Blockchain technology is the herald of the fourth industrial revolution after the invention of the steam engine, electricity, and the microchip. The person who claims this is Brock Pierce — a former child star and self-made crypto billionaire, so his opinion certainly carries a lot of weight in the business world.
The thing is that the blockchain doesn’t make a “chu-chu” sound like the steam engine does, so an average consumer can’t immediately notice the change it can bring to the entire virtual interaction. The blockchain isn’t only about Bitcoin’s bulls and bears. Thanks to its decentralized nature, the blockchain facilitates transactions of every kind of data in a secure manner, cutting the third-party intermediary chain.
In this article, we’ll try to demystify this notion through the original blockchain-based product, Bitcoin, with a focus on the part that makes it difficult for us to create a mental image of the blockchain — its size.
What Is Blockchain Technology?
In simplest terms, the blockchain, also known as Distributed Ledger Technology (DLT), is a database infrastructure that records digital information (chronological-organized in blocks) and chains them together to form a decentralized public ledger. Unlike regular databases, maintained and controlled by an appointed administrator, the blockchain is open to everybody. It’s public and distributed across the entire network of computer systems that take part in its operations.
This gives the blockchain an intrinsic value of trust, as each participant owns a copy of all records in real-time. More crucially, those records are processed either by automated consensus or coded logic in the form of smart contracts. Because of that, nobody can modify the blockchain data on a personal basis, which makes the blockchain feasible in many industries like finance, real estate, cyber security, and many more. Both traditional financial institutions and startups have been already using various blockchain solutions to track items and interact with external service providers through complex supply chains.
As for now, the best-established use of the blockchain is in the crypto industry. Cryptocurrencies are a type of digital currency like Bitcoin (BTC) or Ethereum (ETH) that have grown increasingly popular either as tradable assets or stores of value, creating a $2 trillion worth industry.
How Does the Bitcoin Blockchain Work?
The idea for a digital cash system has been present since the inception of computer science, but every attempt to create one failed because the cyber world couldn’t provide a safe environment for valuable assets.
Bitcoin was the first to present a workable plan to protect itself against scams and double-spending using the blockchain as home ground. It appeared at the end of 2008 when a developer with the alias Satoshi Nakamoto published a Bitcoin whitepaper online. In it, they explained the mechanisms by which that currency will be minted and transmitted through its native blockchain.
Bitcoin and other first-gen blockchains utilize the Proof-of-Work mechanism that controls when and how new transactions are grouped into a block and how that block is broadcasted and added to the blockchain. From an end-user perspective, this is what we call Bitcoin mining. Miners are network participants (represented by their computers known as nodes) who ensure that the Bitcoin transaction is transparently conveyed throughout all these stages.
What Is PoW Mining?
When a Bitcoin owner sends a request to the blockchain network for “shipping” their coins to the Bitcoin wallet of another user, they actually ask the blockchain to put their transaction into the ledger. In the meantime, miners get into a competition for being the first to verify the pending transaction and add a new block to the chain.
Each block consists of three elements: transaction data (private keys and Bitcoin addresses), and a nonce (a randomly-generated 32-bit number), which then creates a header hash. The hash is a 256-bit number assigned to the nonce. The winning miner is the one who finds the golden nonce after multiple hashing attempts. In return, the fastest runner gets a predefined portion of free bitcoins as a reward for their contribution.
The difficulty level of these equations rises proportionally with the number of interested candidates. The more difficult the hashes, the more computing power the mining process requires. Given the surge for Bitcoin today, you can guess that Bitcoin mining has become a fierce field. A regular CPU or even a GPU-enhanced computer is no longer enough to bring you any profit out of mining. Today’s miners use specialized ASIC rigs and join mining pools to keep a competitive edge in the industry. Yes, we can safely say that Bitcoin mining has grown into an entire industry involving mining farms with tens of thousands of powerful rigs in one place.
The Use of Bitcoin
The original idea behind Bitcoin was to create a brand new financial ecosystem where users can spend their BTC holdings on various goods and services without going through a centralized authority to supervise their transactions.
