If you were wondering “What is blockchain scalability?”, you’ve come to the right place. Keep reading.Scalability in blockchain largely refers to transaction speeds. The ability for blockchain technology to handle a high volume of transactions quickly, known as scalability, is a major challenge in the cryptocurrency industry. Currently, the speed of crypto transactions is not as fast as traditional payment methods. However, there are various ideas and solutions being explored to improve this and increase transaction speed. In this article, we will examine some of the promising developments that may lead to near-instant transaction speed.The concept of scalability has different interpretations in the field of blockchain, and this article aims to explore the latest advancements and developments in this area. Understanding scalability issues in blockchain is important for the growth and advancement of the blockchain community and industry.
Table of Contents
What is Blockchain Scalability?
Scalability in blockchain, which largely refers to transaction speed, is undoubtedly the crypto industry’s simultaneous holy grail and bottleneck. Cryptocurrency transactions currently take longer than regular payment methods. However, there are a variety of hypotheses being developed in the crypto communities on how to best get past this obstacle and the promise of advancements that could eventually lead to nearly instantaneous transaction speeds.
What is Blockchain Scalability Trilemma?
One can’t answer “What is blockchain scalability?” without talking about the Blockchain Scalability Trilemma. The scalability of the blockchain is one of the biggest obstacles for cryptocurrencies is the trilemma. It claims that you can only concurrently achieve two of decentralization, scalability, or security—never all three. Trade-offs are therefore unavoidable.
Vitalik Buterin, the creator of Ethereum, originally came up with the term “trilemma,” which he used in reference to this challenge of blockchain technology. Trilemma is not a rigorous mathematical proof, merely an observation. Even though the trilemma is challenging, unless it has been demonstrated that it cannot be solved, an algorithm that can do so may exist.
Directions of Blockchain Scalability Trilemma
The level of ownership, power, and value diversity on a blockchain is referred to as decentralization. Since no one entity can control the entire network, cryptocurrencies are often considered to be “decentralized.” Decentralization, however, is a spectrum rather than a simple “yes” or “no,” and different projects like Bitcoin, Ethereum, Ripple, EOS, etc. exhibit varying degrees of decentralization.
Security is the capacity of the blockchain to withstand intrusions from outside sources and the system’s resilience to manipulation. A blockchain system is vulnerable to numerous assaults, including double-spending, sybil, DDoS, and 51% attacks. Greater decentralization is achieved with greater freedom, i.e., free entry and exit from the network, but security is decreased since it is difficult to confirm the identity of new players, who may be controlled by a single bad entity or collaborate together to disrupt the network.
The network’s capacity is determined by scalability, which also affects the number of network nodes, the amount of transactions the network can handle, how quickly the network can handle transactions, and other factors. Because Bitcoin’s blockchain is scalable as additional users join the network, the term “scalability” is ambiguous. The PoW algorithm will automatically alter the level of difficulty, and the network may support any quantity of nodes.
Blockchain Scalability Problems
Next up in “What is blockchain scalability?” are the problems it is associated with. The adage “Bitcoin is not scalable” focuses mostly on its throughput or the fact that it can only process seven transactions per second, which is insufficient for real-world application when compared to VISA, which is said to be capable of 24,000 tps. Another blockchain scalability problem is that individuals won’t wait an hour to validate that their purchase of a cup of coffee is legitimate.
What are the Solutions for Blockchain Scalability?
In order to enable quicker transactions, second-layer scalability solutions add a second layer to the primary blockchain network. The main blockchain is connected to a smaller blockchain known as a sidechain. Using a two-way peg, the mainchain and sidechain assets can be traded at fixed prices. By relocating certain programs on sidechains, sidechains can be utilized to unload off the mainchain.
An off-chain network that exists in addition to the main blockchain is known as a payment channel. The goal is to create a communication path between the parties involved in a transaction. Since every transaction in the channel happens off-chain, there is no need for universal consensus.
As a result, these transactions are carried out rapidly, with incredibly cheap fees, and using smart contracts.
1. Off-chain solutions
Second layer blockchain scalability solutions or off-chain solutions are methods that have been developed in order to address the issue of scalability in the blockchain. As the number of transactions on a blockchain network increases, the network can become congested and slow down, leading to delays in the confirmation of transactions. These solutions aim to alleviate this problem by creating a secondary layer on top of the main blockchain network, which is specifically designed to handle a high volume of transactions.
