How to understand the problem of scalability in blockchain?
Blockchain has attracted a lot of attention from the fintech community as this industry is more compliant with the innovation that can fundamentally change the processes and economics in a digital ecosystem. Thus, to compete with more widespread payment systems like Visa and PayPal, the technologies responsible for the processing of transactions need to be seriously improved. This article is dedicated to the issue of blockchain scalability.
Blockchain has an inherent problem known as the scalability trilemma. It is based on the complexity of creating a fast, decentralized, and secure network simultaneously. Therefore, developers often have to choose and optimize only two components out of three. Although the concept of scalability is well defined in many scientific fields, it has quite a few meanings in the blockchain world. For most computer systems such as a database or a search engine, the term scalability refers to the ability to handle an increasing amount of information. The system scales poorly when it requires extra effort to modify the system to be able to handle the increased load. As a result, the time to process transactions increases, and miners raise additional fees to verify it.
Most blockchains are inferior to traditional centralized solutions in terms of the number of transactions per second (TPS). For example, the bitcoin blockchain has a throughput of 5–7 TPS and the first version of Ethereum has a throughput of about 15 TPS. According to Visa officials’ data, Visa’s network is capable of handling from 4,000 to 65,000 TPS. PayPal has an average of 488 TPS in 2020 and a peak of 1,000 TPS. The only way to improve the TPS indicator is to optimize and handle scalability issues. These problems can be characterized as follows:
- time to add a transaction to the block
- time to reach a consensus.
As a result, the time to process a transaction is restricted by the complexity of mining that grows with every halving. In the past, even a laptop was enough to do this, but now there are mining farms and pools that operate on efficient equipment such as video cards or ASICs. As soon as the block is closed i.e. the transaction is processed, the miner gets a reward of cryptocurrency. Increasing the size of the block and therefore the number of transactions that can be added to it is a logical solution in terms of software to compete with other payment systems.
In theory, the easiest way to solve the blockchain scalability problem is to increase the block size so that more transactions can be added and fees can be reduced. On the other hand, increasing block size leads to centralization and requires a hard fork in the perspective, so it will split the community and the network itself. As a result, it could not be seen as a long-term solution to the problem.
However, the blockchains of major cryptocurrencies, as well as altcoins face problems of both technical and economic levels. Since the scalability issue is not even close to being solved, we will see new scalable blockchain systems in the future. Theoretically, all existing approaches have their pros and cons, scaling poorly in all situations. Moreover, the security of some methods remains unproven or proven only on a theoretical level.
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Valentina BEREZA, Team bit4you