Scalability Problem of the Bitcoin Technology-Samples for Students

Question: Discuss about the scalability problem of the bitcoin technology. Answer: Introduction The Bitcoin payment act as a platform for virtual currency over the internet. The lightning network is a decentralized system for high-volume micropayments for removing the risk of delegating custody of funds to the third party. However, there are various problems with this technology including scalability problem. This report deals with identifying problems in the Bitcoin technology. The scalability problem of Bitcoin technology has been described in the report. This report outlines the solution to scalability problem of Bitcoin technology. Lightning Network has been described in the report as the solution of scalability problem prevailing in Bitcoin technology. Bitcoin Block chain Scalability Problem The Bitcoin acts as a payment platform for world currency transactions. However, each node of bitcoin network knows every single transaction globally that helps in encompassing network for global currency transaction (Seigneur, D'Hautefort Ballocchi, 2017). The payment using Visa is approx. 45,000 peak transaction per second on a network. However, bitcoin allows 7 transactions per second with a 1-megabyte block limit. On an average of 300 bytes per bitcoin transaction for unlimited block size, it is equal to peak Visa transaction volume of 45000/tps and nearly to 8 gigabytes per bitcoin block (Roos et al., 2017). For achieving higher than 45,000 transactions per second using Bitcoin, conduction transaction off the bitcoin is required. Different micropayments are sent parallel between two parties for enabling any size of payments. Bitcoin has to resolve the issue related to block size centralization affects containing large blocks implicitly and creating trusted custodians for higher fees (Croman et al., 2016). A network of micropayment channels can solve scalability Recently, bitcoin has dominated to micropayments for implementing offloading transaction to a custodian. The third party custodians hold coins and update user balance by allowing deposits and withdrawals (Poon Dryja, 2015). Currently, the bitcoin services are using custodian model for native bitcoin to scale to billions of users. Therefore, a system has been proposed for a transaction in Bitcoin in micropayment channels without custodial risk of theft (Eberhardt Tai, 2017). Micropayment channels create a relationship between two opted parties. A large network of channel all bitcoin users are included in the graph that has only one channel in bitcoin blockchain (Poon Dryja, 2015). This helps in creating near infinite amount of transaction inside the network. Hashedlocked Bidirectional Micropayment Channels Micropayment channels help in permitting deferral transaction rate or broadcasting of time. The contracts that are enforced by developing responsibility for a single party for the broadcasting transaction before a deadline (Lin Liao, 2017). When block chain is decentralized, time stamping system using of clocks as an element for decentralizing consensus detaining validity of data. Chaining together of micropayment channels help in creating transaction oaths. These paths can be routed by using a BGP like a system (Lind et al., 2017). Hashed Timelock Contract (HTLC) An HTLC can be opened by building a transaction output that can only the final recipient is able to redeem. The recipient generates random information R and hashes R using hash for producing H (Croman et al., 2016). However, information is provided to a receiver to a sender of funds including bitcoin address of the recipient. After receiving updated transaction in micropayment channel, a recipient may select for redeeming transaction by approaching random data R. A contract is created by using this output script: OP_DEPTH 3 OP_EQUAL OP_IF OP_HASH160 OP_EQUALVERIFY OP_0 2 2 OP_CHECKMULTISIG OP_ELSE OP_0 2 2 OP_CHECKMULTISIG OP_END The result is accomplished with hash and the first signature of the parties are provided excluding both parties second signature (Burchert, Decker Wattenhofer, 2017). After that, two sets of keys from among participants are used for enforcing ability for broadcasting under lock time transaction. The Settlement Transaction is used by a Settlement Delivery Transaction (SD) that helps recipient in event input R can be produced on contractual basis (Engelmann et al., 2017). Figure 1: Transaction channel and signatures (Source: Eyal et al., 2016) Closing out a channel When both parties send any payments to their counterparty and funds are available inside a channel. In many cases, not all outputs from the Funding Transaction are never broadcasted on the blockchain (Miller et al., 2017). This helps in receiving funds from both parties immediately (Poon, Team, 2017). Different channels remain in perpetuity until they help in deciding cooperatively closing out transaction by Revocation Delivery transaction. Conclusion It can be concluded that the use of the Bitcoin has limited problems in a transaction of a large amount of money all over the world. A digital currency that helps in resolving problems in a transaction and providing safe money transaction. However, some problems have raised with this method. The scalability problem has been prevailing in the Bitcoin technology. There have been many modifications n the algorithm of the bitcoin technology to resolve this scalability problem. The lightning network has somehow able to resolve this problem in the market. Recommendations It is recommended that use of lightning network have to be enhanced in mitigating scalability problem in Bitcoin. Tumble Bit: Tumble Bit works on the same protocol of Bitcoins without any change in it. Tumble Bit payment gateway helps in a transaction through a Tumbler. A bitcoin payment hub is a system for allowing users to make use of blockchain network in the same security module. The use of the Tumble Bit might help in securing security protocol of Bitcoin. It might help in closing off the gateway after one transaction that secures the transaction time (Eyal et al., 2016). The Tumble Bit is independent of timestamp protocol. Therefore, the time dependency is removed from bitcoin technology. It will replace on-blockchain payments by off-blockchain puzzle solving. However, Tumble Bit is an evolving project in the world. The Tumble Bit Project might help in ensuring the privacy of the lightning network by performing cross-chain trading. Trusted Execution Environments (TEE): These are unique forms of isolated and secure processing environments. However, TEE rely on Intels Software Guard Extensions (SGX) used to build guarantee secure remote computation. TEE will provide security by restricting reuse private keys of spent coins for a single transaction. Therefore, it might help in reusing of blockchain based cryptocurrencies. References Burchert, C., Decker, C., Wattenhofer, R. (2017, November). Scalable Funding of Bitcoin Micropayment Channel Networks. InInternational Symposium on Stabilization, Safety, and Security of Distributed Systems(pp. 361-377). Springer, Cham. Croman, K., Decker, C., Eyal, I., Gencer, A. E., Juels, A., Kosba, A., ... Song, D. (2016, February). On scaling decentralized blockchains. InInternational Conference on Financial Cryptography and Data Security(pp. 106-125). Springer Berlin Heidelberg. Croman, K., Decker, C., Eyal, I., Gencer, A. E., Juels, A., Kosba, A., ... Song, D. (2016, February). On scaling decentralized blockchains. 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