BTC Inc
by Christopher Tozzi, Aug 08, 2017

Media Blockchains and the Scaling Debate


Blocks

If your technology can’t scale, it might as well not exist at all. At least, not if you have any intention of using it in real-world settings.

The world of blockchain-based media is no exception. In order for media blockchains to work effectively, the blockchain technology that powers them must be able to scale up to accommodate increases in demand and the number of users.

Bitcoin-based media blockchains face a major scaling challenge. Traditionally, Bitcoin has not been able to scale as seamlessly as some blockchain developers and users would like. Its limitations in this respect raise questions about the future of Bitcoin-based media blockchains. They also increase the likelihood that alternative blockchains, such as Ethereum, will overtake Bitcoin within the media market. And they require media blockchain companies to factor scaling considerations into their plans as they grow.

Bitcoin’s Scaling Problem

Bitcoin, the cryptocurrency that made the blockchain concept famous, was designed a decade ago. At the outset, it counted a few dozen users. While the total number of Bitcoin users today is difficult to quantify, it is probably at least one million and could be many times that number.

The dramatic increase in the size of the Bitcoin user base over the past decade means that the Bitcoin blockchain now has to accommodate many more participants, and a much higher number of transactions, than it did in its early days.

Scaling up to meet this challenge has proven difficult because the original Bitcoin design imposes constraints on the number of transactions that can be processed quickly. This limitation results primarily from Bitcoin’s limited block size. The size of a Bitcoin block (which refers to the unit of transactions that, when combined, comprise the distributed ledger that forms the Bitcoin blockchain) is limited to one megabyte. This is not enough space to support the hundreds of transactions that users currently request every minute. As a result, Bitcoin transactions take a very long time — hours or even days in some cases — to be processed.

This problem will only worsen as the size of the Bitcoin blockchain increases. The original Bitcoin design does not include a way to address this scaling problem.

Solutions: An Alternative Blockchain or SegWit

For Bitcoin users, there are two main ways to solve the Bitcoin scaling problem.

The first is straightforward: they can migrate to a different type of blockchain, such as Ethereum. While Ethereum has scaling issues of its own, those promise to be easier to address without modifying the core design of the platform. Strategies like “parallel transaction processing” and “sharding” could help Ethereum to scale up.

In addition, for the time being, the scaling issues in the Ethereum community are not as serious because Ethereum’s user base is almost certainly smaller than Bitcoin’s. Transaction rates on the Ethereum blockchain are not yet becoming unacceptably slow.

The other scaling solution that has gained traction in the Bitcoin community is called “Segregated Witness,” or “SegWit.” Originally conceived as a way to solve reliability issues related to Bitcoin transactions, SegWit could also help to solve Bitcoin’s scaling problem. It would do that by removing signature data from each Bitcoin transaction and using the freed space to increase the size of Bitcoin blocks.

Under the SegWit proposal, which is expected to lock in at any moment, block sizes would reach a theoretical maximum of four megabytes, although in practice most blocks would likely be closer to two megabytes. Either way, SegWit would at least double the rate at which Bitcoin can support transactions.

The caveat is that SegWit would require the use of “sidechains” like the Lightning Network. Sidechains process transactions independently of the blockchain. They greatly increase the speed of transactions, but they require off-blockchain transactions to be handled by third parties in a centralized location, rather than processing them on the decentralized blockchain.

The SegWit solution has gained only limited support. Opponents raise two main arguments against it. The first is that increasing the Bitcoin block size by a fixed amount won’t solve the scaling problem definitively. Eventually, if Bitcoin grows large enough, even the larger block sizes made available by SegWit will not be sufficient to support fast transactions.

The second argument against SegWit is that requiring sidechains would destroy the decentralized and anonymous nature of the blockchain.

Scaling Challenges for Media Blockchains

The debate over whether and how to solve Bitcoin’s scaling problem impacts the future of media blockchains in a unique way.

It means that media companies that have built their platforms on Bitcoin, like Ascribe, need to make a choice: they can accept Bitcoin in its current state and the slow transactions that come with it, help sway the community toward a solution like SegWit or move to an alternative blockchain altogether.

Other media blockchain companies will have to make similar decisions, sooner or later. Platforms such as Mycelium, which are built on Ethereum rather than Bitcoin, don’t face as much immediate pressure on the scaling front as do those based on Bitcoin. As noted above, however, Ethereum is not immune to scaling issues. If Ethereum grows large enough, and innovations are not introduced to allow it to scale, its transaction rates could also slow.

Beyond increasing the ability of the underlying blockchain technologies to scale, media blockchain companies can adopt other strategies to help mitigate the effects of blockchain scaling issues. One solution is to adopt sidechains, whether or not the blockchain strictly requires it. As noted above, sidechains can dramatically speed transaction rates, in exchange for the tradeoff of having to pass transactions through a centralized hub run by a third party.

It’s also possible to conceive business models for blockchain media platforms that don’t depend on fast transactions. In general, this would mean sacrificing real-time results for blockchain transactions. That may not be ideal, but it is more feasible for a media company that processes ownership of digital content to accept delays in transactions than it is for a blockchain-based payment system. In the latter case, immediate, real-time results are a priority; this is not always true in the media world.

Scaling is a real challenge for Bitcoin and other blockchains, and it remains unclear whether that is truly solvable. Media blockchain companies are not likely to be as adversely affected in the short-term by scaling limitations as are other types of blockchain platforms, but they should develop strategies for addressing scaling issues in order to ensure that scaling constraints in the blockchains they use don’t undercut the ability of their platforms to grow or to process transactions within the timeframe that their users require.

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