What’s the most commonly cited problem with Bitcoin?
Scalability!
According to just about anyone you’d care to ask, scaling up to handle the kind of transaction volumes that companies like Visa handle regularly looms over the future of the Bitcoin network like the specter of an encroaching storm cloud.
In this view, Bitcoin’s failure to scale up to these kinds of volumes would be tantamount to a rather complete failure. In other words, if you can’t handle thousands of transactions per second, you’re as good as gone. Useless. Kaput.
There are certainly competing visions out there, but let’s suppose this is true and that Bitcoin’s viability and long-term success entirely ride on its scalability beyond a mere seven or so transactions per second.
And if that’s the biggest problem, what’s the simplest way to solve it?
Well, since we know that the block size is limited, the first place to look is what part of transactions takes up the most room.
And that’s simple: In a word, signatures.
As you will recall, every valid Bitcoin transaction must be signed, and all of that digital signature data makes transaction sizes larger--that means lots of space is taken up on each and every block added to the blockchain. Therefore, any reduction in the block space occupied would create a much more efficient system.
Imagine John Hancock sitting down to sign his name to the American Declaration of Independence. Think of an equally large name being signed to every transaction sent out to be ratified by miners and added to the blockchain.
What we’re talking about is kind of like that, except it doesn’t need to be that way. Signatures from different addresses could be aggregated into one small data entry.
In fact, signature data is quite often the single-largest part of a transaction, so when you’re looking for somewhere to trim the fat, this is an excellent place to start.
Schnorr Signatures
The answer may very well have to do with Schnorr signatures, long considered by many crypto developers to be the least complex way of allowing for Bitcoin transactions to be signed. As you may recall, elliptic curve digital signature cryptography (ECDSA) is what currently allows people to sign transactions and have them radiate outward to the nodes in the network.
But ECDSA has something of an issue: It’s actually expensive to use in terms of block space.
Using Schnorr signatures, we have a real potential solution for aggregating signatures together in a batch. Seasoned hands like longtime crypto developer Greg Maxwell and Bitcoin Core developer Eric Lombrozo believe transaction size can be reduced by as much as 40% in some cases. Other estimates like Sam Wouters's hover around 25%, but this is still compelling. Either way, the gains are huge!
This is particularly relevant to transactions involving multiple inputs because if you have multiple Bitcoin addresses involved on the input side, you have several negative issues:
- A larger transaction size, which means you are taking up space other transactions could have used on the block
- A higher fee paid to miners
- A lower level of personal privacy, since all addresses used can be linked together
Schnorr signatures offer vast improvements on all of the above, plus the long-term efficiencies of smaller data packets stored in the network from all those keys no longer being used. Now, Schnorr signatures are still part of ECDSA cryptography, but they’d offer such improvements it might feel to transactors like a palpably different experience.
Following the activation and widespread use of Segregated Witness, Schnorr signatures stand to offer a great deal of help in terms of keeping network congestion down and keeping Bitcoin fees at historically reasonable prices (here’s a look at how fees have gone up recently).
If Schnorr signatures are implemented, Bitcoin might regain some of its lost aura of innovation. The patriarch of cryptocurrency might even resemble once again the kind of currency for daily use and personal privacy so many of its earliest proponents imagined.