Bitcoin has a scalability issue, but there’s hope in solutions

Bitcoin’s ecosystem is changing due to new tech and high fees, demanding scalability solutions. Recent findings from Binance stress the pressing need to tackle Bitcoin’s scalability challenges.

Bitcoin’s ecosystem is changing because of new technologies and rising transaction fees. It is getting clearer that Bitcoin has a scalability issue. Innovations in the ecosystem, highlighted in a recent report from Binance, reveal an urgent need to address Bitcoin’s (BTC) scalability issues.

BTC scalability compared to Ethereum

Ethereum (ETH) is valued at $450 billion, with $45 billion in total value locked (TVL) across its Layer-2 (L2) solutions, representing about 10% of its total value, per the report.

In contrast, Bitcoin, with a market cap of $1.4 trillion, only has $2 billion in L2 TVL, just 0.13% of its total value. 

This highlights how Bitcoin needs to catch up in adopting effective Layer 2 solutions, which is crucial for enhancing its scalability. Addressing these scalability issues is urgent to ensure Bitcoin’s continued growth and usability in the face of increasing transaction volumes.

Projects like Ordinals, Inscriptions, BRC-20 tokens, and Runes show demand for these features. As a result, the average transaction fees for BTC have increased from $1.5 in 2022 to $9.5 in 2024, indicating the network’s increased usage and limitations.

Binance’s considerations for Bitcoin’s scalability

According to the report, helping and fixing Bitcoin’s scalability solutions involves addressing several things, such as trustless two-way bridges, which should ensure seamless and secure asset transfer between layers without intermediaries.  

“Due to the limited smart contract functionality of Bitcoin, 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 the L2 and back,” the report stated. 

In the world of Bitcoin, a two-way bridge is like a superhighway that lets you move your stuff between the main Bitcoin system and a Layer 2 solution without needing an intermediary. 

Determining if a solution necessitates a blockchain fork and balancing interests between users, developers, and newcomers are crucial considerations for improving Bitcoin scalability. This will help maintain coherence with Bitcoin’s core principles and infrastructure. 

“This means that the viability of Bitcoin scalability projects, which are relying on a fork, is relatively limited in the short term,” the report read. 

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 advancements are still in the early stages, but they are laying the groundwork for Bitcoin to improve scalability. 

The report highlighted Bitcoin-native projects like the Lightning Network and RGB as leading the way in enhancing peer-to-peer transactions and other solutions, such as sidechains and Ethereum Virtual Machine (EVM) Layer-1s that utilize bridged Bitcoin as a staked asset but may involve centralized components. 

Future of Bitcoin scalability 

As Bitcoin’s transaction fees rise and its mempool becomes more congested, the importance of Bitcoin’s L2 solutions grows. Projects like the Lightning Network represent a great start but still have user experience and functionality limitations. 

The Bitcoin scalability landscape is poised for significant development in the coming months, with various solutions aiming to address its growing scalability challenges.