The secondary protocols are built on top of the main blockchain, where transactions are ‘off-loaded’ from the main blockchain to save space and reduce network congestion. This allows for more efficient use of the main blockchain’s resources, as the majority of transactions are handled on the secondary layer. This in turn leads to faster transaction confirmations and a more efficient overall network.
Off-chain solutions also provide an added layer of security, as the secondary layer can handle the majority of transactions, leaving the main blockchain to handle more important or complex transactions. Additionally, off-chain blockchain scalability solutions also provide more privacy, as transactions on the secondary layer may not be visible to the entire network.
A sidechain is a separate blockchain that is connected to the main blockchain, also known as the mainchain. The assets on the mainchain and sidechain can be exchanged at a fixed rate using a two-way peg. Sidechains can be used to reduce the load on the mainchain by moving certain applications to the sidechain. If inter-blockchain communication becomes more efficient, sidechains could be a promising solution to blockchain scalability issues.
It’s possible to have multiple sidechains connected to the mainchain, each with its own architecture. A network of sidechains and a mainchain can be created where the mainchain acts as a relay network, and the sidechains represent a blockchain network. Plasma (Ethereum) and Parachain (Polkadot) are popular scaling solutions that use sidechains and relays.
3. Payment channels
A payment channel is a method for conducting transactions off the main blockchain, running in parallel to it. This involves creating a channel between two parties who want to make a transaction. Transactions that occur within this channel are off-chain, meaning that they do not require network consensus and can be executed quickly through the use of smart contracts, with lower fees and at a faster speed. The process of using a payment channel typically has three steps:
- Establishing a channel by signing and funding it.
- Conducting peer-to-peer transactions within the channel.
- Closing the channel and recording the final state on the main blockchain.
There are various designs of payment channels, with the Lightning Network (Bitcoin) and Raiden Network (Ethereum) being popular examples of such implementations.
The Transaction Speed of Cryptocurrencies
How does transaction volume compare to processing time? Throughput measurement alone is insufficient; confirmation time must also be taken into account. Simply expressed, even if a protocol has a processing rate of up to 100,000 tps, a two-day confirmation time will prevent it from being used in daily life. Throughput won’t drop when the network is congested, but the confirmation time will because of the longer average first block waiting time. To be sure the block cannot be reversed, we must wait for the “6 blocks confirmation.” The length of the first block wait varies based on the circumstances.
What are the Existing and Future Approaches to Blockchain Scalability?
There are many other problems that come up when trying to find a solution to the blockchain scalability issues. If the solution, for instance, only applies to one specific blockchain, then the work is unnecessary or misdirected unless it is assumed that this specific blockchain would eventually require blockchain scalability. Knowing the potential trade-offs is another factor to take into account. All currently offered options have their limits.
1. Batch Payments into one Transaction
By combining several transactions into one, it reduces the size of a transaction record and permits more transactions overall per block, which can somewhat enhance TPS. Through the RPC send many, Bitcoin has supported batch payments. One benefit of doing this is that you only have to pay one transaction charge and you don’t need to type down the entire transaction information. However, it has some restrictions, such as the inability to group transactions from various wallets.
2. Bitcoin Cash
Compared to Bitcoin, Bitcoin Cash may store more transactions in a single block, increasing the maximum TPS. However, it is merely a short-term fix because the TPS is still much lower than the 1,700 worldwide TPS that Visa conducts on a typical day. The approach cannot work for other blockchains because it is specific to Bitcoin Cash.
As an alternative to Bitcoin with the added benefit of speedier transactions, Bitcoin Cash is a hard fork of the original cryptocurrency. Its main function is to raise block size (B); although having faster transactions than Bitcoin, it still lacks the necessary TPS to compete in the world of international trade.
3. The Lightning Network
Transactions between parties happen almost instantly, without fees, off-chain, and are only possible on blockchains built on the Bitcoin core if users have lightning nodes.
The Lightning Network is a Bitcoin-only solution for off-chain dealing, accessible for Bitcoin and Bitcoin-forked blockchains like Digibyte and Litecoin. It allows you to take your Bitcoins off the blockchain and transact privately with another party. The benefit it offers is instantaneous, fee-free transactions, which makes it possible to make little purchases right away, like a cup of coffee.
