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Since there has been a lot of discussion revolving around Segwit and scaling Bitcoin as of late, how about stepping back and ignore all the politics for a moment? Let’s just talk about scaling Bitcoin in plain terms so anyone can understand. Most importantly, let’s just set our ego and personal beliefs aside and talk as objectively as one can about scaling. And let’s also use examples while we’re at it.

Bitcoin As A Fancy Restaurant

Let’s imagine an entrepreneur who wants to build a new kind of a restaurant. Not downtown where it’s overcrowded and very expensive but somewhere in the suburbs where he can experiment freely without attracting too much attention. Also, the entrepreneur doesn’t want to reveal his identity. In the suburbs, he is only known by the alias Satoshi Nakamoto.

Nakamoto eventually builds the restaurant but doesn’t make it too big. A big restaurant would involve high costs and many problems. What if people bulge in for example to see the new restaurant? This wouldn’t be much of a problem if those people actually ordered something. But what if they bulge in, crowd the restaurant, make it non-operational, and steal the money in the process. Or vandalize it? Building a small restaurant is much more effective, he would watch over it and also hire fewer people to help him, thus low maintenance cost.

Plus, who would care about his restaurant in the first place to make it big? He knows the over-capacity problem is years away anyway so he builds a smaller one, yet fancy and unique. He names the restaurant Bitcoin.

The business slowly but surely grows over time. And fast forward some eight years into the future, the restaurant becomes the next big thing in the industry. Everyone – even the downtown boys and girls – want to get in and try out the menu.

The problem is this: Satoshi retired some two years after he build the restaurant and his closest advisers continued what he started. Even more interesting, he left no clue of who owns what in the restaurant: his closest advisers were actually cooks aka developers with no management skills whatsoever. The waiters aka miners noticed the power gap and wanted their own piece of the pie. Some clients even built clever businesses around the restaurant – exchanges, wallets, etc. - and now they want to have full control.

And, because of this internal struggle, the restaurant remained the same: small and fancy, with no capacity to handle the crowd coming from downtown.

As a result, ever-growing queues emerged in front of the restaurant, all wanting to get in. Unfortunately, they can’t since the restaurant is already full. The suburb people call the queues mempool.

Tips aka transaction fees skyrocketed and soon enough, realizing their power, waiters began a furious auction race. All the people waiting in front of the restaurant offered more and more money to get in and try Bitcoin. The waiters gave priority to those who paid the most.

Bigger Restaurants

To solve the problem as fast as possible, the waiters and the clients who built businesses around the restaurant met and agreed to expand the restaurant in what the suburb people call the New York Agreement. The cooks were enraged since they weren’t invited and accepted only part of the deal.

Some cooks even, along with businesses relying on Bitcoin decided to part ways with the ‘old’ restaurant and built a new one much bigger in size. They named that restaurant Bitcoin Cash and now claim their restaurant is the ‘real’ Bitcoin because it remains true to Satoshi Nakamoto’s vision.

Also, another restaurant named Dash took a similar approach and expanded even though it wasn’t really necessary. Yet, to avoid future problems when their business might go mainstream, they expanded sooner rather than later.

Yes, making a bigger restaurant so more clients can enter and sit at the tables is a viable option but it’s not the ONLY option.

An Alternative Payment System

Changing the payment system is another interesting one.

But how does the current payment system actually work? Pretty simplistic, one would say. A client sits at a table, orders soup and pays. He then orders a stake and pays. For beverages, he repeats the process.

The waiters (for the sake of simplicity, the waiters are the vendors, NOT the miners, in this sub-chapter) don’t trust the client and asks for payment before bringing the dish. And each and every time they receive a payment, they have to register it in the ledger aka broadcast the transaction on the network and wait for the transaction to be confirmed.

To make the payment system more efficient, several cooks proposed an alternative, suburb people call the Lightning Network. In this system, the waiter doesn’t have to register the payment in the ledger each and every time. Instead, he receives individual payments that are registered outside the ledger or off-chain. Only after the client is done ordering and leaves the restaurant, he bulks all payments together – soup payment, stake payment, beverages, etc. – into one big payment and registers it in the ledger. You can think of the big payments as the check for the client’s order as a whole.

Supervisors aka (full) nodes watch over this alternative system. We haven’t talked about supervisors much because they usually go unnoticed and rarely somebody talks about them. But they are very important in the system as they validate the fairness of the business.

In the Lightning Network, supervisors help the waiters and clients open their own communication channel or in suburb terms payment channel.

Note! The Lightning Network needs Segwit in order to be implemented.

Obviously, the number of payment channels is limited and is directly correlated to the size of the restaurant. But this problem may be solved if we add another group or layer between the ledger and the payment channels.

What if the two parties don’t need to open a separate channel? What if we add assistant managers into the mix who can handle hundreds of such channels? Instead, the waiter and the client open a sub-channel part of the assistant manager’s masterchannel . The manager collects all the payments bulks them together and register them into the ledger when necessary. In the suburbs, this assistant manager is called a channel factory.

Breaking Down Responsibilities

Of course, there are other interesting alternatives. Another restaurant named Ethereum is looking for a different approach.

Ethereum is much fancier than Bitcoin but tries too much to do a great deal of things at the same time. Because of that, the restaurant suffers important losses from time to time. It’s still a tricky business and Ethereum travels through uncharted territories.

Ethereum has a different concept of scaling: the cooks think supervisors are doing too many things at the same time, thus slowing down the process. So, they are proposing breaking apart their overall responsibilities. Each group have their own specialized responsibilities. If a supervisor is in need for information outside the area of expertise, he looks for the group specialized in that area of expertise. This whole concept is called sharding in suburb slang.

Downsides and Conclusion

Obviously, almost each and every restaurant is bragging with its own system.

Bitcoin Cash thinks bigger restaurants are indeed the future but centralization may become a problem as the restaurant gets bigger and bigger. The big restaurant will engulf the smaller ones to the point no small businesses can survive in this ecosystem. In suburb terms, managing full nodes will become a restrictive business with only the most influent and the most resourceful running a full node. Just like mining.

This can be said about Lightning Network also. Centralization can become an issue with the creation of channel factories. Full nodes will suddenly become much more powerful than anyone thought of several years ago.

Sharding can pose some trusting issues among groups sharing different responsibilities.

Overall though, each has its advantages and disadvantages. There is no good way and bad way like some are trying to manipulate us in the current state of affairs. Leaving the political games aside, let’s just be thankful there are several alternatives each having a fundamentally different approach. And let’s just hope the Lightning Network and Sharding will play an important part in the foreseeable future. Don’t worry though, there is a place for big blockers also.

What matter most is having options! Having ONE option is NOT freedom, is only the illusion of freedom. Having ONE option is NOT choice, is only ENFORCED choice.

Let’s build a world where our children can truly choose and not be forced to choose. Let’s give the world options to choose from.

Until next time, all the best.

P.S. Photo courtesy of CoinDesk