The scaling problem is something that continues to weigh heavily over the bitcoin network. Since the issue emerged, it has generated controversy and divisions inside of the community, some of which were very public affairs. But now, it appears that a solution might be on the horizon.
An update of the software that is used for the network support has recently been released. With it, the potential resolution of the scaling issue which has been long-anticipated inches closer to fruition. Segregated Witness (SegWit) ver. 0.13.1 is a piece of code that will allow mining parties to signal their support for the actual scaling solution that should come about after the 15th of November. If the code is activated, it should instruct individual nodes on the way they can validate the new form of transaction that should come about from this patch.
Some time earlier, SegWit allowed the network to increase the size of the individual block of BTC by about 1.8x through the process of moving the transaction signatures from the basic bitcoin’s shared digital ledger to a different structure.
However, there are still steps that need to be completed before the same software will be fully triggered. When this occurs, a process which carries the name “soft fork” will begin. With it, the scaling solution should be completed and here are the steps that are still being waited for.
To work, the update has to be given a level of support from the miners that need to be almost universal. The code will become locked-in when 95% from a batch of 2,016 BTC blocks become broadcasted by miners who are running the same new code.
After that, the holders of digital wallets will be forced to make a change so that they can take advantage of the same update. While there are subsequent steps, the first one regarding the ver. 0.13.1 is the crucial one.
Currently, SegWit is running on high expectation, but there is no assurance that the same will get to the 95% threshold. Now, the support level provided by the miners is the thing what will make the difference once the two weeks needed for 2k blocks have passed. For example, ViaBTC, a mining pool that makes up around 5% of the network’s hashing power, has been a vocal supporter of when it comes to the alternative scaling proposals.
A Gateway Solution
If the code ends up being triggered, the implications are far and wide. Firstly, it could pave a way for other updates to the basic bitcoin code, some of which are already well defined. For example, the Lightning Network was already seen as an alternative for the scaling solution could be implemented, along with other soft fork solutions.
But, these are still a long way away, mainly because the SegWit code has to work on its proposed timeline. Those who are optimistic believe that the new code could be up and running before the end of 2016. Others are wondering is there enough support for the change and will it manage to go the distance.
The Chinese Mining Factor
It might be less prominent today than it was a few years ago, but still, the powerful core of the bitcoin network lies inside of the domain of mining pools and other mining organizations. Today, most of the pure hashing power of the network comes from China, where the great firewall is doing its damage to the capability of the network each and every day.
But, as a hard-to-read superpower, China is a big unknown in the bitcoin network. On one side, China’s Central Bank is working on implementing blockchain into its operations, much like any other major nation in the world is trying to grasp this technology. But, on the other, like Russia, there are multiple factors at play, out of which many fear the idea of having a parallel currency that is not under full state control.
For more conservative factions inside of the government, this is a show stopper because it could be used to fund activities that the state finds subversive. Traditionally, having untraceable and uncontrollable pathways of currency is not something states perceive in a benevolent manner, especially states like China.
Because of this, the mining collective and its position in the country is very complex. There is no doubt that the state is aware of the action of these companies and mining pools, but for now, it tolerates their ventures. Like eSports and other online endeavors where China is a relevant factor, there is a sense that the state wants the same activities to continue because they bring about many advantages in the long run, for example, IT professionals with a very narrow focus of expertise.
However, no one knows if the same unspoken support might be taken away at one point. Because of this, the scaling solution is important because it presents itself as a levy against any tectonic shift in the nation that provides most of the hashing power to the network. Having a successful resolution to the scaling problem might help ease the worry about the role of China. For many western investors who are still on the fence about the digital currency, a thing like that could allow them to enter the BTC marketplace.
While no one can tell for certain how the scaling solution, whatever it might end up being, will work, there is a certainty that it can drastically aid the bitcoin network. This is important for anyone who uses it today, no matter if they employ BTC to shop for things they need, take out loans or bet online with it.
At the present moment, the bitcoin network is growing and expanding better than anyone could have imagined it, for example, in 2013. Just recently, the price of a BTC has surpassed $730.
But, it would be foolish to suggest that the same growth will go on indefinitely when it is clear that even a sense of volatility can spook traders and investors in the traditional markets. Bitcoin has so far been largely insulated from problems like that one, but this is no certainty. The same idea is additionally underlined by the notion of the expansion of the BTC market, where more and more parties are entering the trading, mining and every other FinTech aspect of the network.
While many hope that the SegWit solution to end the scaling problem, the challenges of the network and its growth are by no means over even if it does.