Bitcoin Is Efficient

Engineers like to optimise things. It is one of the ways they express their identity. So, for example, if you give one a coffee machine, they would grumble about how much of the coffee bean pulp is wasted, the leaked milk, the wasted power in overheating. Thermal loss, blah blah blah.

They assure you they can fix it. Make it efficient. Brilliant. But they go haywire when they jump to areas they haven’t fully understood.

Are your transactions going slow? Let me show you how to fix that. You don’t want to use energy for that proof-of-work. Let me optimise that for you, they say. Make it efficient.

But it is already efficient.

One of the long-standing newbie questions in understanding bitcoin. Why is it we are mining doing computationally irrelevant work?. Why target a block of only size 1MB? Why not more? They wonder if it looks like a blatant oversight by this “Satoshi”. So let me fix that for you, Mr Satoshi. They have missed that, like all engineering problems, there are tradeoffs and incentives when designing a solution to a problem.

Bitcoin is by design a “protocol to exchange value minimising trust needed”. But easily verifiable by all participants.” Replace “proof-of-work” with something else, and you have changed the trust model. So, if you increase the block size without thought, you make it more centralised, tweaking the trust model. Keeping it “decentralised” and “trust minimised” is a core tenet of Bitcoin’s design. And its design is efficient enough to allow that and no more.

What about the number of transactions in a block? We can’t store every transaction we want on the blockchain. That’s right. It can’t. It is a constraint that one must balance without losing other properties we want.

A possible solution is being explored for scaling bitcoin if you accept the following premise. You don’t need all the transactions you do in life permanently captured forever in the base bitcoin blockchain. So, for example, movie tickets, waffles and ice creams don’t need a forever entry in the blockchain.

Instead, we can move that transaction to another more private layer which only a few participants alone know at a time. Moving layers is how engineers solve a lot of problems.

The existing layer is called Base Layer (layer 1). We can extend it with other layers like the lightning network with a different trust model. Still decentralised and rooted in layer one but can scale to a higher magnitude than Layer 1. One transaction in the main chain could represent millions of transactions on the lightning network. Efficient without giving up its other properties.