4. EOS and other High-Performance Blockchains
High theoretical scalability is accompanied by centralization, which may result in censorship. Blockchain applications with high performance employ several consensus techniques. Even though EOS only has 21 nodes, its Block Producers froze seven EOS accounts in June 2018. While the justification for the freezing may be sound, it shows how much control one company has over the entire blockchain and its capacity to exercise that control. Scalability is something the blockchain community craves, which is why EOS is so popular, but the cost of scalability is censorship and control because of centralization.
It is a blockchain-agnostic on-chain solution, making it scalable for potentially all blockchains. Although it is still in development, creating and maintaining a global CDN is a costly task that has not yet been completed in the blockchain industry.
Startups are beginning to form outside of blockchain-specific projects to address the issue on a bigger scale. In order to address scalability difficulties, bloXroute proposes to transpose a content delivery network (CDN) onto blockchain networks.
Why Does the Finance Sector need Blockchain?
Blockchain technology has made it possible to move money in the financial sector while having faith in the transaction’s security and dependability. Everyone on the network is sent a copy whenever a new transaction and block are added. It offers a precise, time-based history of the transactions. Although many people worry about online scams, blockchain-based payments are rapid and reversible. Additionally, especially for expensive things, they are less expensive than using banking services. Blockchain is a great way to keep track of transactions and guarantee reliable, secure data.
Due to the low cost of blockchain, startups have an opportunity to compete with established banks, hence encouraging financial inclusivity. Due to limitations like minimum balance requirements, limited access, and banking fees, many consumers are searching for banking alternatives.
Blockchain Consensus Protocols
While a large number of people can use Bitcoin, a huge number of transactions cannot. Alternative consensus models include:
- Satoshi Nakamoto’s proof-of-work consensus, which offers a fresh approach to the Byzantine Generals Problem in a permissionless environment.
- Classical consensus refers to the conventional algorithms that were studied before Bitcoin was created. They concentrate on fixed peer-sets with numerous voting rounds to achieve network-wide consensus.
- All network participants are permitted to suggest recent transactions in a new emergent direction utilizing leaderless consensus. These transactions will eventually propagate throughout the entire network, allowing the network as a whole to reach an agreement on which transactions to include or exclude.
What are the Types of Scalable Blockchains?
1. Scaling Bitcoin
Scaling Bitcoin is difficult due to its design using Proof of Work (POW) as a method for determining the next valid block. This process requires all nodes to run POW for a set amount of time in order to determine the winner, and for new blocks to be synchronized to the entire network. This synchronization process takes a significant amount of time, and if the block size were to increase or the block interval were to decrease, it could lead to many forks in the network and a reduced security level. The amount of time required for synchronization is dependent on the design of the consensus algorithm and the characteristics of the underlying network, such as throughput, latency, topology, and decentralization level.
2. Scaling POW
To address the blockchain scalability issues in Proof of Work (POW) systems, new POW schemes have been proposed that do not rely on the synchronization of new blocks. These new schemes allow for the consensus period to be similar or equal in length to the synchronization time, rather than being significantly longer. One example is Bitcoin-NG, where consensus is only used to determine the round leader instead of the entire set of transactions, allowing for the synchronization of transactions to be done in parallel and for a larger block size to be used. Other similar projects include Hybrid Consensus, Byzcoin, and GHOST.
3. Scaling Byzantine Fault Tolerance (BFT) Algorithms
Byzantine Fault Tolerance (BFT) algorithms are a family of consensus algorithms that can tolerate faulty nodes and allow honest nodes to reach consensus in untrusted networks. Practical Byzantine Fault Tolerance (PBFT) is one example of such an algorithm, but it has poor scalability due to its O(N²) message complexity, where N is the number of validating or mining nodes in the network. This results in a quadratic increase in the number of messages sent between nodes for each transaction as the number of validating nodes increases, causing a decrease in throughput as the network grows.
To address this issue, several solutions have been proposed to scale classical BFT algorithms like PBFT. The first approach is called speculative BFT, where nodes initially assume that the network conditions are good and use simpler, more efficient schemes to reach a consensus. If this attempt fails, they switch back to the more costly PBFT. The second approach is to remove redundancy in the BFT process by using erasure coding to improve the efficiency of bandwidth usage, as seen in Honeybadger-BFT. The third approach is to introduce randomness into communications between nodes, where each node listens to a randomly selected group of nodes to make a decision, as seen in Avalanche.
