Recently, something got me thinking about the end-game: how Bitcoin will scale to be globally adopted as the world’s digital gold or currency or reserve asset, with billions of users?
The answer is always a layer 2 protocol like Lightning on top of the base layer. Small, frequent transactions will take place on L2. Fast and nearly free. Base layer transactions are slower and more expensive so will be used only for infrequent large transactions and for opening and closing L2 channels.
This all makes sense but there is a problem, which is the 1MB block size on the base layer. It can only accommodate about 5 transactions per second. If we assume only 1 transaction per user per month, the network can only support 13M users. If half of all transactions were a new user opening their first L2 channel, it would take about 50 years to bring 4B people onto L2. This is way too slow when you look at the steep part of tech adoption s-curves.
I am aware of the history of the block size wars, and that there is always a trade off: when you improve one aspect of the network, something else suffers. The most often cited reason to keep 1MB blocks is to ensure the decentralization of full nodes by allowing them to run on low-cost hardware and low-bandwidth connections. BUT, storage keeps getting cheaper and internet speeds keep improving. Where I live you can get unlimited data for an extra $15/mo. Nodes download 20GB/mo and upload 200GB/mo. This is equivalent to 1hr of Netflix per day. Why can’t block size increase as these technologies get cheaper and faster? We’ve had 1MB basically since the beginning and it hasn’t changed in 13 years (not counting SegWit).
The alternative is that the Bitcoin base layer ends up being something that only the top 1% can use, and the rest (whom Bitcoin was supposed to help the most) are relegated to completely off-chain, custodial solutions with many of the same drawbacks that the current system has. Centralization, censorship, seizure, etc.
The only way around this is to increase the capacity of the base layer and I see no appetite for that.
Am I missing something?
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