until the information is spread across the entire blockchain network.
The Bitcoin open source software applies a system of operation codes (Opcodes) in order to process the transaction requests of the digital assets. By the means of asymmetric encryption and hashing protocols for a variety of payments such as Pay To Pubkey (P2PK), Pay To Script Hash (P2SH), or Pay To Pubkey Hash (P2PKH), this protocol enables users to safely buy and sell cryptocurrencies on the Bitcoin blockchain by verifying the transactions.
Finally, the Bitcoin Core protocol is a powerful tool against cyber-crime for one relatively obvious reason. Namely, in order to entirely delete the Bitcoin blockchain, all full nodes that contain a detailed copy of the blockchain would need to be destroyed, which is a ‘big bite’ even for the most skilled of hackers.
A smart contract is a program backlogged on the Ethereum blockchain that fortifies the security of the transaction by automatically enforcing the provisions made between the cryptocurrency traders.
These smart contracts also support the decentralization of cryptocurrencies because they provide transparent and secure transactions without the need for payment processing intermediaries.
The Lightning Network is a digital solution to the Bitcoin blockchain network regarding the problems of transaction speed. Added as a second layer, the Lightning Network is a decentralized protocol that allows for instant payments secured via smart contracts.
This revolutionary protocol contributes to the scalability of the blockchain network by being able to accept, validate, and process high-volume transactions in a short time. As blockchain’s core technology, the Lightning Network protocol directly increased the capacity of the blockchain.
What the Future Holds for Bitcoin’s Blockchain
As the trend of creating new cryptocurrencies increases, Bitcoin may also have to execute many more transactions per minute in order to maintain its reputation as a viable payment system. In this regard, increasing the size of the blockchain in order to receive a larger amount of data could possibly be the most convenient solution.
The justification of larger blocks is largely supported by the idea that Bitcoin will eventually become a widely established payment mechanism comparable to credit cards, Visa, or PayPal. Experts believe that blockchain has the potential to be used for a diverse range of digital processes, from supply chain management to biometric data identification.
On the other hand, this may cause less competition among traders for their transactions to be included in the next block, which may result in lower transaction fees. In turn, the block reward will drop, resulting in less expenditure on mining. The security of the Bitcoin network will also worsen as a result of the lower income received by the network.
A Few Words Before You Go…
In the cryptocurrency development community, the size of a Bitcoin block is a hotly debated topic. While some believe that increasing the block size limit is necessary in order for cryptocurrencies to maintain their reputation as a suitable replacement for fiat money by allowing for more transactions, others believe that increasing the block size limit further will result in decreased security of transactions, as well as a relatively slow blockchain network overall due to the increased transaction volume.
According to Blockchain, the size of the entire blockchain has surpassed 300 gigabytes as of September 19, 2020. As the Bitcoin value increases, the developers of the network are putting their best efforts to increase the block size so that the blockchain can accommodate a larger number of transactions for a shorter period of time.
In addition, an increased transaction volume per minute and decreased transaction fees are stated as the most significant benefits that could be obtained only by increasing the transactional block size that is added to the Bitcoin blockchain by its miners. Eventually, this could only cement Bitcoin’s position as the most powerful coin on the cryptocurrency market to date.