Block Size Issue Leads to Increased Miner Fee for Bitcoin Transactions

The Bitcoin network has been facing some issues with respect to transactions lately. These issues mainly related to smaller block size and increased transactions led to a backlog in transactions, making transactions take longer than usual to be confirmed on the blockchain.

Bitcoin block-size has been fixed at 1 MB since it became operational. The 1 Mb limit was set in those initial days when the number of bitcoin users was merely a handful. The idea was to increase the block size as and when the network grows. The Bitcoin network, over the past few years, has exhibited phenomenal growth. With increased users, the number of transactions processed by the network also increases, With the block size remaining unchanged at 1 MB, there is not enough space on the blocks for miners to store more transaction data. The rate of block discovery and block capacity is not keeping up with the increase in transactions. All those transactions that are waiting in a queue for their turn to be confirmed are stored temporarily until their turn comes in a memory pool.

The delay in bitcoin payments has become unpredictable. Instead of the transactions getting confirmed in minutes, it is taking hours. Bitcoin users are not used to these delays and they are worried by the recent developments. According to reports, these worries has led to over 100 percent increase in the number of support tickets raised by users with their bitcoin wallet provider or exchanges.

The current block size is gradually making bitcoin transactions less economical. Increased demand for the confirmation of bitcoin payments has led to an increase in the miner fee. Even with higher miner fee, the network congestion has caused sufficient delays for priority transactions (miners give higher priority to transactions with higher miner fee). The Bitcoin community is currently exploring different ways to solve the block size issue and they are divided about whether to create a hard fork and increase the block size to 2 MB or opt for other methods like SegWit which doesn’t require a hard fork. Either way, we should have a solution soon before the Bitcoin network gets into more trouble that it is already in.

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The century old tech firm, IBM has been at the forefront of almost all the technological revolutions to date. The company doesn’t want that to change now. After realizing the potential of bitcoin and its underlying blockchain technology, the company forayed into crypto-tech and it has been working with governments and other institutions in this regard.

Recently, IBM has decided to make use of its tech expertise to create blockchain based solutions for the financial sector. Blockchain offers a time and cost efficient method to conduct financial transactions.

According to recent reports, the company is considering the usage of blockchain technology for user authentication purpose as one of the applications. IBM recently expressed its interest to work with Hyperledger, a collaborative effort of various tech and bitcoin companies in association with Linux Foundation. IBM will be making the codes for its blockchain application available for the Hyperledger program.

Once the codes are made available on Linux platform as an open source project, developers will be able to build upon those projects to create applications specific to various use cases. Banks and financial institutions across the world are already invested in developing blockchain based applications for their operations. However, none of the Indian banks have so far publicly ventured into these domains.

The Reserve Bank of India had earlier acknowledged the importance of blockchain technology and how it can be used to combating the influx and use of counterfeit financial instruments. The Reserve Bank of India has also recently announced a competition, where it calls for individuals and teams to work on developing blockchain based fintech solutions. The winners of this competition will be awarded prizes.

It is a great time for entrepreneurs, startups, independent developers and existing Indian bitcoin companies to work on developing blockchain based solution for the Indian banking and fintech sector.

Europe has had mixed feelings about Bitcoin since the terrorist attacks in Paris. Soon after the attacks, there were unconfirmed reports stating the use of bitcoin by terrorists. One of the hacktivist groups went a step further claiming to have successfully accessed the systems belonging to the terrorists containing terrorist funds.

Following these claims, ministers from European Union nations started working on the implementation of stringent bitcoin regulations. At the same time, European Police Office (Europol) conducted an investigation to verify the usage of bitcoin by terrorist groups involved in Paris Attack. However, they did not find any evidence suggesting the digital currency’s involvement.

In spite of the lack of evidence on the use of bitcoin by terrorists, Europol doesn’t want to take chances. The police organization has partnered with Chainalysis, a real time blockchain analysis startup. According to reports, the New York-based company has inked a Memorandum of Understanding with Europol’s European Cybercrime Centre to jointly fight cyber crime.

European Cybercrime Centre is already involved in devising ways to detect, investigate and fight digital currency-related crimes. The center has also developed its own cryptocurrency to run simulated crimes as part of the training. With Chainalysis joining hands, Europol will now have access to the startup’s vast experience in blockchain analysis.

Europol will soon be better equipped to investigate digital currency-related crimes including terror funding, money laundering, hacker and ransomware attacks and more by making use of the blockchain analysis tools and expertise. Once the European Union introduces digital currency regulations, the renewed capabilities of Europol will come in handy for enforcing these regulations.

Chainalysis already has partnerships with various banking and financial institutions. It recently entered into a collaboration with Barclays as well, offering its blockchain based regulatory compliance services.

Ref: Press Release

Bitcoin Classic became the latest Bitcoin Improvement Proposal targeted towards block-size increase to get shot down by the community. This time, it was the bitcoin Roundtable, a consortium of Bitcoin mining community, wallet providers, exchanges and other businesses which announced its withdrawal of support to Bitcoin Classic.

According to the announcement, the Bitcoin Roundtable is not ready to implement a hard fork at this stage as it may disrupt the blockchain. Bitcoin Classic proposed an increase in block size from 1 MB to 2 MB by implementing a hard fork. However, such an attempt comes with its own set of risks. The Bitcoin Roundtable community fears that a hard fork may end up creating two incompatible versions of blockchain. Such an event may lead to massive losses to bitcoin users and companies.

Bitcoin Roundtable also announced 5 key points which it wants to be implemented in order to draw a clear roadmap for the future development of bitcoin. As per the points put forth by the Bitcoin Consortium, it does not want the block size to be increased more than it is required for the immediate future. A modest increase in blockchain with minimal risk is favorable over creating a contentious hard fork which may end up creating two versions of blockchain disconnected from each other.

Bitcoin Roundtable calls for increased co-ordination between Bitcoin Core developers and the Bitcoin Roundtable to create a clear roadmap. It also calls for bitcoin companies to refrain from running codes that propose hard fork on their production systems.

Taking note of the differences between bitcoin developers, the consortium urges them to resolve the differences and start working together to collectively come up with solutions that can improve Bitcoin network.

Any implementation requiring hard fork should gain consensus from the majority of Bitcoin community to ensure a smooth transition. Also, there should be ample time for all players to make necessary changes and prepare themselves for the deployment.

With Bitcoin Classic effectively dead, SegWit is gaining traction among the Bitcoin community. Further developments in this regard are awaited.

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