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Blockchain Scalability - Issues, Solutions, Trilemma
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Blockchain redefines the financial system we thought we knew and has overall changed the way we see money. It also has a persistent problem - scalability.
The investment of capacity in decentralization and security allows virtually no room for scaling options. This results in sluggish throughput and long queues across blockchains.
The problem isn’t new. Developers have since then created scaling solutions to improve transactional speed. We’ve seen significant changes, but nowhere near the performance level of traditional payment systems, such as Visa.
This article will walk you through the issues with blockchain scalability, blockchain trilemma and the scaling solutions we currently have at our disposal.
The Blockchain Trilemma
When three factors make up a structure, only two of them can be achieved at the same time. This is called a trilemma.
The blockchain trilemma involves decentralization, security and scalability. Crypto networks like Bitcoin and Ethereum must maintain decentralization and security so they give up scalability.
Some systems, like Ripple, choose scalability and security and thus sacrifice decentralization. This isn’t an official formula to determine the state of blockchain, but an observation recognized by experts.
Scalability refers to how well a system can manage increasing amounts of data. Blockchain scalability is how well it can handle an increasing number of transactions. The major part of the issue comes from the fact that the blockchain requires all participants to agree on the validity of transactions.
As of now, Bitcoin has a throughput, or transaction per second rate (TPS), of 7 transactions per second. Ethereum is sitting at a slightly higher spot with roughly 30 TPS.
These numbers aren’t so bad at first glance, but when compared to Visa’s throughput, which is up to about 1,700 TPS, they’re next to nothing.
We also need to understand that throughput isn’t the same as process speed. Bitcoin may have a TPS of 7 but there is a wait time of 10 minutes between each block. This is also known as Finality. It’s a fixed delay to ensure blocks are irreversible. Whatever the throughput rate is, you always have to endure the wait time.
Transactions on the Bitcoin blockchain can take up to 90 minutes to process due to miners confirmation requirements. So when they say 7 TPS it doesn’t mean you can send crypto to seven different people and expect it done in a second.
Blockchain Scalability Solutions
Blockchain is rigid by nature, meaning it’s extremely difficult to alter one aspect without affecting the entire system. That’s why we have forks and sharding where the action is taken elsewhere.
Developers have tackled scalability by creating entirely new chains that connect to the main blockchain. We refer to these as Layer 2, or off-chain solutions.
Layer 2 are solutions built on top of the main blockchain and handle most of the transactions. This will reduce network congestion and improve throughput rate.
Sidechains function as individual networks but communicate directly with the main blockchain. They can off-load transactions and other tasks from the main chain.
We can have many sidechains attached to the same main chain, each with its own architecture. Ethereum’s Plasma is a scaling solution that uses this type of scaling system.
Payment channels are off-chain networks that allow peer-to-peer transactions via smart contracts.
For a small fee, users can create a channel, in which they can privately transact and make payments to each other. Activities in payment channels are operated by smart contracts and global consensus isn’t required.
Once the business is done, users can close the channel and report the final state of their transaction to the main blockchain.
Some of the most popular payment channels are Bitcoin’s Lightning Network and Ethereum’s Raiden.
Blockchain scalability problem is one of the key things keeping it from achieving global adoption. We could use more improvement, but it isn’t our biggest concern. The benefits of decentralization and security still far outweigh the lack of scalability.
The community is always coming up with new ideas and methods to improve blockchain efficiency. We might even find the solution to scalability in the near future but we also don’t know what it would cost. It might be best to focus on enhancing what blockchain does best, providing a secure and decentralized financial system for all.If you want to invest in cryptocurrency and don't know where to start - join Liquid! Founded in 2014, Liquid is one of the world's largest cryptocurrency-fiat exchange platforms serving millions of customers worldwide.