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Bitcoin has a scalability problem, but there is hope in the solutions
The Bitcoin ecosystem is changing due to new technologies and high fees, which require scalability solutions. Recent findings from Binance highlight the urgent need to address Bitcoin’s scalability challenges.
The Bitcoin ecosystem is changing due to new technologies and increasing transaction fees. It is becoming increasingly clear that Bitcoin has a scalability problem. Innovations in the ecosystem, highlighted in a recent Binance report, reveal the urgent need to address Bitcoin’s issues (Bitcoin) scalability issues.
Scalability of BTC compared to Ethereum
Ethereum (ET) is valued at $450 billion, with $45 billion of total value locked (TVL) in its Layer-2 (L2) solutions, representing approximately 10% of its total value, according to the report.
In contrast, Bitcoin, with a market capitalization of $1.4 trillion, has only $2 billion in L2 TVL, just 0.13% of its total value.
This highlights how Bitcoin needs to catch up in adopting effective solutions Layer 2 solutions, which is essential to improve their scalability. Addressing these scalability issues is urgent to ensure the continued growth and usability of Bitcoin as transaction volumes increase.
Projects such as Ordinals, Registrations, BRC-20 tokens and Runes show demand for these features. Accordingly, the average transaction fees for BTC they increased from $1.50 in 2022 to $9.50 in 2024, indicating increased network usage and limitations.
Binance Considerations on Bitcoin Scalability
According to the report, help and repair Bitcoin scalability solutions involves addressing several aspects, such as trustless bidirectional bridges, which should ensure secure and seamless transfer of resources between layers without intermediaries.
“Due to the limited functionality of the Bitcoin smart contract, a trustless two-way bridge has not been possible. This means that some form of centralization is typically required to move assets from Bitcoin to L2 and vice versa,” the report states.
In the world of Bitcoin, a two-way bridge is like a highway that allows you to move your data between the main Bitcoin system and a Layer 2 solution without needing a middleman.
Determining whether a solution requires a blockchain fork and balancing interests between users, developers, and newcomers are crucial considerations for improving Bitcoin’s scalability. This will help maintain consistency with Bitcoin’s core principles and infrastructure.
“This means that the viability of Bitcoin scaling projects, which rely on a fork, is relatively limited in the near term,” the report reads.
Emerging solutions and technologies
According to the report, recent developments in the Bitcoin ecosystem, such as Taproot and BitVM, have opened up new possibilities for Bitcoin protocols. These advances are still in the early stages, but they are laying the foundation for Bitcoin to improve scalability.
The report highlighted that Bitcoin-native projects such as Lightning Network and RGB are at the forefront of improving peer-to-peer transactions and other solutions, such as sidechains and Layer-1 Ethereum Virtual Machines (EVMs) using Bitcoin bridge as a staked asset but may involve centralized components.
The Future of Bitcoin Scalability
As Bitcoin’s transaction fees increase and its mempool becomes more congested, the importance of Bitcoin’s L2 solutions grows. Projects like the Lightning network they are a great start but still have limitations in terms of user experience and functionality.
The Bitcoin scalability landscape is poised for significant development in the coming months, with various solutions aimed at addressing growing scalability challenges.