Blockchain Scalability - Sidechains and Payment Channels
Scalability broadly refers to a system’s ability to grow to accommodate increasing demand. In computing, you might boost your machine’s performance by upgrading its hardware so it is faster to perform certain tasks. When we speak of scalability in blockchains, we refer to growing their capacity to handle more transactions.
Protocols like Bitcoin have many strengths, but scalability is not one of them. If Bitcoin were run in a centrally-owned database, it would be relatively easy for an administrator to increase speed and throughput. But Bitcoin’s value propositions (i.e., censorship-resistance) require that many participants sync a copy of the blockchain.
The blockchain scalability problem
Running a Bitcoin node is relatively cheap, and even simple devices can do it. But since the thousands of nodes need to stay up-to-date with each other, there are certain limitations on their capacity. Caps are placed on the number of transactions that can be processed on-chain, so as not to allow the database to grow to unwieldy sizes. Should it become too large too fast, nodes will be unable to keep up. Moreover, if blocks are too big, they can’t be rapidly relayed around the network.
As a result, we find ourselves at something of a bottleneck. A blockchain can be viewed as a train service that departs at set intervals. There are only limited seats in each carriage, and to obtain a ticket, travelers must bid to guarantee a place. If everyone is trying to get on the train at the same time, the price will be high. Similarly, a network clogged with pending transactions will require users to pay higher fees to see their transactions included in a timely manner.
What are off-chain scaling solutions?
Off-chain scaling refers to approaches that allow for transactions to be executed without bloating the blockchain. Protocols that plug into the chain allow users to send and receive funds, without the transactions appearing on the main chain. We’ll dive into two of the most notable advances on this front: sidechains and payment channels.