The number one technical issue Bitcoin faces in its lifetime is the issue of
scalability. Or in real world terms, Bitcoin’s ability to handle a growing number
of transactions. Currently, each Block on the Bitcoin network is 1MB,
representing 10 minutes per transaction, which increases during periods of heavy
use. This is beneficial for banks and large financial institutions as 10 minutes is a
far quicker processing time than that of say SWIFT or other payment networks.
However, in terms of smaller businesses, like say a coffee shop, 10 minutes is an
incredibly long and non-practical payment time.
For years, there has been a constant disagreement about the best way to upgrade
Bitcoin’s block sizes. The longer these arguments continue, the slower any
proposed solutions are developed. There are two main camps, those who favor a
hard fork, which loosens up the rules of the protocol and those who favor a soft
fork, which tightens the rules of the current protocol.
Without going into advanced technical details, users who favor a soft fork are
currently proposing a solution known as Segregated Witness or SegWit. The
crux of SegWit is that the signature (or witness) of a transaction can be kept on a
separate block from the transaction itself, this frees up block space for additional
transactions. The witness data is encrypted and cannot be modified, so there is
no ability to change the information of the payment sender. This has great real
world usage in terms of lowering the ability to hack a transaction.
As with any potential change, there is a certain amount of unpredictability
involved. In practical terms, SegWit activation will affect the price of Bitcoin
one way or another in the short term, however at the time of writing, SegWit has
only been activated for less than 72 hours, and the price has held stable thus far.
The activation of SegWit could well pave way for the lightning network, a
technology that will enable instant Bitcoin transactions. Instant transactions as
previously stated, will help micro and nano transactions immensely, and allow
small businesses to utilize the benefits of accepting payments in Bitcoin at point
of sale terminals. This will be especially useful in countries with low-value fiat
currencies. One current example of this is Venezuela, where the Venezuelan
Bolivar has lost around 90% of its value against the US dollar in under a year.
Bitcoin transactions are helping a small, but significant portion of Venezuelan
public hold value in the money they do have.