Apr 5th 2023 | 10:29 | 3 min read
Imagine having a next-generational technology but being hindered by scalability issues. That’s the case with blockchain technology.
Blockchain was invented in 1998 but it was reintroduced to the world in 2009 with the launch of Bitcoin. As the world perceived the potential of blockchain, its use cases expanded beyond cryptocurrencies.
While you think that it’s good to implement blockchain across industrial and non-industrial sectors, a major bottleneck lurks in the shadows!
One of the main hindrances in the adoption of blockchain is scalability.
The growing popularity of blockchain has increased the traffic on the network. Thus, increasing the transaction latency and negatively impacting the quality of services built on the blockchain network.
So, what is blockchain scalability? What are the factors contributing to low scalability? And how can we resolve them?
Let’s understand blockchain scalability in this blog.
What is Blockchain Scalability?
To understand the issue of blockchain scalability, we need to understand some important components of the blockchain network.
Blockchain is a distributed ledger technology that uses a network of nodes to enable interactions between parties. These distributed networks of nodes ensure the decentralized nature of blockchain technology.
Another crucial part of blockchain technology blocks. Blockchain uses blocks that are chained in chronological order to store data. These blocks are tamper proof which makes data immutable.
Now, the nodes have a specific capacity to manage transactions. Likewise, the blocks also have a definite size and capacity to store data.
Since the decentralized applications (dApps) use of blockchain is increasing exponentially, the nodes and blocks are also increasing in number. While the size of the blockchain network is increasing, its capacity to process transactions remains the same ironically.
For example, Ethereum is the most trusted blockchain network for developing dApps. But it’s surprising to note that despite its vast size, Ethereum witnesses huge scalability issues.
Blockchain scalability might be a new term for you. But developers have been ideating and building solutions to counter it for a long time.
In fact, Polygon, a Layer2 solution, is now a popular alternative to building dApps. It is because the Layer 2 approach Polygon runs over Ethereum to enhance the efficiency of the network.
That’s not all! Polygon resolves the scalability issue by speeding up the transactions, reducing gas fees and enhancing security.
There are other blockchain scalability solutions which we will discuss later in the blog.
How Big Is The Blockchain Scalability Problem?
By definition, scalability refers to the computer’s ability to handle large amounts of data. When we talk about scalability in terms of blockchain, we refer to the network’s ability to handle the increasing amount of data.
You must have seen every new blockchain network claiming to be “scalable”, However, you must note that not every blockchain is scalable. “Scalability” is a comparative phrase.
In fact, you can say a blockchain is scalable when it reaches higher Transactions Per Second (TPS) than its existing capacity. Blockchain developers can do so by altering the consensus method or with a Layer 2 scaling solution.
You will be surprised to know that blockchain does not even come close to the performance level of Visa. Public blockchain networks process 10 transactions every second. On the other hand, Visa handles 100 transactions per second.
At present, Bitcoin has a TPS of 7 transactions per second. While Ethereum is in a better position with 30 TPS.
While Bitcoin may have a TPS of 7. But you will have to wait 90 minutes to finalize it. A TPS of 7 does not mean that you can send Bitcoin to seven different people in a second.
To you, these numbers might now be surprising. But when you look at the capacity of Visa, it will blow your mind. Visa’s throughput is approximately 1700 TPS.
That’s how much blockchain is lacking in terms of performance compared to its centralized alternatives.
Blockchain is the revolutionary technology of the 21st century. Experts claim that it will lay the foundation of a decentralized ecosystem that will redefine our future.
However, it’s disappointing that despite being such high-tech, it is still incapable of altering its system to cope with the increasing workload.
It’s not that we cannot modify the structure to boost the scalability. We are just stuck in the blockchain scaling trilemma. What’s that?
Keep reading to find out!
Blockchain Scaling Trilemma
There are three key defining factors that make up the blockchain structure. They are:
Blockchain trilemma occurs when at a time we can achieve only two. Further, to achieve two factors we have to sacrifice one.
For example, blockchain networks like Bitcoin and Ethereum maintain decentralization and security by sacrificing scalability.
On the other hand, permissioned blockchain networks sacrifice decentralization to ensure scalability and security.
One thing that you should note here is that blockchain scalability is a problem only in the permissionless blockchain. Public blockchain networks use Proof of Work (PoW) consensus to mint blocks. PoW requires high computing power and is slow compared to Proof of Stake consensus.
In a public blockchain network, all the participants must reach an agreement to process the transaction. It will take a lot of time for the nodes to verify and validate the transaction. The tricky thing is that you can ensure true decentralization only when all the participants validate the transaction. Therefore, it is evident that keeping the decentralization priority, you will have to compromise on scalability.
