The three biggest obstacles Bitcoin must overcome in 2017: scalability, fungibility, and centralization

Bitcoin rushed into 2017 with a bullish attitude, and its price once reached around $1,200. However, the good times were so short-lived. After setting a new record high, Bitcoin quickly plummeted by nearly 30%, once falling below $900. As of press time, Bitcoin has rebounded and is currently hovering around $900. In order for Bitcoin to continue to rise in adoption, use, and price, it must overcome the following obstacles: centralization , interchangeability , and scalability .

Centralization and Scalability

The high degree of centralization and scalability issues in the Bitcoin mining structure have become issues that the community must address more than ever before. Whenever the price of Bitcoin rises, more new users will join the Bitcoin ecosystem and more people will use Bitcoin every day.

Simply put, if the Bitcoin network cannot cope with the increasing flow of transactions by increasing its throughput, Bitcoin will have a hard time retaining users in the long term. Not only must the Bitcoin scalability problem be solved, but it must be solved quickly and securely .

As for the centralization of Bitcoin, AntPool, F2Pool, BitFury and BW.com account for almost 56% of the total network computing power. Due to the excessive concentration of miners, some problems that were originally unlikely have now become much more likely to occur, such as duplicate payments, blockchain transaction censorship, and the infamous 51% attack.

However, there is no evidence that these problems have occurred. Rusty Russell, a Lightning Network protocol developer, published an article titled "2017: What makes me worried/excited about Bitcoin?":

“Most economic systems have economies of scale that drive centralization, and Bitcoin is no exception. This gets worse as the block size increases: if you mine blocks too slowly, you risk falling behind other miners. If you can’t get other miners’ blocks in time, you’re more likely to produce outdated blocks, also known as orphans, and the frequency of producing such blocks is the orphan rate. When the orphan rate exceeds 1%, it becomes basically unprofitable.”

Interchangeability

The issue of transaction privacy is also a topic of increasing concern, especially fungibility. Bitcoin fungibility means that all bitcoins are identical and there is no difference between them. The fungibility issue is very specific and if not resolved quickly, it will drive users away from Bitcoin, and there are many privacy-centric cryptocurrencies waiting to take Bitcoin's place, most notably Dash, Monero, and Zcash.

Russell also said,

“Bitcoin’s current fungibility is very poor. There are many services that can be used to track the origin and ownership of Bitcoin. And because Bitcoin transactions are completely transparent, this also means that these tracking services have the right to do so, and they will reject so-called “tainted” Bitcoins.”

Solution

While the above issues do plague Bitcoin at the moment, things are changing. Bitcoin Unlimited has been a contender to solve many of Bitcoin’s scalability issues, and solutions like libsecp256k1, Segregated Witness (SegWit), and Schnorr signatures are all set to be integrated as they gain miner consensus.

Other solutions include Tumblebit, Lightning Network, and Mimblewimble, which can also alleviate the difficulties faced by Bitcoin. Tumblebit is committed to being a privacy improvement protocol, while the other two solutions are committed to promoting off-chain transaction solutions.

ValueShuffle is also a solution worth noting. This technology seeks to improve privacy and fungibility by not only providing an efficient way to mix bitcoins, but also utilizing private transactions developed by Blockstream to hide the amount of each transaction while still allowing nodes to verify that the bitcoins sent and received match.

The SPECTRE protocol and MIT's Solidus project can also be used to solve the problems facing Bitcoin. By abandoning the blockchain and using a DAG structure instead, the SPECTRE protocol seeks to increase the block creation rate to several blocks/second while increasing the block confirmation time. On the other hand, Solidus can solve the problems of "selfish mining" and slow transactions. "Selfish mining" refers to a miner deliberately creating an orphan block rate (the probability that a miner or mining pool creates an outdated block) to gain an advantage over other miners.

If all of these solutions are implemented, the Bitcoin 2017 roadmap will be very fruitful and Bitcoin will see overall improvements, making the cryptocurrency more usable than ever before.