This has come ‘round that miners are best to define adequate fee costs and block size. Bitcoin developers are also considered to have the proper analysis of resources to ensure miner profitability and network security. However, every company aspires to self-governance and attempts to realize its own profitable set of production quotas. So what are the standards for the conventional size of the blockchain and which party play the major role in establishing its fee? Let’s find out.
What is Blockchain?
Blockchain is a decentralized digital ledger that stores information about transactions and its participants. Each block has a unique code called “hash” that distinguishes them from others. Today, the size of the blockchain is supposed to be 1 MB. Despite the limit, blocks have been mining on Bitcoin’s blockchain that is over 2MB. While a 2MB block might seem an anomaly, there’s a reason why this happens.
We already know that fixed block size results in high production costs and unequal allocation of energy. In 2017, this has led to currency’s congestion, overwhelming memory pool with unconfirmed Bitcoin transactions.
The market itself is the best guiding mechanism for the miners to arrange the “ideal” block size and cost of fees. It works in the following manner: both miners and users aim to get the cheapest and fastest deals
- Miners aim to profit off fees while reducing risks and costs of doing business;
- Investors want to get the cheapest deal on block space.
Both parties know how to set a basis for network conditions, but fail to meet each other halfway. In case the fees are too low, miners can’t make profits; if they are high, the transaction volume falls, which again results in lower revenues. An improper size of the block might also lead to syncing issues and productivity growth.
What is the Solution?
Today’s 2MB block was not even the first one. In 2018, 2.217 MB blocks were mined owing to numerous low fee transactions made on BitGo; this was made possible by the process called Segregated Witness (SegWit), a Bitcoin’s soft fork. To put it simply, SegWit ‘separates’ the transaction signatures from the block’s data, which significantly increases the size of the block.
How Does SegWit Work?
By processing transaction signatures off-chain, SegWit increases the block size to somewhere around 4MB. For the wallet to obtain a block, its weight must be equivalent to 1MB. The main idea behind the SegWit process is that the more blocks are mined, the more efficient blockchain network becomes.
It is too early to say that SegWit adoption can be as effective in lowering transaction fees. Factors like market cap and price act as primary catalysts of fee costs.
To sum up, Bitcoin’s protocol updates are intended to fix transaction malleability and better the Bitcoin platform. There are hundreds of new blockchain projects that offer the latest technological advances; in order to compete on the market, Pieter Wuille (co-founder of BlockStream and Bitcoin Core developer) designed SegWit. However, malleability isn’t the only problem Bitcoin faces. It is the scalability and transaction speed that is the main focus now. Nevertheless, we keep our fingers on the pulse of the latest technologies and hope that one of the biggest cryptocurrencies in the world will stay ahead in the exchange market.