{"id":196248,"date":"2021-03-07T16:44:00","date_gmt":"2021-03-07T13:44:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/searching-deep-the-quest-for-bitcoin-scalability-through-layer-two-protocols\/"},"modified":"2021-03-07T16:44:00","modified_gmt":"2021-03-07T13:44:00","slug":"searching-deep-the-quest-for-bitcoin-scalability-through-layer-two-protocols","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/searching-deep-the-quest-for-bitcoin-scalability-through-layer-two-protocols\/","title":{"rendered":"# Searching deep: The quest for Bitcoin scalability through layer two protocols"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a2e78b752fc3\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a2e78b752fc3\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/searching-deep-the-quest-for-bitcoin-scalability-through-layer-two-protocols\/#What_do_the_critics_say\" >What do the critics say?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/searching-deep-the-quest-for-bitcoin-scalability-through-layer-two-protocols\/#Lightning_Network_node_count_rises_but_slowly\" >Lightning Network node count rises, but slowly<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/searching-deep-the-quest-for-bitcoin-scalability-through-layer-two-protocols\/#What_about_Statechains\" >What about Statechains?<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Searching deep: The quest for Bitcoin scalability through layer two protocols <\/strong>&#8221;<\/p>\n<div class=\"post-content\" data-v-5a136f3a>As the largest cryptocurrency by market capitalization, Bitcoin\u2019s (BTC) effectiveness as a medium of exchange is still a matter for debate. Unlike fiat money that is inherently infinite in supply and must be managed by a central bank, Bitcoin is akin to gold in that it is commodity money with a finite supply of 21 million.<\/p>\n<p>However, the supply cap is not the major stumbling block for BTC as a medium of exchange, but rather, the transaction throughput. While Satoshi Nakamoto envisioned Bitcoin as a peer-to-peer electronic cash system capable of facilitating online payments without a central counterparty, seven transactions per second on average is hardly the standard for scalability.<\/p>\n<p>Indeed, scalability is only one of three major metrics required for any currency system to succeed as a medium of exchange along with adoption and liquidity. There is an argument to be made of Bitcoin\u2019s growing adoption around the world across several strata of the global economy.<\/p>\n<p>Price volatility that has seen Bitcoin peak at $58,000 and then briefly fall below the $30,000 mark within the first two months of 2021 likely indicates lingering issues with liquidity. However, it\u2019s important to note that the current period is being characterized by a bullish advance that began in October 2020. Ultimately, some analysts expect Bitcoin\u2019s volatility to level out as more institutions take up positions in the market.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_do_the_critics_say\"><\/span>What do the critics say?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Bitcoin\u2019s scalability problem is even older than the network itself. Indeed, upon first proposing the system back in 2008, James A. Donald replied to Satoshi Nakamoto with: \u201cThe way I understand your proposal, it does not seem to scale to the required size.\u201d<\/p>\n<p>This astute observation has been at the heart of some of the more contentious and controversial debates within the Bitcoin ecosystem. Disagreements over how to solve the problem have even resulted in multiple hard forks.<\/p>\n<p>These days, when Bitcoin critics cannot definitively dismiss BTC\u2019s store of value proposition, scalability seems to be a low-hanging fruit with which to craft some anti-Bitcoin soundbite. Speaking during the 2021 Daily Journal annual shareholders meeting, Berkshire Hathaway vice-chairman Charlie Munger remarked that Bitcoin will never become a global medium of exchange due to its price volatility.<\/p>\n<p>The 97-year-old billionaire investor is no stranger to espousing anti-Bitcoin sentiments. Indeed, together with Warren Buffett, the two Berkshire Hathaway chiefs have been responsible for some of the more colorful negative remarks among Bitcoin. From being \u201crat poison squared\u201d to \u201ctrading turds,\u201d Munger once slammed BTC investors for celebrating the life and work of Judas Iscariot.<\/p>\n<p>Munger, like Buffett, is among a class of Wall Street Bitcoin critics who have often claimed that Bitcoin has no intrinsic value. However, with the price of BTC continuing its relentless upward advance over the past decade while attracting significant institutional interest, detractors now seem to be left with only the scalability argument.<\/p>\n<p>Even among mainstream crypto adopters, Bitcoin\u2019s inability to scale at the base protocol level also seems to be a significant issue. In an address during the Future of Money conference back in February, Mastercard executive vice chair Ann Cairns<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.marketwatch.com\/story\/mastercard-executive-bitcoin-is-too-volatile-to-be-part-of-its-network-11614245946\"> declared<\/a> that BTC was not suited to its crypto payment plans.<\/p>\n<p>According to Cairns: \u201cBitcoin does not behave like a payment instrument [\u2026] It\u2019s too volatile and it takes too long to transact.\u201d As previously reported by Cointelegraph, Mastercard recently announced plans to offer support for cryptocurrency payment on its network.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Lightning_Network_node_count_rises_but_slowly\"><\/span>Lightning Network node count rises, but slowly<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Together with the 10-minute block creation time, the one-megabyte block size acts as the actual transaction throughput constraint for the Bitcoin network. The block size debate of 2017 that ultimately led to the Bitcoin Cash hard fork proved the adamance of Bitcoin purists to the 1MB block size ethos.<\/p>\n<p>With the \u201cbig blockers\u201d now firmly on their own Bitcoin forks like BCH and Bitcoin SV, the question of how to get BTC to scale without changing a thing on the protocol level still lingers. From Bitcoin banks to sidechain protocols, and even deferred settlement infrastructure layers like the Lightning Network, several developmental projects are currently ongoing to make Bitcoin more suitable for microtransactions like paying for coffee.<\/p>\n<p>At a high level, these scaling solutions involve the creation of trustless, centralized (pardon the oxymoron) entities or layer-two networks that maintain lightweight versions of the BTC ledger to handle the actual \u201ccoin\u201d transfers without having to maintain the full Bitcoin ledger. These sidechain implementations then transmit the transaction data for final settlement on the actual Bitcoin network.