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  The Price of Decentralization – Blockchain and Scalability | Bit Updates
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The Price of Decentralization – Blockchain and Scalability

Thursday, February 22nd, 2018 | bitcoin updates

Read articles: One of the outstanding features of Bitcoin and other cryptocurrencies is to be a decentralized electronic monetary system. A payment option that does without middlemen, banks and other institutions. But decentralization has its price: in scalability. Many areas of our everyday world are expressed in numbers. The optimal temperature for T-shirt weather, the acceptable price for breakfast rolls and the kilowatt hours of electricity consumption. To be able to assess and classify the whole thing better, we use scales. How do you feel on a scale of 1 to 10? The assessment seems to be easier with numbers, you can (at least partially) better imagine what is meant. Mempool – storage space for transactions So a scale is about the division of orders of magnitude, usually in numbers. The ability to adjust this order of magnitude is called scalability. This is where Bitcoin and other blockchain-based cryptocurrencies come into play. The blockchain joins block by block and fills it with information. To avoid the need for middlemen, the Bitcoin Blockchain is designed to store all essential information. (For a better understanding, please refer to our series "What to Ledger" and the beginner section). However, with increasing usage, the problems increase. In the case of Bitcoin, the size of the blocks is fixed so that only a limited number of transactions can be integrated into a block. If now significantly more transactions are to become part of the blockchain, a congestion arises – the Mempool. As a result, one can charge high transaction costs for preferential treatment. So Bitcoin has its problems especially in the field of micro-transactions.Teer coffeeToo technical? Here you can consult the often cited coffee example. If I want to settle my coffee with a Bitcoin transaction, the transaction must be stored in a block. However, in times of high bitcoin usage, there are many transactions that need to be stored in a block – and the payment for that coffee is one of them. Buyers and sellers now have a choice between three evils: keep customers waiting until the transaction stored in the blockchain would be the first one. But that prohibits the latest coffee at go. Excluding the customer a high transaction fee, so that the payment process is possibly stored in the next block in the blockchain, also excludes: The transaction costs would be higher than the coffee itself. Often, sellers therefore resort to the rather unsightly solution that a transaction without confirmation hoping that this will soon be stored in the blockchain. In principle, this has been proven, but first, the fraudster could exploit, secondly, the mempool is emptied after two weeks. So if your own transaction has still not been confirmed after two weeks, you would have cheated on the coffee seller for money. The Bitcoin blockchain has thus problems adjusting the size – the problem of scaling. By no means is the Bitcoin Blockchain the only cryptocurrency that has to deal with this and other problems. Currently, the number of unconfirmed transactions is four times higher at Ethereum, for example. Other networks that may have fewer unconfirmed transactions will have to handle fewer transactions in their total number than Bitcoin. Possibilities to solve the problem of scalability The problem of scalability is therefore in the block size – the number of transactions is limited. One way to solve this problem, at least in the short term, is block enlargement. In the past, there have been several attempts by parts of the community to do just that. But since there was no agreement in the community, there was a spin-off, a Fork – today Bitcoin Cash is called. Another solution here is the implementation of Segregated Witness. This bitcoin update addresses the scaling issue from multiple pages. First, you can integrate more transactions into one block without changing the block size. In addition, Segregated Witness enables the Lightning Network. The transactions no longer take place on the blockchain itself, but are carried out via separate micropayment channels. Other Networks, Other Approaches Alternative approaches attempt to solve the problem with other blockchain-like structures. Examples include IOTA's tangle, hashgraph, Nano's blockchain lattice, and outsourcing transactions on sidechains. Ultimately, the crypto community is aware of the issues surrounding the decentralized Bitcoin network in its current form brings. There are currently many possible solutions. Which will prevail, remains to be seen. Until then, it remains again, it can not be said otherwise: exciting.BTC-ECHO About Phillip HorchPhillip Horch completed his master's degree in Literature-Art-Media at the University of Konstanz in October 2017 and has been working as a freelance journalist ever since. Already during his studies he wrote for various magazines and now he is gaining a foothold in Berlin. The main focus of his journalistic work is on the opportunities and challenges of digitization, so that for some time now he has also dealt with the topic of blockchain and cryptocurrency. All contributions by Phillip Horch

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