4. Scale-out Blockchains
Scale-out blockchains are a solution to the blockchain scalability problem. They aim to increase the throughput of a blockchain network as it grows by dividing the network into smaller sub-networks or “shards” or creating off-chain networks for faster transactions. However, these solutions come with trade-offs, such as increased security risks in sharding and the need for deposits on the blockchain in off-chain schemes. The key challenge is to design and implement these solutions in a way that balances blockchain scalability with security and decentralization. A number of different solutions have been proposed in this area, such as Omniledger, Chainspace, Rchain, Sharding for Ethereum, and off-chain mechanisms such as the Lightning Network.
New Directions for Ramping up Blockchain Scalability
Blockchain scaling is challenging, however, several initiatives are being made by the academic community and the cryptocurrency sector to address the scalability trilemma. There are three ways to scale blockchain technology:
1) Layer 1 (on-chain) Solutions
Layer 1 or on-chain blockchain scalability solutions involve making changes to the codebase of the blockchain itself, as opposed to adding a secondary layer or off-chain network. Two examples of on-chain scaling solutions are Segwit and Sharding. Segwit is a change to the codebase of the blockchain that improves transaction efficiency and capacity. Sharding is a solution that divides the blockchain into smaller sub-networks or “shards,” allowing for increased blockchain scalability. Both of these solutions represent structural or fundamental changes to the blockchain.
1. Segregated Witness
Segregated Witness, or Segwit, is a protocol upgrade for the Bitcoin blockchain that changes the way data is stored. One of the main goals of Segwit is to solve the transaction malleability problem. This problem arises due to the way digital signatures, which verify the ownership and availability of the sender’s funds, are stored in transactions. These signatures take up a significant amount of space in a transaction. By removing the signature data for each transaction, Segwit releases more space and capacity for more transactions to be contained in Bitcoin’s 1MB-storage blocks. This results in increased throughput and capacity for the Bitcoin blockchain. Segwit has already been successfully implemented on Litecoin and it is seen as a solution that could help Bitcoin scale.
However, Segwit is not a sustainable scaling solution for multiple reasons. First, Segwit is not a generic scaling solution and can only be applied to Bitcoin-based blockchains. Second, it is not a long-term solution and does not address all the blockchain scalability issues of the Bitcoin blockchain. Third, Segwit enables Bitcoin to process more transactions but does not reduce the confirmation time, which is the time it takes for a transaction to be added to the blockchain. Therefore, although Segwit helps to increase the throughput and capacity of the Bitcoin blockchain, it is not a complete solution to the blockchain scalability problem.
Sharding is a method of database partitioning that involves breaking up a large database into smaller, more manageable segments, with the goal of improving performance and reducing the query response time. This technique can also be applied to blockchain networks, where the network is divided into different segments, each governed by a specific group of nodes. By doing this, the overall throughput of the system can be greatly increased because multiple node clusters can process transactions in parallel, rather than relying on a single node to process all transactions. This approach is known as horizontal partitioning.
In sharding, a blockchain network is divided into different segments, called shards, and each shard is governed by certain nodes that have been allocated to it. This allows the network to process multiple transactions simultaneously, increasing the overall throughput and capacity of the network. This approach can be useful in situations where the number of transactions on the blockchain is high and the network is struggling to keep up with the demand. Sharding can also help to increase the blockchain scalability of a network, as more nodes can be added to a shard as the network grows. However, sharding also comes with its own set of challenges, including maintaining the security and integrity of the network, and ensuring efficient and secure communication between the different shards.
2) Layer 2 (Off-Chain) Solutions
Off-chain solutions, also known as second layer blockchain scalability solutions, are methods that are used to increase the efficiency and speed of transactions on a blockchain network. These solutions add a secondary layer on top of the main blockchain network that is specifically designed to handle a high volume of transactions. Transactions are offloaded from the main blockchain to the secondary layer to save space and reduce network congestion, leading to faster confirmation times and a more efficient network. Off-chain solutions also provide added security and privacy benefits, as the secondary layer handles the most transactions, leaving the main blockchain for more important or complex transactions; transactions on the secondary layer may not be visible to the entire network.
Sidechain technology allows for the creation of a secondary blockchain that is connected to the main blockchain, also known as the mainchain. The key advantage of sidechains is that they allow for the transfer of assets between the mainchain and sidechain at a fixed rate using a mechanism called a two-way peg. This allows for the offloading of certain transactions and applications from the mainchain to the sidechain in order to reduce network congestion and increase blockchain scalability.
