Blockchain Scalability: An Overview

 The problem:

While Bitcoin and other cryptocurrencies have a number of undeniable advantages over traditional forms of digital payment such as credit cards and PayPal, they are still plagued by several serious issues which must be addressed before they will ever see widespread mainstream adoption. One of the most pressing of these challenges is that of scalability. Scalability refers to a payment system’s ability to process a large volume of transactions. Credit cards can handle a volume of around 10,000 transactions per second. Compare this to Bitcoin’s comparatively measly 7 transactions per second, and the problem becomes obvious. This discrepancy in speed is due to the basic structure of blockchain based cryptocurrencies. Unlike a credit card transaction, which is validated by one central authority before being processed, blockchain based transactions must be validated by a distributed network of many nodes, which greatly increases the time it takes to process a transaction.   

 Solutions:

Several promising scaling solutions have been proposed, and a number of them have already been implemented. The various scaling efforts can be broadly divided into two main categories, ‘on chain’ and ‘off chain’. On chain scaling refers to changes made to the underlying blockchain protocol which enable it to process more transactions per second. Examples of these include Bitcoin’s SegWit update, and the delegated proof of stake (DPoS) consensus mechanism used by Bitshares, EOS, and others. Off chain scaling refers to solutions which process transactions off of the main blockchain through a variety of different mechanisms such as ‘channels’ or ‘side chains,’ without modifying the original blockchain protocol. Examples of these include Bitcoin’s Lightning Network and Ethereum’s Raiden Network.   

 The future:

The combination of on chain and off chain scaling solutions has the potential to not only match credit card’s current transactions per second, but to far exceed them. The Lightning Network, which is currently functioning in the wild, is claimed to be able to process millions or even billions of transactions per second! The developers of Lightning Network and other scaling technologies are making rapid progress, and it is only a matter of time until they achieve their goals.   

 

 Sources: 

 https://bitcoin.stackexchange.com/questions/63375/what-is-the-difference-between-on-chain-scaling-and-off-chain-scaling 

 https://www.cryptocompare.com/coins/guides/scalability-and-the-future-of-cryptocurrency/ 

 https://www.washingtonpost.com/news/the-switch/wp/2013/11/12/bitcoin-needs-to-scale-by-a-factor-of-1000-to-compete-with-visa-heres-how-to-do-it/?noredirect=on&utm_term=.4bf1ead10348