Blockchain: Blueprint for a New Economy

are building different new and separate

blockchains (like Ethereum) or

technology that does not use a

blockchain (like Ripple). One central

challenge with the underlying Bitcoin

technology is scaling up from the current

maximum limit of 7 transactions per

second (the VISA credit card processing

network routinely handles 2,000

transactions per second and can

accommodate peak volumes of 10,000

transactions per second), especially if

there were to be mainstream adoption of

Bitcoin.178 Some of the other issues

include increasing the block size,

addressing blockchain bloat, countering

vulnerability to 51 percent mining

attacks, and implementing hard forks

(changes that are not backward

compatible) to the code, as summarized

here:179

Throughput

The Bitcoin network has a potential

issue with throughput in that it is

processing only one transaction per

second (tps), with a theoretical

current maximum of 7 tps. Core

developers maintain that this limit

can be raised when it becomes

necessary. One way that Bitcoin

could handle higher throughput is if

each block were bigger, though right

now that leads to other issues with

regard to size and blockchain bloat.

Comparison metrics in other

transaction processing networks are

VISA (2,000 tps typical; 10,000 tps

peak), Twitter (5,000 tps typical;

15,000 tps peak), and advertising

networks (>100,000 tps typical).

Latency

Right now, each Bitcoin transaction

block takes 10 minutes to process,

meaning that it can take at least 10

minutes for your transaction to be

confirmed. For sufficient security,

you should wait more time—about

an hour—and for larger transfer

amounts it needs to be even longer,

because it must outweigh the cost of

a double-spend attack (in which

Bitcoins are double-spent in a

separate transaction before the

merchant can confirm their reception

in what appears to be the intended

transaction). Again, as the

comparison metric, VISA takes

seconds at most.

Size and bandwidth

The blockchain is 25 GB, and grew

by 14 GB in the last year. So it

already takes a long time to

download (e.g., 1 day). If throughput

were to increase by a factor of 2,000

to VISA standards, for example, that

would be 1.42 PB/year or 3.9

GB/day. At 150,000 tps, the

blockchain would grow by 214

PB/year. The Bitcoin community

calls the size problem “bloat,” but

that assumes that we want a small

blockchain; however, to really scale

to mainstream use, the blockchain

would need to be big, just more

efficiently accessed. This motivates

centralization, because it takes

resources to run the full node, and

only about 7,000 servers worldwide

do in fact run full Bitcoind nodes,

meaning the Bitcoin daemon (the full

Bitcoin node running in the

background). It is being discussed

whether locations running full nodes

should be compensated with

rewards. Although 25 GB of data is

trivial in many areas of the modern

“big data” era and data-intensive

science with terabytes of data being

the standard, this data can be

compressed, whereas the blockchain

cannot for security and accessibility

reasons. However, perhaps this is an

opportunity to innovate new kinds of

compression algorithms that would

make the blockchain (at much larger

future scales) still usable, and

storable, while retaining its integrity

and accessibility. One innovation to

address blockchain bloat and make

the data more accessible is APIs,

like those from Chain and other

vendors, that facilitate automated

calls to the full Bitcoin blockchain.

Some of the operations are to obtain

address balances and balances

changes, and notify user applications

when new transactions or blocks are

created on the network. Also, there

are web-based block explorers (like

https://blockchain.info/),

middleware applications allowing

partial queries of blockchain data,

and frontend customer-facing mobile

ewallets with greatly streamlined

blockchain data.

Security

There are some potential security

issues with the Bitcoin blockchain.

The most worrisome is the

possibility of a 51-percent attack, in

which one mining entity could grab

control of the blockchain and

double-spend previously transacted

coins into his own account. 180 The

issue is the centralization tendency in

mining where the competition to

record new transaction blocks in the

blockchain has meant that only a few

large mining pools control the

majority of the transaction recording.

At present, the incentive is for them

to be good players, and some (like

Ghash.io) have stated that they

would not take over the network in a

51-percent attack, but the network is

insecure. 181 Double-spending might

also still be possible in other ways

—for example, spoofing users to

resend transactions, allowing

malicious coders to double-spend

coins. Another security issue is that

the current cryptography standard

that Bitcoin uses, Elliptic Curve

Cryptography, might be crackable as

early as 2015; however, financial

cryptography experts have proposed

potential upgrades to address this

weakness.182

Wasted resources

Mining draws an enormous amount

of energy, all of it wasted. The

earlier estimate cited was $15

million per day, and other estimates