This is an opinion editorial by Stanislav Kozlovski, a software engineer and macroeconomic researcher.Many Bitcoiners have heard of Bitcoin’s “lack of scalability” — it is one of the most common critiques waged against the project by both gluttonous cryptocurrency competitors and incumbent establishment actors.Some oldtimers may remember the heated, bathed-in-controversy Blocksize Wars of 2015 to 2017 which, aided by industry insiders, most shallowly aimed to make Bitcoin scale to more transactions by increasing the maximum block size and by doing so, almost set precedent and changed Bitcoin’s future course forever.Both of these issues will ultimately prove to be left on the wrong side of history. We will show you how the Lightning Network addresses Bitcoin’s scalability issues. This article will also explain the root problem. As you can see, a blockchain can only have two of these three qualities. As pictured above, a blockchain can only reliably have two of these three qualities:Decentralized: not controlled by any single party or a small number of elitesScalable: scale to a sufficient number of transactionsSecure: not be easy to attack and break its invariantsIt is worth noting that all of these characteristics sit on separate, complex spectrums. For example, you don’t become “secure” over a certain threshold, it is very dependent on the use case and many different characteristics.Bitcoin is slow for a reason. It deliberately chose to optimize the “security”, and “decentralization,” sections of the trilemma. It left “scalability” (transactions/second) aside. It is obvious that such a ledger cannot be scaled to meet the growing transaction rate around the world. It is not practical and privacy-damaging, but its drawbacks far outweigh its small benefits. This story is fraught with controversy and is largely what made Bitcoin what it is today. It is a story that has caused a lot of pain and confusion. “Bitcoin (blue), price compared with Bitcoin Cash (orange). The fork can also be seen at the beginning of the chart. Source: tradingview.com. The little guy won. Bitcoin didn’t rush any bad design decisions that could compromise its security, decentralization, or censorship resistance. The decision was effectively made to scale Bitcoin through layers, introducing second layers that work separately from Bitcoin and checkpoint their state to the main, slower-but-more-secure network.In stark contrast, the evidently-unsuccessful fork Bitcoin Cash sacrificed all hopes of decentralization by increasing its block size to 32 megabytes, 32 times more than Bitcoin, for a mere maximum of 50 payments per second on the base chain.Block SizeEach Bitcoin block has a cap on its size and this denotes the upper bound on how many transactions can exist inside of a block. If the demand for transactions exceeds the number of transactions that a block can hold, the block will become full and the transactions will be left unconfirmed in a mempool. The adjustable transaction fee causes users to outbid one another in order to have their transactions included by miners. Incentives are given to incentivize miners to choose the highest-paying transactions. A naive solution would be to increase the block size limit, which would allow more transactions to be added to a block. Even intellectuals like Elon Musk aren’t aware of the negative side effects. Increasing block size can have second-order effects that decrease the decentralization. The cost of running a node within the network increases as the block size increases. Each node in Bitcoin must store and validate every transaction. Additionally, each transaction must be propagated to its peers. This increases the network’s bandwidth requirements to support more transactions. Each node’s storage (disk), and processing (CPU), requirements for transactions increase as more transactions are processed. Below is a map showing the average internet speed around the world. Below is a map of the average internet speed around the world. Source The average speed does not mean that all users are at the same speed. It doesn’t take into account the fact that users may have other uses for their bandwidth. 24,000 transactions per second isn’t a unique global payment network. Visa is not the only payment network in the world. The world is becoming more interconnected by the day.Lightning Network 101The Lightning Network, a second-layer network, is built on top of the main Bitcoin network. It batches Bitcoin transactions. You can either run your own node, or use another’s. Two concepts are important to understand about the network: A Lightning node: This is separate software that communicates between Lightning nodes and creates a new peer to peer network. Channels: Payments flow between nodes once they open a channel between them. Each subsequent payment modifies channel’s state and cryptographically revokes the old one. The new channel is checked in memory and on disk by both nodes but not to the base network. If the nodes decide to shut down their channel, the latest balance after all off-chain payments is returned to their original wallets. This is cryptographically-secured by hashed timelocked contracts (HTLC) and digital signatures, which we won’t get into detail for the purposes of this article.This allows one to batch billions of payments into two on-chain transactions — one for opening the channel and one for closing it. Once a payment is complete, it is indisputable what the latest balance is between all parties (assuming nodes redundantly store their channel checkpoints).Critically, one need not be directly connected to another party in order to pay them — channels can be used by other nodes in the network in order to increase their reachability. To put it another way, if Alice is connected with Bob and Bob is connected and Caroline is connected to Bob, then Alice and Caroline can seamlessly pay each others through Bob. Lightning Scalability To determine how many payments the network can process in a second, we must first understand how many channels it supports. The benchmark numbers we will use to analyze this are per-node throughput capacities, not per-channel. We will assume that every node has only one channel. According to the benchmark, the default LND node can process 33 payments per second using a decent machine (8 CPUs, 32 GB RAM), and each payment must go through a group (four nodes) which is 4,066 unique groups. This makes the total number of nodes in the network 134,194. To get 134,194, we multiply 4,066 by 33. It doesn’t take much to beat current payment systems.Lightning vs. Traditional Payments. It is difficult to find accurate numbers about the peak capacity for traditional payment systems. Therefore, we will use their average payment rate during the 2021 financial years. Because we will be comparing that to Lightning’s theoretical capacity, it is difficult to get the average Lightning payment rate. It is also not transparent of Lightning’s capability since the demand for Lightning payments remains low. This will give us an idea about how many payments a Lighting node must be able to route in order to outcompete traditional finance. Visa saw 165 billion payments in 2021. PayPal saw 19.3 million payments across its entire platform, and FedWire saw just 204 million. These amounts are 7,372, 612, and 6.5 payments per minute on average for 2021. These amounts are on average 7,372, 612 and 6.5 payments per second for 2021. At this rate, 4,066 unique four node groups can make 16,264 payments per second — 2.2x more than Visa. Source: Author. Traditional payment networks have a lower average Lightning transaction fee of 0.1%, compared to 1.29%. It is worth noting that one could always scale the Lightning Network by adding new nodes. Peer to peer means that it can scale as long as there are no technical obstacles to Lightning node implementations reaching 1,000 payments per second. The current network’s throughput would be closer than four million per second. This is not counting the potential impact of increasing the number of nodes. The only short-term limitation to increasing scalability is in resources. These opinions are not necessarily those of Bitcoin Magazine or BTC Inc.