Permissioned blockchain networks use Practical Byzantine Fault Tolerance (PBFT), federated, or round-robin consensus protocols. While these protocols offer better scalability and high speed, they compromise on decentralization.
So, when we go to resolve scalability, we are compromising on decentralization. And when we prioritise decentralization we have to give away scalability.
This brings us to an eminent question – Is there any hope for blockchain?
Yes! We have come up with promising solutions to do away with the roadblocks in blockchain scalability.
Top 4 Blockchain Scalability Solutions
We can address the blockchain scalability problem in 4 distinct ways. Each solution addresses a specific roadblock in enhancing scalability.
Let us have a look at the best 4 blockchain scalability solutions.
Layer 1 Scalability Solutions
Blockchain scalability has been a long-standing concern in the blockchain industry. One of the most common approaches to address scalability issues is through Layer 1 solutions, also known as on-chain scaling solutions.
Layer 1 solutions involve making changes to the core blockchain network’s software, enhancing its essential characteristics and attributes.
Sharding is a well-known on-chain scalability technique that involves breaking down the blockchain network into smaller, more manageable chunks called shards. The network executes the shards in parallel, increasing the network’s processing output.
Sharding eliminates the need to rely on individual nodes’ performance, allowing for quicker and more efficient transaction throughput.
Segregated Witness: Protocol Enhancement for Increased Capacity
Segregated Witness, or SEGWIT, is another vital Layer 1 option for blockchain scalability. It is a protocol enhancement in the Bitcoin blockchain network that changes the way and structure of data storage.
By eliminating signature data linked with each transaction, SEGWIT increases capacity and storage space for transactions. The removal of digital signatures frees up additional space for new transactions, addressing scalability concerns.
Hard Forks: Making Fundamental Changes to the Blockchain Network
Hard forks are procedures that make structural or fundamental changes to a blockchain network’s properties. Hard forking is a prerequisite for Layer 1 blockchain scalability solutions, as it allows for changes such as raising the block size or decreasing block creation time.
However, contentious hard forks may result in a split in the blockchain community, with a subset of the community electing to make fundamental modifications to the underlying source.
Layer 2 Scaling Solutions
Layer 2 solutions are supplementary protocols built on top of the primary blockchain network. These protocols can help to offload transactions from the primary blockchain, reducing space and network congestion. State channels and sidechains are popular examples of second-layer solutions.
State channels are a typical inclusion among Layer 2 solutions for blockchain scalability. This technique allows two-way communication between off-chain transaction channels and blockchain networks through various approaches.
State channels do not need the immediate participation of miners to validate transactions, which can significantly boost transaction speed and capacity.
Sidechains are also a popular choice among Layer 2 solutions for determining how to solve scalability issues. The sidechain operates as a transactional chain next to the blockchain in big batch transactions. In comparison to the primary chain, sidechains use distinct consensus techniques.
Plasma is also a prominent blockchain scalability solution in the Layer 2 scaling solutions area. It primarily focuses on utilizing child chains that begin with the parent blockchain, with each child chain functioning as a separate blockchain.
As a result, Plasma may be created for use cases involving processing a certain type of transaction while assuring execution in a comparable environment with enhanced security.
The Lightning Network is another famous example of an off-chain approach to blockchain scalability. It exploits smart contract functionality through private, off-chain channels over the main blockchain network. Off-chain channels might provide speedier transactions with lower costs.
By shifting transactions away from the mainchain, Lightning Network reduces the burden on the mainchain, allowing users to avoid paying mining fees or waiting for prolonged periods for block confirmation.
Scalable Consensus Mechanisms
Scalability is a crucial concern for blockchain networks. One of the most effective ways to address scalability issues in the blockchain is by using scalable consensus mechanisms. These mechanisms are designed to streamline reaching consensus and increase scalability and transaction throughput. Here are some examples of scalable consensus processes that can act as effective blockchain scalability methods:
- Delegated Proof-of-Stake (PoS)
- Proof-of-Authority (PoA)
- Byzantine Fault Tolerance
Scalable Distributed Ledgers
Blockchain technology is just one form of distributed ledger technology (DLT). Other forms of distributed ledgers exist, which do not use the same data structure as Blockchain to organize information into a succession of blockchains.
Scalable distributed ledgers can also be used as an effective solution to tackle scalability challenges in blockchain networks.
The phenomenal growth of the blockchain industry and its rising demand in the industrial and non-industrial sectors has led to scalability issues. However, with Layer 1, Layer 2, and scalable consensus mechanisms we can resolve major hindrances in blockchain scalability.
Contact our blockchain experts for robust, secure and scalable blockchain solutions.
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