In the outer world, Bitcoin has gone through many stages. At first, nobody seemed to be interested in an alternate asset with questionable intrinsic value but gradually, the general public started seeing the perks of decentralization, making BTC a global phenomenon in less than a decade. The BTC price has never stopped being extremely volatile, making Bitcoin an attractive tradable asset similar to traditional stocks and bonds. This opened a large room for developing crypto trading platforms that offer a plethora of advanced trading options, including crypto derivatives and margin trading.
However, the majority of investors see Bitcoin as the new gold — they buy BTC and HODL with the belief that the world will turn decentralized soon.
The Bitcoin Scalability Issue
Despite the unexpectedly fast incorporation in the investment world, Bitcoin has never become a suitable medium of exchange to the extent that you can buy a cup of coffee with it. Because of the huge popularity, there is a number of merchants that accept BTC payments, but the percentage of Bitcoin-friendly retailers is a drop in the entire eCommerce industry.
There are three reasons that prevent Bitcoin from becoming a relevant cash factor: loose regulatory oversight, sharp volatility, and scalability — the limited capability of the blockchain to process a large number of transactions in a certain time.
The transaction process we explained in the previous section takes 10 minutes on average. To understand how slow that is, let’s compare the Bitcoin blockchain to VISA — while Bitcoin can process between 3 and 7 transactions per second, VISA can process over 65,000. The scalability issue with Bitcoin is a direct result of its inflexible block size.
The Bitcoin Block Size Limit
The block size limit is a parameter that limits the number of confirmed transactions that take place in the average timeframe of 10 minutes. Interestingly enough, Satoshi introduced the size limitation after the project’s launch, giving it a limit of 1MB block size. A few years later, developers changed the measurement system of the Bitcoin block, adding weight units as some data is larger in size than others. So, Bitcoin blocks can now technically reach up to 4 MB, but in reality, their size is rarely larger than 2MB.
As the user base has drastically grown in the meantime, some developers started bringing up the block expansion as a logical course in the Bitcoin development. Part of them, however, were convinced that the limit works as a security parameter and should remain as it is. However, the Bitcoin dev community hasn’t made any particular modifications in this respect since they accepted the scalable block size. Remember that Bitcoin doesn’t work as a corporation, so you can’t expect executive board members to decide on this matter.
What’s the Size of the Bitcoin Blockchain?
At the end of 2011, the Bitcoin blockchain size was around 614 MB, but at that point, Bitcoin was an alternate geek entertainment. Now, with the super-star status, the Bitcoin blockchain is getting close to 400 gigabytes of data, and this number is expected to grow.
In 2021, the Bitcoin blockchain processed an average number of 246,000 transactions per day. Given the fact that the blockchain is distributed to all participants (downloaded on their computers) and immutable (unable to modify/delete any data storage) at its core, it seems that size can be a critical concern with protocol updates over the years to come.
Unfortunately, we won’t be able to draw an analogy with other blockchain systems as there aren’t any previous patterns we can rely on. At this point, the Ethereum blockchain is the only one facing exponential size growth (even bigger than Bitcoin’s) because of its wide utility in building decentralized apps (dApps).
How Is the Bitcoin Blockchain Distributed?
In order to join the Bitcoin network, nodes (participating computers) need to download the entire blockchain transaction history. However, you should know that this rule applies only to full nodes. If you go as a light client, you can activate and confirm transactions without occupying disk space. In other words, you don’t need to download the entire blockchain data to hold bitcoins in your crypto wallet and use them in daily transactions or trading activities.
However, if you want to get involved in Bitcoin mining (especially as a solo miner), you will need to become a full node and hence, download the full blockchain package to be able to monitor and verify the legitimacy of all upcoming transactions.
A Few Words Before You Go…
Our world is thriving on transactions — daily non-cash payments are counting in billions, but it’s obvious that Bitcoin and other PoW cryptos can’t keep up with this trend because of the limited capacity in processing transactions.
Hypothetically, if Bitcoin finds its application in everyday transactions — based on the number of total transactions on a global scale — its block size would take up 2.4 TB. This means that if Bitcoin and other dominant altcoins overcome price volatility, they won’t be desirable media of exchange. But even if developers find a way to expand the block size, nodes will face a critical storage crisis to accommodate such a large ledger in hardware drives that are available on the current market.