Blocks are some of the smallest components in a blockchain ledger. Essentially, blocks are bundles of transaction data clumped together, which are later combined in a chain that forms the distributed ledger. 

What Is Block Size?

Block size is pretty straightforward — it is the amount of data a single block can hold. For example, as of May 2021, one block on the Bitcoin blockchain can hold data equivalent to 1 MB. This limitation was enforced in 2010, in an effort to limit the opportunity for overwhelming the blockchain and stop possible DoS attacks. 

Initially, the Bitcoin blockchain was designed to work with blocks of up to 36 MB in size; however, security concerns enforced the need for significantly smaller block sizes. 

Why Is Block Size Important?

One of the main concerns when it comes to block size for blockchains is the overloading of the network. The faster blocks fill up with transactions, the bigger the chance for longer wait times for transaction approval. For example, Bitcoin’s blockchain is more prone to slower transaction processing because of the small block size of only 1 MB. In a hypothetical situation where nodes cannot cope with the number of pending transactions because of the limited size of blocks, users might suffer from very slow processing speeds, or even canceled transfers. 

This is unacceptable for a new-age financial solution which aims to revolutionize the global economy. Consequently, there are numerous experiments in the works that are trying to solve the block size dilemma. 

There is also the flip side of the coin, which argues that small block size is the foundation of a self-regulated market. For example, the Ethereum blockchain allows users to pay a larger fee in order for their transactions to be processed with priority. In other words, some analysts point out that because of the limited block size, users have the option to prioritize their transactions to be processed first by paying more in gas fees. This system is one of the founding principles of a decentralized network.

For the moment there is no consensus on what the best approach to solving the block size problem might be. Most blockchain networks are looking into ways to optimize the use of blocks, and simultaneously prevent security concerns.