A guide to scalability

Bitcoin is slow by design

Blockchains were not necessarily built for speed.

Satoshi designed bitcoin with security and decentralization top of mind, and acknowledged that the system would struggle versus centralized competitors such as the major credit card networks. Instead, bitcoin’s ten minute block times and small block sizes have helped preserve consensus of the global, leaderless network by reducing the frequency of unintentional ledger forks and keeping node operator costs and storage requirements low.

Bitcoin is slow: it has processed fewer than four transactions per second (tps) over the past calendar year. And bitcoin cannot scale its throughput very easily as was evident in the multi-year governance battle around “block size”, which culminated with the network’s first major hard fork, bitcoin cash in late 2017. The hard line on constraining bitcoin’s blocksize led to the dominance of the “digital gold” narrative ever since.

Most investors today seem content with bitcoin’s role as a low-throughput system, and prioritize its strong settlement assurances for high-value transactions over support for a global payments network. It’s easy to see why! The equation of exchange suggests that an increase in velocity, the rate at which funds are exchanged, places downward pressure on price.

How about Ethereum?