Litecoin vs Bitcoin and the Issue of Scalability of Cryptocurrency Networks

One of the biggest differences between litecoin and bitcoin is the speed of the block of the blockchain. Both litecoin and bitcoin have the limitation for the size of a block of 1MB.

One of the goals of the bitcoin network is to add a new block to the blockchain every 10 minutes. The litecoin network adds blocks at 4x the speed, at 1 block per 2.5 minutes. Here’s why this issue is so important: for a transaction to become valid on the bitcoin network, it needs at least six confirmations. A block on the blockchain network after the network receives information about the transaction is one confirmation. This means that for the bitcoin network to accept a block, six or more blocks need to deem the block as valid.

Without a confirmation, a transaction is considered to be “in progress” between users. Unless the transaction is confirmed, both parties are dealing with security risks. The majority of bitcoin wallets show the status of a transaction as “spent” immediately after a user initiates a transaction, even though in reality the transaction may still be awaiting a confirmation from the bitcoin network. Some software products will show the status as “n/unconfirmed,” where n stands for the number of network confirmations.

The issue of confirmations is becoming very significant because since the bitcoin network needs at least six confirmations, it may take up for an hour for a transaction to get all the necessary confirmations. As the interest to the bitcoin network is growing, the number of transactions on the network is growing exponentially, too. For example, on January 31, 2017, the network had about 350,000 transactions. On December 3, 2017 this number was equal to 400,000. This means that certain transactions may need to wait for a significant period of time before they get a confirmation.

Since litecoin network creates blocks at 4 times the speed of bitcoin network, the issue is not as severe on the litecoin network as it is on the bitcoin network.


The history of the block size

Originally, the bitcoin network did not have a block size limit programmed into the code of the network. However, Satoshi Nakamoto wrote the code in a way that the code could only process network messages of the size up to 32MB, which was the initial limitation for the blocks on the bitcoin network. In July of 2010, Nakamoto introduced a change to the mining code of the bitcoin network, limiting the size of the block to no more than 990,000 bytes. Two months later, in September of 2010, Nakamoto changed the consensus rules again, making the network reject any block larger than 1 MB in size. Nakamoto did not post any messages about why he has introduced the changes. There were also no signs that he considered these changes to be an emergency. Nakamoto’s later statements show that he supported increasing the size of the block on the bitcoin network at some point in the future, but he never participated in any conversation about a specific date or specific reasons for such an increase. Nakamoto said that he believed that in about a decade the issues of storage and block size would become trivial, which is why many people think that the initial limitation was introduced to make it easy for users with small devices use the bitcoin network and to prevent spammer miners from trying to figure out how to create large blocks with a lot of spam transactions.


The limit of the transactions per second on various cryptocurrency networks

As of the writing of the article, the block size limit on the bitcoin network is 1MB. The size of a bitcoin transaction depends on a variety of factors, including whether the transaction has a single-signature or multiple-signature input and how many inputs and outputs in total the transaction has. The simplest way to calculate the limitation of the bitcoin block when it comes to the maximum possible number of transactions is to divide the maximum size of the block by the average size of a transaction on the network. If an average transaction is 250 bytes, then per second a block can handle 1,000,000 (maximum block size in bytes) divided by 250 (average transaction size in bytes) divided by 600 seconds (the number of seconds in 10 minutes, the time of the creation of a block on the bitcoin network), which equals to 6.6 transactions per second. Because the litecoin network creates blocks 4 times faster, this number would be equal to 26.4 transactions per second. Obviously, this is a big limitation and a disadvantage compared to traditional financial networks. For example, VisaNet, the electronic payments processing network that belongs to the international financial company Visa, can process over 25,000 transactions per second. This is the reason why there is so much debate in the cryptocurrency space about increasing the size of the block on the blockchains of various cryptocurrencies.