As the largest cryptocurrency by market capitalization, Bitcoin's (BTC) effectiveness as a medium of exchange is still a matter for fence. Unlike fiat money that is inherently infinite in supply and must be managed by a central bank, Bitcoin is akin to aureate in that information technology is commodity coin with a finite supply of 21 million.

All the same, the supply cap is not the major stumbling block for BTC every bit a medium of commutation, simply rather, the transaction throughput. While Satoshi Nakamoto envisioned Bitcoin as a peer-to-peer electronic cash system capable of facilitating online payments without a fundamental counterparty, 7 transactions per second on average is inappreciably the standard for scalability.

Indeed, scalability is only one of three major metrics required for whatever currency system to succeed as a medium of exchange along with adoption and liquidity. There is an statement to exist made of Bitcoin's growing adoption around the globe beyond several strata of the global economic system.

Price volatility that has seen Bitcoin tiptop at $58,000 and and then briefly fall below the $30,000 marker inside the first ii months of 2021 likely indicates lingering issues with liquidity. However, it'south of import to notation that the current period is existence characterized by a bullish advance that began in October 2020. Ultimately, some analysts await Bitcoin's volatility to level out as more institutions take up positions in the marketplace.

What exercise the critics say?

Bitcoin's scalability trouble is even older than the network itself. Indeed, upon first proposing the organization back in 2008, James A. Donald replied to Satoshi Nakamoto with: "The way I empathize your proposal, it does not seem to scale to the required size."

This acute ascertainment has been at the heart of some of the more contentious and controversial debates within the Bitcoin ecosystem. Disagreements over how to solve the problem have even resulted in multiple hard forks.

These days, when Bitcoin critics cannot definitively dismiss BTC's store of value suggestion, scalability seems to exist a depression-hanging fruit with which to craft some anti-Bitcoin soundbite. Speaking during the 2021 Daily Journal annual shareholders meeting, Berkshire Hathaway vice-chairman Charlie Munger remarked that Bitcoin will never become a global medium of substitution due to its price volatility.

The 97-year-sometime billionaire investor is no stranger to espousing anti-Bitcoin sentiments. Indeed, together with Warren Buffett, the two Berkshire Hathaway chiefs take been responsible for some of the more colorful negative remarks amongst Bitcoin. From existence "rat poison squared" to "trading turds," Munger once slammed BTC investors for jubilant the life and piece of work of Judas Iscariot.

Munger, like Buffett, is among a grade of Wall Street Bitcoin critics who have often claimed that Bitcoin has no intrinsic value. All the same, with the price of BTC continuing its relentless upward accelerate over the past decade while attracting significant institutional interest, detractors now seem to be left with just the scalability argument.

Even among mainstream crypto adopters, Bitcoin's inability to scale at the base protocol level besides seems to exist a meaning result. In an accost during the Futurity of Money conference back in February, Mastercard executive vice chair Ann Cairns alleged that BTC was not suited to its crypto payment plans.

According to Cairns: "Bitcoin does not carry like a payment instrument […] It's besides volatile and it takes also long to transact." Equally previously reported by Cointelegraph, Mastercard recently appear plans to offering support for cryptocurrency payment on its network.

Lightning Network node count rises, simply slowly

Together with the x-infinitesimal block creation time, the ane-megabyte block size acts as the actual transaction throughput constraint for the Bitcoin network. The block size debate of 2017 that ultimately led to the Bitcoin Cash hard fork proved the adamance of Bitcoin purists to the 1MB block size ethos.

With the "big blockers" now firmly on their own Bitcoin forks like BCH and Bitcoin SV, the question of how to get BTC to scale without irresolute a thing on the protocol level still lingers. From Bitcoin banks to sidechain protocols, and even deferred settlement infrastructure layers similar the Lightning Network, several developmental projects are currently ongoing to make Bitcoin more than suitable for microtransactions like paying for coffee.

At a high level, these scaling solutions involve the cosmos of trustless, centralized (pardon the oxymoron) entities or layer-two networks that maintain lightweight versions of the BTC ledger to handle the actual "coin" transfers without having to maintain the full Bitcoin ledger. These sidechain implementations then transmit the transaction data for final settlement on the actual Bitcoin network.