The implementation of sidechains could be a promising solution for blockchain scalability issues in the industry, particularly if advancements are made in inter-blockchain communication. Multiple sidechains can be connected to the mainchain, each with its own unique architecture. This allows for the creation of a network of sidechains and a mainchain, where the mainchain acts as a relay network for the sidechains.
Popular scaling solutions that utilize sidechain technology include Plasma on the Ethereum blockchain and Parachain on the Polkadot blockchain. These solutions have gained attention for their ability to enhance blockchain scalability while maintaining a high level of security and privacy.
2. Payment Channels
Payment channels are a way to conduct transactions outside of the main blockchain, in parallel to it. This process involves setting up a channel between two parties who want to transact with each other. Transactions that take place within this channel are off-chain, meaning that they do not require global consensus and can be executed quickly using smart contracts, with lower fees and at a faster speed. The process of using a payment channel typically involves three phases:
- The first phase is the establishment of the channel by signing and funding it.
- The second phase is the conducting of peer-to-peer transactions within the channel.
- The third phase is the closing of the channel and the recording of the final state on the main blockchain.
There are different designs of payment channels, with the Lightning Network (Bitcoin) and the Raiden Network (Ethereum) being popular examples of such implementations. Payment channels provide a way to handle a large number of transactions off-chain, thus reducing the load on the main blockchain and allowing for faster and cheaper transactions.
A Revolution in the Blockchain World for Layer 1 Scaling Solution
The only tested approach that might function in the Bitcoin network is the lightning network. Joseph Poon and Thaddeus Dryja first introduced the lightning network in a white paper in 2015. A second-layer payment protocol that operates on a blockchain-based system is called the lightning network.
By committing a fund transaction to the appropriate foundation blockchain, it enables users to establish payment channels between two parties on Layer 2. These channels can last as long as necessary, and because they can only be established between two parties, transactions nearly always happen instantly with very little cost. The total balance of the transactions will be published and recorded in the base blockchain once the payment channel has been closed. That’s it from us on what blockchain scalability is at its core. If you have any more questions, don’t forget to read the FAQs below.
Digital cryptocurrency systems are built on the blockchain, which does away with the necessity for a centralized authority in a decentralized network. Blockchain is a method that enables information sharing in a peer-to-peer connection, decentralized network made up of unreliable people in a transparent and secure manner.
By adhering to a clear set of guidelines known as a consensus protocol, blockchain technology protects the security, equality, and fairness of the system. Blockchain technology’s key consensus protocols protect the network from numerous frauds and threats. If a system is protected by these protocols, it is almost impossible to compromise it.
Frequently Asked Questions(FAQs)
1. Why is Blockchain Scalability Important?
Scalability in the blockchain is important because it refers to the ability of a blockchain network to handle a large number of transactions and users without experiencing delays or network congestion. As the number of users and transactions on a blockchain network increases, blockchain scalability becomes crucial in order to maintain a fast and efficient network. Without proper blockchain scalability, the network can become bogged down and slow, leading to delays in transaction confirmations and a less efficient overall network. This can negatively impact the user experience and hinder the adoption and growth of the blockchain.
2. How is Blockchain Scalability Measured?
Blockchain scalability is typically measured by the number of transactions that can be processed by the network per second. This is known as the network’s throughput. Other metrics that are used to measure blockchain scalability include block size, block interval, and the number of nodes on the network. Additionally, the cost and speed of transactions, as well as the overall user experience, are also taken into consideration when evaluating the blockchain scalability.
3. What is Scalability in Bitcoin?
Scalability in Bitcoin refers to the ability of the Bitcoin network to handle an increasing number of transactions and users without experiencing a decrease in performance. The current design of the Bitcoin network, which uses a proof-of-work consensus mechanism, has a limited capacity for transactions. This has led to a need for solutions that can increase the scalability of the network, such as increasing the block size limit or implementing off-chain solutions like the Lightning Network. Blockchain scalability is a crucial issue for Bitcoin because as the network grows, it must be able to handle more transactions and users without becoming congested and slowing down. It is measured in terms of the number of transactions that can be processed by the network in a given period of time.
4. Which Blockchain has the Best Scalability?
Shardeum is a highly scalable blockchain solution that aims to optimize the performance and functionality of smart contracts. It achieves this by providing secure and reliable access to data feeds, APIs, payments, and other essential resources for smart contracts to function effectively. This innovative approach sets Shardeum apart from other blockchain solutions on the market and positions it as a leader in terms of blockchain scalability and interconnectivity for smart contracts.
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Last Updated on September 1, 2023