The problem lies in a specific parameter called the “block size limit.” The current limit is insufficient for the ever-growing transaction intensity.
First, a very quick and basic introduction to how Bitcoin works for those who don’t know. All the transactions that have ever taken place in the Bitcoin network or will ever take place, are recorded on a public and immutable ledger called “The Blockchain.”
As follows from its name, the Blockchain is a sequence of blocks. Each block, in turn, is a cryptographically sealed collection of all transactions which have happened in the network over the past ten minutes. Every new block is permanently added to the end of the Blockchain so that every user can always check that each specific transaction has indeed taken place.
Back in 2010, Nakamoto introduced a block size limit of 1mb, meaning that blocks over the size of 1 megabyte would be automatically rejected by the network as invalid. This was a security measure, designed to prevent potential DoS attacks by hackers creating blocks of huge, or even infinite size and broadcasting them across the network in order to paralyze it.
That decision, however, has had an adverse long-term effect on the transaction capacity of the network.
Each transaction consists of important data: the sender, the recipient, the amount of Bitcoins in transfer, etc. That data takes some space, which is quite insignificant when talking about a single transaction. But it adds up when there are hundreds of transactions taking place every minute.
The current size limit of one megabyte per block can realistically support three to seven Bitcoin transactions per second. The problem here is that for the network of the current proportions that is already not enough. And it’s only getting worse as the user base keeps growing.