LN is one of the major Bitcoin scaling solutions under agile evolution by several organizations including Blockstream and Elizabeth Stark's Lightning Labs. The Lightning Network is perhaps the well-nigh pop of the "defer-reconcile" scaling implementations that let users to create payment channels that offer instant coin transfers at minimal fees.

According to data from LN data aggregator 1ML, there are over 17,300 public Lightning Network nodes and more than than 38,400 channels. LN chapters is currently north of 1,100 BTC.

While LN adoption is even so to achieve significant heights, layer-ii implementation might be nigh to get a boost with Zap — a Visa-backed Lightning Network payments startup. In Feb, the company launched Strike — a payments and remittance app that utilizes the Lightning Network for payments.

Strike has as well partnered with crypto exchange platform Bittrex to deliver LN-powered payments to over 200 countries effectually the world. The company plans to effect Strike Visa cards to users in the Usa besides as in Europe and the U.k. earlier the end of the twelvemonth.

What about Statechains?

At that place is a school of thought that argues Bitcoin scalability is just possible via layer-two solutions. Ruben Somsen, Bitcoin programmer, crypto podcaster and founder of the Seoul Bitcoin meetup, is ane of the proponents of this argument.

Somsen is an advocate of Statechains, another layer-two implementation only with a twist — transaction participants send private keys instead of actual unspent transaction output, or UTXO. The process involves loading a Statechain-compatible wallet with the exact BTC sum required for the trade followed past the transfer of the individual keys from the sender to the recipient.

Since transferring private keys beyond the blockchain is fee-less and instant, the Statechain idea seems to take gained some traction within the Bitcoin scalability discussion. All the same, revealing private keys comes with significant security implications.

Thus, in contempo times, the Statechain concept has been modified to include a 3rd entity that acts as an intermediary between the transacting parties. Detailing the workings of this counterparty federation within the Statechain matrix, Somsen told Cointelegraph:

"Statechains allow you to take your coins off-chain (pregnant inexpensive transactions) in a manner that puts a minimum amount of trust in others. You lot accept to trust a federation, but the federation won't know that they are getting partial control of your coins, and they can't pass up peg-outs (moving back to the Bitcoin blockchain)."

Blockchain infrastructure firm CommerceBlock is 1 of the companies actively developing Statechains every bit a viable scalability solution for Bitcoin. The house is credited with introducing the counterparty federation or "Statechain entity" to improve the security of the organization. In a conversation with Cointelegraph, CommerceBlock CEO Nicholas Gregory outlined how Statechains operate:

"At a high level, Statechains are merely a way to transfer your individual key to some other user. To facilitate this, you take to cooperate with a Statechain entity. Withal, at all times, the user has full control of their funds; at any anytime, they tin can withdraw their Bitcoin to their own custody. Therefore, the transfer is instant and individual."

While Statechains is a scalability solution on its own, some proponents agree that the system could integrate with the Lightning Network. With Statechains operating on the UTXO level, it is theoretically possible for another layer-ii protocol such as the Lightning Network to be implemented on summit of Statechains.

Such a hybrid integration could solve the limited node capacity consequence of Lightning Network while ensuring the ability to facilitate multiple microtransactions via Statechains. Since the exact transaction corporeality is loaded into Statechain wallets, information technology's impossible to divide UTXOs making Statechain in its present iteration unsuitable for microtransactions.

According to Somsen, the Statechains can operate independently as well as function together with the Lightning Network: "Statechains complement the Lightning Network perfectly because opening and closing channels can happen off-chain. This removes a lot of the friction that exists in the current Lightning Network design."

For Gregory, integrating Statechains with the Lightning Network is amidst the future developmental plans for CommerceBlock: "Statechains are instant and do not require liquidity lock up; still, y'all are sending the private key, then you can't do small or specific denominations. This is where LN excels."

With these developments and more, the quest for a workable Bitcoin scalability solution is notwithstanding ongoing. While critics, like Munger, who have been consistently wrong about BTC, go on to drop soundbites, developers are difficult at work to solve i of the longest-running operability bug apropos Bitcoin.