A heated debate is currently in progress among bitcoin’s technical community. The debate centers on whether or not the community should modify the bitcoin protocol so that it can handle greater transaction volumes. One of the easier metrics to help us understand why this is important is transactions per second (tps). To highlight the scale issue the bitcoin protocol is facing: Visa currently runs at ~2,000 tps, PayPal at ~115 tps and bitcoin at a theoretical rate of just ~2.8 tps (currently 1/2 that).
The bitcoin protocol currently has a limit of 1,000,000 bytes hardcoded as the maximum block size. Whenever pending transactions total more data than that limit, some transactions will go unconfirmed until there is space in a subsequent block. This was originally built in as a mitigation tool against spam transactions and denial-of-service attacks, but as transaction volume continues to climb, the limit is drawing increasing concern for the capacity of the bitcoin network. Since January 2013, the number of transactions added to the block chain daily has grown ~2.5X, from 40K to 110K. Since each transaction is stored in the block chain as a data entry, the average block size has grown from ~125K to 425K bytes over the same period.