Bitcoin Q&A: Bitcoin Scalability

Is there a problem with Bitcoin's scalability?

One of my readers sent me the following post from Fred Krueger on Bitcoin scalability, about the number of transactions in Bitcoin per year:

Just a quick note on Bitcoin scalability as this has come up in 5 side discussions over the last few days.

As Bob Burnett (@boomer_btc), CEO of Barefoot Mining has pointed out, there is a hard limit of 200 Million unique users who can access the Bitcoin Blockchain once a year.

The proof is simple enough. Each Bitcoin block can contain a maximum of 4,000 individual transactions. These can each contain multiple inputs and outputs, but simple transfers from one address to another, you are capped at 4,000 per block.

There are 6 blocks per hour, 24 hours per day, 365 days per year. So you are limited to

4,000 * 6 * 24 * 365 = 210,240,000 unique self custodied users transacting on Bitcoin ONCE per year.

Is this a problem?

First, let's look at the facts. Counting the number of transactions per block is actually non-trivial, as transactions themselves have different sizes. Large multisig transactions with multiple signatures and multiple public keys can be quite large, whereas Taproot transactions can be quite small with everything hidden under the hood. Transactions can have one input but multiple outputs; each extra output is essentially another payment to another party and the data size of an additional output is quite small. With these multiple outputs, a single transaction can actually correspond to multiple payments, such as when a Bitcoin exchange makes a single transaction with multiple outputs to multiple customers. So, there's a wide range of how many transactions you can actually fit inside a block. And the right unit of analysis is not the number of unique users per year, but simply the number of transactions.

But regardless, there is a finite number of transactions on Bitcoin per year, and that number is less than the current world population. So, back to my original question. Is this a problem?