The scalability problems seem to be never-ending with Bitcoin. Other cryptocurrencies that were created after Bitcoin promise to solve Bitcoin’s scalability problems, but have they been able to do so or does scalability remain a problem? All these questions will be answered in a five-minute read.
The simplest definition of Blockchain you’ll find on the Internet is that it is a decentralized and distributed ledger that stores online transactions. Think of a bank ledger that records all transactions, the transactions in this case are shared and made public. A quick review of the features of blockchain technology is the best way to understand what blockchain means.
- Immutability: When you hear immutable the next thing that comes to your mind is not being able to change or alter. Blockchain technology is immutable in the sense that data already stored in the database cannot be changed, altered or manipulated, Traditional ledgers that record transactions can be changed or manipulated if they are not well protected, blockchain being immutable means once a transaction is validated by different nodes, it can no longer be changed because it has been added to the public ledger and anyone can’t go back to change or delete the transaction.
- Decentralisation: Blockchain is decentralised, this means it is not controlled by a central body; it is not controlled by any government or bank. Sending, receiving and validating transactions is not done by a central body but instead by person to person and through a number of nodes.
- Transparency: An open ledger implies transparency, and so, every transaction that takes place on the blockchain is recorded and is open to anyone who checks them. So a sender cannot lie about sending a transaction that never occurred. Same as how the receiver can’t lie about not receiving a transaction after being sent as it would have been validated and recorded on the blockchain.
- Security: Blockchain is secured through cryptography and of course, that is where the word cryptocurrency comes from. Every block created has its own hash that identifies it, and each block is related to the previous block which is the main reason why it is secured and can’t be changed.
Scalability in Blockchain
Think of scalability as a system’s ability to process and accept loads of transactions. In blockchain, scalability is the number of transactions that can be processed by a particular blockchain. It is most often referred to as TPS i.e transaction per second. The bitcoin blockchain can process about 7 transactions per second, while Ethereum processes about 20 transactions per second. 7 TPS is considered poor for a blockchain that has a record of over 70 million users. What happens when a blockchain like Bitcoin and Ethereum has more transfers than it can take per second? All transactions are refilled and a queue will be formed, the transaction with the highest gas fee is processed first, this in turn slows down the transaction speed of other transactions. This is the same reason why Ethereum has a high gas fee. It is just like multitasking and overloading a computer system with 1GB of ram, the system will process data slower than expected until the user provides more ram to juice up the computer.
Effects of Poor Scalability
Bitcoin transactions take 10 minutes to be completed, this is relatively slow compared to other means of transferring currency, 7 transactions per second is not enough and can be considered as slow. The confirmation time will also increase when the network gets congested and this is as a result of poor scalability.
Increased gas fees is another shortcoming of a low-scaled blockchain, once the network gets congested, senders will have to pay higher fees in order to get their transactions confirmed faster. The transactions with high priority gas fees will be confirmed faster. Although there are ways to reduce transaction fees in situations like this, like setting the priority to low when sending from a wallet or an exchange, the only thing is that the transaction will be slower.
Miners also suffer difficulties when mining blocks, resulting in a need for greater computational power and resources which can cost the miners more. This is why miners prefer to mine in countries where electricity is cheap.
Solutions for Poor Scalability
Of course, when a problem arises, people and organisations come up with solutions to solve them especially in a general problem like poor scalability. Some of these solutions include Off-chain scaling solutions and On-chain scaling solutions.
This involves building another protocol that lives on a Blockchain. Let’s look at it as adding another layer to a main chain. So transactions that happen off-chain do not stay on the main chain and both the sender and receiver can carry out transactions without bloating the main chain. For better understanding, think of an off-chain solution as building a new coach on a school bus; the students in the main coach don’t see or get affected by the ones in the upper coach. Examples of off-chain solutions include sharding, side chain and payment channel.
- Sharding involves dividing nodes into different shards where each shard consists of a part of the transaction; this method can improve the efficiency of the blockchain and improve scalability. Ethereum 2.0 promises to use sharding to improve scalability by breaking the blockchain into 64 shard chains; if this is done, the TPS of ethereum can increase from 20 to about 100,000 transactions per second.
- Sidechain on the other hand involves building a separate blockchain that is pegged to the main chain. Transactions can then move freely from the main chain to the side chain.
- Payment channel: a common example is lightning network, Bitcoin lightning network involves the two parties sending and receiving to be online for the transaction to be completed. Although the off-chain solutions have their downsides, they can still be used to escape high transaction fees, a congested network and help to process transactions faster.
On-chain Scaling Solutions
On-chain solutions are made by increasing the size of each block. A block on a Bitcoin blockchain is usually 1MB. Increasing this size is a method for providing on-chain solutions to poor scalability. Other activities related to on-chain solutions include smaller schnorr signatures, key aggregation, faster blocks and so on. Although an on-chain solution can solve scaling problems, it has its downsides like forks occurring and this may increase the cost of maintenance of the chain.