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Bitcoin needs a scaling solution.
Operating as the most secure and decentralized proof-of-work (PoW) network comes with its own set of trade-offs: lack of innate scalability represented by transaction cost and speed. Bitcoin sacrifices relative scalability to optimize for a combination of other features aligned with the design of PoW. The cost of PoW is a feature, not a bug, and provides economic incentives for the value propositions of Bitcoin (ie. incentivized immutability) enforced by the expenditure of an expensive physical resource (energy). We can see that altering solutions for PoW to optimize for scalability, such as reducing PoW difficulty and/or blocktime, in turn negatively affects Bitcoin’s incentive structure.
With these downsides in mind, researchers have designed novel solutions which leverage different aspects of the base layer to solve for speed and cost. Two emerging solutions are Lightning (payment channel) and Liquid (sidechain) networks. Here’s our guide to these two solutions, complete with an analysis of transaction models, key features and value propositions, and tradeoffs.
Read more: {A Practitioner’s Guide to Bitcoin Scaling Solutions}
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