Transactions per Second on the Bitcoin Network: How Much is Really Needed?

Bitcoin’s ability to handle transactions has always been a matter of much debate. The question of how many transactions per second (TPS) the Bitcoin network can actually handle and how that affects the real-world use of Bitcoin as a payment system is fundamental to understanding the network's capabilities and limitations.

Imagine a global payment system that takes 10 minutes to confirm a single transaction. Now, couple that with the fact that Bitcoin’s current capacity allows for an estimated 7 transactions per second on the base layer. This pales in comparison to centralized payment processors like Visa, which can process up to 24,000 TPS, highlighting one of Bitcoin’s most significant technical bottlenecks.

Yet, there is more than meets the eye. Bitcoin's architecture, though limited in TPS, offers a decentralized, immutable system where security takes precedence over speed. But as Bitcoin evolves, so do solutions that seek to address the TPS dilemma. This article will break down the TPS limitations, solutions like the Lightning Network, and what these mean for the future of Bitcoin as a real-world currency and store of value.

A Fundamental Limitation

Bitcoin was never designed with speed as its primary goal. Instead, it was built for security, decentralization, and censorship resistance. Each Bitcoin block is capped at 1MB in size, and blocks are mined approximately every 10 minutes. Because of this cap, Bitcoin’s base layer can only handle a limited number of transactions. When the network becomes congested, transaction fees spike, and confirmation times lengthen.

At an average of 7 TPS, Bitcoin's base layer cannot compete with traditional payment systems. This brings into focus the question: Is this enough for Bitcoin to become a global payment system, or is it simply a store of value? The debate has divided the community into two factions. One camp believes Bitcoin should focus on being "digital gold," prioritizing its security and scarcity over transactional speed. The other believes that scaling Bitcoin’s TPS is essential to its future as a widely-used currency.

The TPS issue becomes even more pressing during times of network congestion. During bull markets or periods of high transaction volume, the Bitcoin network can become clogged. In 2017, for example, transaction fees soared as users competed to have their transactions included in the limited block space.

Enter the Lightning Network

To solve Bitcoin's scalability problem, the Lightning Network (LN) was introduced. Lightning is a second-layer solution that allows for off-chain transactions. It creates channels between two parties where transactions can occur without broadcasting them to the entire network. Once the channel is closed, the net result of all transactions is recorded on the Bitcoin blockchain.

Lightning increases Bitcoin’s TPS dramatically, theoretically allowing for millions of transactions per second. By shifting most small, everyday payments off the base layer, it alleviates congestion on the main chain and lowers fees. It’s akin to opening a tab at a bar: you only settle the tab once, but you can make multiple transactions in the meantime.

However, Lightning has its own limitations. For starters, it requires users to lock up Bitcoin in a payment channel, which may not be ideal for those who want instant access to their funds. Additionally, the Lightning Network is still in its early stages, and its adoption has been slower than expected. There are also concerns about its centralization, as larger hubs could dominate the network.

Why TPS Isn't Everything

While TPS is often the focus of critics, it's important to remember that Bitcoin’s value proposition extends beyond fast transactions. In a world where money can be printed by governments at will, Bitcoin offers a decentralized alternative that is resistant to censorship and inflation. This is why Bitcoin has often been referred to as "digital gold."

Gold, too, is a slow and cumbersome medium for transactions, yet it has maintained its value for thousands of years. In the same way, Bitcoin’s limited TPS may not prevent it from being a global store of value. The Lightning Network and other Layer 2 solutions could allow Bitcoin to be used for everyday transactions while its base layer continues to act as a secure settlement network.

That said, Bitcoin needs to evolve if it is to compete as a global payment system. Its TPS limitations make it unsuitable for use in high-frequency, everyday transactions without some form of off-chain scaling solution. But for large transactions or as a hedge against inflation, Bitcoin’s slow confirmation times and high security are an acceptable trade-off.

Bitcoin vs. Competitors: Ethereum and Solana

Bitcoin isn’t the only blockchain grappling with the TPS issue. Ethereum, the second-largest cryptocurrency by market cap, has also struggled with scalability. Ethereum’s current proof-of-stake (PoS) system handles around 15-30 TPS, although its move to Ethereum 2.0 aims to increase this drastically. However, like Bitcoin, Ethereum has its own Layer 2 solutions, such as rollups, that can increase TPS.

Then there's Solana, a blockchain known for its high throughput. Solana boasts an impressive 65,000 TPS, making it one of the fastest blockchains available today. However, Solana has faced its own challenges, including network outages and concerns about centralization. While Solana's high TPS is impressive, it highlights the trade-offs between decentralization and speed. Bitcoin’s more conservative approach, while slower, ensures a higher degree of security and decentralization.

Looking to the Future: Can Bitcoin Scale Further?

The debate around Bitcoin’s scalability is far from over. While the Lightning Network offers a promising solution to Bitcoin’s TPS limitations, it’s not without its challenges. The next few years will be crucial in determining whether Bitcoin can balance its role as a secure store of value with its potential as a global payment system.

One possible solution is increasing the block size or decreasing the time between blocks. However, these changes would come with significant trade-offs, such as increased centralization. Bitcoin’s conservative approach to change means that radical upgrades are unlikely in the near term.

But even if Bitcoin remains limited in its base layer TPS, it’s not the end of the road. The development of Layer 2 solutions, sidechains, and potentially even other technologies like sharding or zk-rollups could unlock new possibilities for scaling Bitcoin without compromising its core values of security and decentralization.

Final Thoughts: TPS, Security, and the Future of Bitcoin

At the heart of the TPS debate is a trade-off between speed and security. While other blockchain networks prioritize high TPS, Bitcoin has chosen to prioritize decentralization and security, even if it means slower transaction speeds. This is not a flaw, but rather a design choice that reflects Bitcoin’s fundamental ethos.

That being said, the future of Bitcoin as a global payment system depends on the success of scaling solutions like the Lightning Network. If Bitcoin can successfully scale while maintaining its security and decentralization, it could become not just "digital gold," but also the internet’s currency.

Until then, Bitcoin’s 7 TPS may seem like a limitation, but it’s a reflection of the network’s dedication to preserving the integrity of its decentralized architecture.