Blockchain’s Arch Nemesis: Scalability

Firstly, what in the world is scalability?

It refers to the limits on the number of transactions the bitcoin network can process. Records (known as blocks) in the bitcoin blockchain are limited in size and frequency. The transaction processing capacity of the bitcoin network is limited by the average block creation time which is 10 minutes and the block size limit. These jointly constrain the network’s output and efficiency.

So why should we care? Not like everyone globally is using bitcoin as their mode of currency exchange.

True, but cryptocurrencies are continuing to become more mainstream. Daily, the number of daily Bitcoin transactions inches upward. Initially, cryptocurrencies were not designed with the idea of widespread use and adaptation in mind. As the number of daily transactions continues to rise, an increasing number of issues are popping up.

Crypto enthusiasts hope that cryptocurrencies will eventually be able to compete with the likes of PayPal and Visa. However, at present, we are far from this. Visa is currently the fastest measured payment network. It is capable of processing approximately 24,000 payments per second. In comparison, PayPal can process approximately 193 transactions per second. Most cryptocurrencies are still lagging far behind.

Ripple, however, is the ahead of the pack and can process up to 1,500 transactions per second, suggesting that it is likely to have the potential to become a viable payment method in the future. Meanwhile, Bitcoin and Ethereum are even further behind with transaction speeds of 7 and 20 transactions per second, respectively. This issue severely inhibits the likelihood of either becoming mainstream payment solutions in the future.

But why do these issues arise?

The transaction speed for cryptocurrencies is determined by the time taken to add a transaction to the block, plus the time taken to reach a consensus. The two most well-known mining protocols are Proof-of-Work (PoW) and Proof-of-Stake (PoS).

However, there are significant issues with both of these protocols. For starters, the Bitcoin PoW protocol has incentivised a large number of individuals and organisations to buy more hardware and build huge mining farms, despite the fact that Bitcoin is supposed to be the most decentralised blockchain. Therefore, most of the hashpower is now controlled by a very small number of organisations.

The PoS protocol is touted to have a small number of benefits over PoW–such as, slightly lower computational power requirements, slightly lesser power consumption and slightly faster transaction speeds. However, with the PoS protocol, the more the user stakes, the higher chance they have of being the one to claim the block reward. This means that, yet again, this system mainly benefits large organisations with large sums of money to stake.

So, what’s the possible future of blockchain’s scalability?

There have been several proposed blockchain scaling solutions over the years–from the likes of Segwit, and block size increase to Sharding and Plasma. Each solution has its positives and negatives and there has been significant debate over which is best suitable.

However, this much is certain: to support the increased usage of cryptocurrencies, we need to step up our efforts to find a suitable scaling solution. Whether the issue can be totally solved is yet to be seen but so far, the results are looking promising.

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