<\/p>\n<p>LN is one of the major Bitcoin scaling solutions under active development by several organizations including Blockstream and Elizabeth Stark\u2019s Lightning Labs. The Lightning Network is perhaps the most popular of the \u201cdefer-reconcile\u201d scaling implementations that allow users to create payment channels that offer instant coin transfers at minimal fees.<\/p>\n<p>According to<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/1ml.com\/\"> data<\/a> from LN data aggregator 1ML, there are over 17,300 public Lightning Network nodes and more than 38,400 channels. LN capacity is currently north of 1,100 BTC.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-03\/b6ba929d-5ddc-4041-b671-ce62bbf792b6.png\"><\/figure>\n<p>While LN adoption is yet to attain significant heights, layer-two implementation might be about to get a boost with Zap \u2014 a Visa-backed Lightning Network payments startup. In February, the company launched Strike \u2014 a payments and remittance <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a> that utilizes the Lightning Network for payments.<\/p>\n<p>Strike has also partnered with crypto exchange platform Bittrex to deliver LN-powered payments to over 200 countries around the world. The company plans to issue Strike Visa cards to users in the United States as well as in Europe and the United Kingdom before the end of the year.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_about_Statechains\"><\/span>What about Statechains?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>There is a school of thought that argues Bitcoin scalability is only possible via layer-two solutions. Ruben Somsen, Bitcoin developer, crypto podcaster and founder of the Seoul Bitcoin meetup, is one of the proponents of this argument.<\/p>\n<p>Somsen is an advocate of Statechains, another layer-two implementation but with a twist \u2014 transaction participants send private keys instead of actual unspent transaction output, or UTXO. The process involves loading a Statechain-compatible wallet with the exact BTC sum required for the trade followed by the transfer of the private keys from the sender to the recipient.<\/p>\n<p>Since transferring private keys across the blockchain is fee-less and instant, the Statechain idea seems to have gained some traction within the Bitcoin scalability discussion. However, revealing private keys comes with significant security implications.<\/p>\n<p>Thus, in recent times, the Statechain concept has been modified to include a third entity that acts as an inter<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">media<\/a>ry between the transacting parties. Detailing the workings of this counterparty federation within the Statechain matrix, Somsen told Cointelegraph:<\/p>\n<blockquote><p>\u201cStatechains allow you to take your coins off-chain (meaning cheap transactions) in a way that puts a minimum amount of trust in others. You have to trust a federation, but the federation won\u2019t know that they are getting partial control of your coins, and they can\u2019t refuse peg-outs (moving back to the Bitcoin blockchain).\u201d<\/p><\/blockquote>\n<p>Blockchain infrastructure firm CommerceBlock is one of the companies actively developing Statechains as a viable scalability solution for Bitcoin. The firm is credited with introducing the counterparty federation or \u201cStatechain entity\u201d to improve the security of the system. In a conversation with Cointelegraph, CommerceBlock CEO Nicholas Gregory outlined how Statechains operate:<\/p>\n<blockquote><p>\u201cAt a high level, Statechains are simply a way to transfer your private key to another user. To facilitate this, you have to cooperate with a Statechain entity. However, at all times, the user has full control of their funds; at any anytime, they can withdraw their Bitcoin to their own custody. Therefore, the transfer is instant and private.\u201d<\/p><\/blockquote>\n<p>While Statechains is a scalability solution on its own, some proponents agree that the system could integrate with the Lightning Network. With Statechains operating on the UTXO level, it is theoretically possible for another layer-two protocol such as the Lightning Network to be implemented on top of Statechains.<\/p>\n<p>Such a hybrid integration could solve the limited node capacity issue of Lightning Network while ensuring the ability to facilitate multiple microtransactions via Statechains. Since the exact transaction amount is loaded into Statechain wallets, it\u2019s impossible to split UTXOs making Statechain in its present iteration unsuitable for microtransactions. <\/p>\n<p>According to Somsen, the Statechains can operate independently as well as function together with the Lightning Network: \u201cStatechains complement the Lightning Network perfectly because opening and closing channels can happen off-chain. This removes a lot of the friction that exists in the current Lightning Network design.\u201d<\/p>\n<p>For Gregory, integrating Statechains with the Lightning Network is among the future developmental plans for CommerceBlock: \u201cStatechains are instant and do not require liquidity lock up; however, you are sending the private key, so you can\u2019t do small or specific denominations. This is where LN excels.\u201d<\/p>\n<p>With these developments and more, the quest for a workable Bitcoin scalability solution is still ongoing. While critics, like Munger, who have been consistently wrong about BTC, continue to drop soundbites, developers are hard at work to solve one of the longest-running operability issues concerning Bitcoin.<\/p>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/searching-deep-the-quest-for-bitcoin-scalability-through-layer-two-protocols\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Searching deep: The quest for Bitcoin scalability through layer two protocols &#8221; As the largest cryptocurrency by market capitalization, Bitcoin\u2019s (BTC) effectiveness as a medium of exchange is still a matter for debate. Unlike fiat money that is inherently infinite in supply and must be managed by a central bank, Bitcoin is akin to&#8230;<\/p>\n","protected":false},"author":1,"featured_media":196249,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDMvODBlOGUyMjgtNjYwNy00YzRjLWExZjctNzAxYTdlOTNjNzA1LmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74862,74894,75029,76341,4965],"class_list":["post-196248","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bitcoin","tag-blockchain","tag-lightning-network","tag-scalability","tag-technology"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/196248","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=196248"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/196248\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/196249"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=196248"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=196248"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=196248"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}