Blockchain is the backbone of many decentralized applications and assets, the most popular being cryptocurrencies. It has gained popularity because of how it perfectly blends security and decentralization. However, as a blockchain network grows, it struggles with handling the increasing number of transactions without degrading performance. In the long run, this scalability issue affects the broader adoption of decentralized networks.
In this article, we will be exploring blockchain scalability challenges and solutions. We will also be analyzing other emerging solutions that will further address these hurdles in the near future. Keep reading to find out!
KEY TAKEAWAYS:
- Blockchain scalability challenges describe how decentralized networks struggle to maintain their performance as they grow.
- Key scalability issues include network latency, slow speed and transactions-per-second, and block size limitations.
- There are both on-chain (Layer 1) and off-chain (Layer 2) solutions to scalability challenges.
- On-chain solutions include sharding, proof-of-stake (PoS), and block compression. Examples of off-chain solutions are state channels and rollups.
The Scalability Trilemma
You need to understand how blockchain works to get how important scalability is. A blockchain is a decentralized record of transactions across a network called nodes. These users are responsible for verifying transactions and adding them to blocks. Over time, the blocks are chained to form an immutable ledger. But, as the network grows, it would find it difficult to handle large transactions.
The term “scalability trilemma” was coined by Vitalik Buterin, Ethereum’s co-founder. It describes the challenge a blockchain project faces in balancing decentralization, immutability, and scalability. Most of them excel in two of these aspects while struggling with the third.
For example, Bitcoin and Ethereum have largely achieved decentralization and security, but they experience limited scalability. To ensure large-scale adoption, this issue needs to be addressed without compromising the principles of blockchain technology.
Key Scalability Challenges
Blockchain is indeed a revolutionary innovation. However, it has several scalability challenges that have affected its growth. Some of them include:
Transaction Throughput and Speed
Bitcoin and Ethereum can only handle 7 and 15 transactions per second (TPS), respectively. In contrast, regular payment systems like Visa processes over 24,000 TPS. This is because their proof-of-work (PoW) consensus mechanism needs significant time and energy to validate transactions. Ultimately, these networks experience network congestion, high fees, and slow transaction times.
Block Size Limitations
A Bitcoin block size is 1 MB, which limits the number of transactions that can be processed per block. On the other hand, larger blocks need higher storage and bandwidth. This reduces the goal of decentralization because only a few nodes can afford the resources to run the network.
Network Latency
Latency refers to the time taken for information to travel between nodes. High latency slows down the performance of the network. Also, you can expect further delay as the number of validators increases.
Energy Consumption
PoW’s energy consumption contributes to a blockchain’s inefficiency. Mining uses massive computational power and high energy costs. This raises a concern of sustainability alongside performance.
Solutions to Blockchain Scalability Issues
Numerous projects have been developed to overcome these scalability issues. They fall into two broad categories: on-chain (Layer 1) and off-chain (Layer 2). On-chain solutions aim to improve the capacity and efficiency of the network itself. Conversely, off-chain solutions reduce the load on the primary chain by processing transactions outside the main blockchain.
Let us examine these solutions briefly.
On-Chain (Layer 1) Solutions
- Sharding: Here, data is split into smaller pieces (or shards) and processed in small groups across the network. This parallel processing improves throughput while compromising security.
- Proof-of-stake (PoS): This is an alternative consensus mechanism to PoW, which doesn’t need computational resources. In PoS, nodes stake an amount of their token as collateral to be selected as validators. This process improves transaction speed and scalability.
- Block compression: Here, transaction more data is compressed to fit into each block. As such, more transactions are processed without increasing block size. Technologies like zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge) are used to achieve this.
Off-Chain (Layer 2) Solutions
- Layer-2 solutions: These frameworks are built on the existing blockchain. They execute transactions off-chain and settle them on the primary chain to reduce congestion. Examples are the Lightning Network for Bitcoin and Plasma for Ethereum.
- State channels: These allow participants to exchange messages and transactions without interacting with the major chain. When the users close the channel, its final state is recorded on-chain.
- Rollups: Here, multiple transactions are bundled together and processed off-chain. Then, the final state is submitted to the main chain.
Emerging Blockchain Scalability Solutions
The blockchain scalability sphere is still evolving. Indeed, its future lies in a combination of the approaches mentioned above and the following upcoming innovations:
- Sidechains: These are independent chains that run parallel to the main network. Sidechains allow assets and information to be transferred between both blockchains. Their architecture provides additional processing power without affecting the major chain.
- Decentralized file storage: Decentralized file storage solutions like IPFS (InterPlanetary File System) and Arweave allow off-chain data storage. This reduces the amount of data the nodes need to process and store.
- Cross-chain interoperability: Instead of every blockchain handling all its transactions, cross-chain protocols allow them to share workload. Projects like Polkadot and Cosmos are making it possible for multiple blockchains to operate and distribute traffic across one another.
Conclusion
Blockchain scalability is indeed a big issue in the tech industry. Thankfully, there have been significant efforts made so far in addressing this. As the emerging solutions are also improved, there is hope that the scalability trilemma will eventually be resolved.