Bitcoin conquered a historical milestone | Kurzy.cz

Illustrative image | source: CoinBank https://coinbank.cz/portal-o-kryptomenach

Bitcoin, as the oldest and largest cryptocurrency by market capitalization, achieved another important historical milestone shortly before Sunday midnight (11:24 p.m.) when it completed its billionth transaction. According to statistical data from Dashboard Clark Moody and Company Mempool.space this event occurred as part of the mining of the block with sequence number 842240. We will hardly know which of the transactions was actually the billionth, because another 3649 transactions were included in the block. What is undeniable, however, is the fact that such large and significant activity only continues to confirm the growing interest in Bitcoin, despite the still high volatility. The growing interest in the oldest digital asset is the best news for investors going forward.

Overview of block 842240 (edited by the author) |source: Mempool.space https://mempool.space/cs/

On the other hand, with increasing activity on the Bitcoin blockchain, new questions arise regarding the scalability and throughput of the entire network. Already, the network can’t process transactions in real time and before transactions with lower fee for verification, he gets into the mined block, it can take several tens of minutes to hours. It is determined by the network settings, when the miner himself determines which transactions to include in his block. Logically, those transactions with a higher processing fee are given priority.

Is the entire network at risk of freezing?

The increasing demand for bitcoin and the associated increase in the value of this cryptocurrency could in an extreme situation lead to a partial freezing of the entire network. Since the maximum capacity of one block is set at 4 MB, the maximum number of transactions that can be included in such a block is also limited. Thus, priority is always given to those transactions to which the largest possible processing fees are assigned. The reason why this happens is simple. Because every miner primarily pursues profit maximization within his activity.

Therefore, if someone wants their transaction to be processed in priority, they have no choice but to pay a higher fee. But increasing fees like this can result in a situation where more than 90% of bitcoin addresses cannot transfer bitcoins. The reason will be simple, the amount of fees will be higher than the bitcoin balances on these addresses. For the owner of such addresses, any transfer may become unavailable and his digital asset unmonetizable.

As interest in Bitcoin grows, so does the need for scalability

With the increasing pace of interest in Bitcoin, the community cannot avoid discussing how move the entire blockchain of the oldest cryptocurrency for greater throughput. We will probably see a similar situation again, which has already happened several times in the past. In the very early days of Bitcoin, the maximum capacity of a single block was 1 MB. First, the capacity was adjusted to 2 MB and not long after even to the current maximum capacity of 4 MB. However, even before the first modification, there were discussions about expanding the capacity to 8 MB. Although this proposal was ultimately rejected, the continued wider acceptance of Bitcoin will probably lead to this consensus in the end anyway.

The daily volumes of processed transactions are already around half a million. The record holder this year (2024) is April 23, during which even 926,842 transactions were processed. This fluctuation is mainly due to the fact that on April 20 the reward for miners was halved, and a lot of enthusiasts competed to include their transaction in the 840000 block. The situation is beautifully illustrated by the graph of the number of daily transactions of the company Glassnodefrom which it can be seen that before the halving, the number of daily transactions dropped almost to the level of 300,000 transactions per day, so that on the day of the halving and in the days after, the number of daily transactions rose above 600,000 and, in the case of a record day, even above 900,000 transactions.

A graph of the total number of daily bitcoin transactions with the price level marked | source: Glassnode https://studio.glassnode.com/metrics?a=BTC&chartStyle=column&m=transactions.Count&s=1704067200&u=1714928399&zoom=

Debate on how to proceed

It is already clear that this will not be a simple debate. Discussions about Bitcoin’s scalability have been going on almost since the first time this cryptocurrency was launched. There are two camps facing each other that hold opposing views. While some advocate further increasing the capacity of the block, others argue that it cannot be done indefinitely with regard to the future unsustainability of the entire system, security and preservation of network decentralization. Proponents of increasing capacity argue in particular that it will then be possible to process more transactions, which will be reflected in a decrease in the amount of fees.

Finding the optimal solution and balancing the entire network in the future will be difficult. The second layer on Bitcoin, the network, may be a partial solution
Lightning Network. Through this layer, Bitcoin can be transacted in a much shorter time with much lower fees. However, even the Lightning Network does not solve the primary problem of the Bitcoin blockchain. The community thus remains divided on the best way forward.

While some advocate significant changes to the protocol to increase scalability, others believe that the current infrastructure, including secondary layers such as Lightning Network, will evolve to meet demand. However, regardless of whether the development goes in one direction or the other, it is expected that this development will take place without compromising the basic principles of Bitcoin and preserve the core values ​​of the system.

The information contained in this article does not serve as investment advice. They are for informational purposes only.

Ing. Zbyněk Kalousek

He studied economics and management at the Masaryk University in Brno. In the past, he was engaged in the analysis of financial markets. He returns to this activity after a short pause. Co-founder of a company that deals with consulting and accredited education. He cooperates with several other companies. He perceives the world of cryptocurrencies as a progressive part of the market, which offers a lot of opportunities, but at the same time presents a lot of pitfalls, from decentralization, an apolitical approach, to high volatility of exchange rates, to the increasingly difficult mining of cryptocurrencies.

CoinBank

Since 2021, it has been working with MipSoftware, which operates the CoinBank cryptocurrency exchange and the CoinBank Trader cryptocurrency exchange. Both platforms are particularly interesting for Central European clientele. Through its product, it connects end users with the world’s largest crypto exchanges and offers a pleasant user experience. For a Czech client, trading using Czech currency is probably the most pleasant function. A wide range of cryptocurrencies, access to the world’s largest exchanges, these are prerequisites for interesting cooperation.

More information at https://coinbank.cz/.