Fears this week that the Bitcoin network had reached the widely predicted saturation point seem to be unfounded. However, the spam that probably caused the problem makes it clear that saturation isn't that far away.
Bitcoin is a fascinating experiment - part computer science, part economics and part psychology. The problem is that the technology and psychology interact in unpredictable ways, as does the economics and psychology. Observers are waiting for a Bitcoin crunch as the community fails to tackle the transaction bottle by increasing the block size. At the same time, the economic need to keep the value of Bitcoin, and for miners to make money, is distorting the situation and keeps it all going unmodified.
On average a miner can process a 1MByte block of transactions every ten minutes or so. This means that on average a transaction can wait this sort of time to be processed. However, if blocks start to fill up and transactions are left waiting for the next block then wait times rise rapidly. As transaction volumes increase the obvious solution is to increase the block size, but this is something that has split the Bitcoin community.
One faction is clear that without a larger block the software cannot grow to match the number of transactions needed. The other faction is against change for many different reasons, not all entirely clear. It has been suggested, for example, that the Chinese mining outfits don't want a larger block because it would disadvantage them because of China's low capacity internet. Whatever the reason, the block size has remained fixed, with the resulting predictions of imminent doom.
At the start of the week it looked like the predictions had come true. Transaction times doubled and some users were waiting hours for important transactions to clear. It looked as though the limit had been reached, but why in a jump rather than a gradual slide?
Various headlines claim that Bitcoins crisis moment had arrived, but the real story is probably that some Bitcoin wallet somewhere was flooding the network with pointless, low-value, transactions. It could be malicous spam or just an accident, but it certainly caused the alarms to ring.
Whatever the cause, the result is bad publicity for Bitcoin and a demonstration of how the system could be brought to a halt by conditions a capable transaction processing system should be able to handle.
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