Overview of Scalability in Blockchain
Scalability in blockchain, which largely refers to transaction speed, is undoubtedly the crypto industry’s simultaneous holy grail and bottleneck. Cryptocurrency transactions currently take longer than regular payment methods. However, there are a variety of hypotheses being developed in the crypto communities on how to best get past this obstacle and the promise advancements that could eventually lead to nearly instantaneous transaction speeds.
The Blockchain Scalability Trilemma
The scalability of the blockchain is one of the biggest obstacles for cryptocurrencies is the trilemma. It claims that you can only concurrently achieve two of decentralization, scalability, or security—never all three. Trade-offs are therefore unavoidable.
Vitalik Buterin, the creator of Ethereum, originally came up with the term “trilemma,” which he used in reference to this challenge of blockchain technology. Trilemma is not a rigorous mathematical proof, merely an observation. Even though the trilemma is challenging, unless it has been demonstrated that it cannot be solved, an algorithm that can do so may exist.
The level of ownership, power, and value diversity on a blockchain is referred to as decentralization. Since no one entity can control the entire network, cryptocurrencies are often considered to be “decentralized.” Decentralization, however, is a spectrum rather than a simple “yes” or “no,” and different projects like Bitcoin, Ethereum, Ripple, EOS, etc. exhibit varying degrees of decentralization.
Security is the capacity of the blockchain to withstand intrusions from outside sources and the system’s resilience to manipulation. A blockchain system is vulnerable to numerous assaults, including double-spending, sybil, DDoS, and 51% attacks. Greater decentralization is achieved with greater freedom, i.e., free entry and exit from the network, but security is decreased since it is difficult to confirm the identity of new players, who may be controlled by a single bad entity or collaborate together to disrupt the network.
The network’s capacity is determined by scalability, which also affects the number of network nodes, the amount of transactions the network can handle, how quickly the network can handle transactions, and other factors. Because Bitcoin’s blockchain is scalable as additional users join the network, the term “scalability” is ambiguous. The PoW algorithm will automatically alter the level of difficulty, and the network may support any quantity of nodes.
Blockchain Scalability Problems
The adage “Bitcoin is not scalable” focuses mostly on its throughput, or the fact that it can only process seven transactions per second, which is insufficient for real-world application when compared to VISA, which is said to be capable of 24,000 tps. Another blockchain scalability problem is that individuals won’t wait an hour to validate that their purchase of a cup of coffee is legitimate.
Blockchain Scalability Solutions
In order to enable quicker transactions, second layer scalability solutions add a second layer to the primary blockchain network. The main blockchain is connected to a smaller blockchain known as a sidechain. Using a two-way peg, the mainchain and sidechain assets can be traded at fixed prices. By relocating certain programmes on sidechains, sidechains can be utilized to unload off the mainchain.
An off-chain network that exists in addition to the main blockchain is known as a payment channel. The goal is to create a communication path between the parties involved in a transaction. Since every transaction in the channel happens off-chain, there is no need for universal consensus.
As a result, these transactions are carried out rapidly, with incredibly cheap fees, and using smart contracts.
The Transaction Speed of Cryptocurrencies
How does transaction volume compare to processing time? Throughput measurement alone is insufficient; confirmation time must also be taken into account. Simply expressed, even if a protocol has a processing rate of up to 100,000 tps, a two-day confirmation time will prevent it from being used in daily life. Throughput won’t drop when the network is congested, but the confirmation time will because of the longer average first block waiting time. To be sure the block cannot be reversed, we must wait for the “6 blocks confirmation.” The length of the first block wait varies based on the circumstances.
Existing and Future Approaches to Scalability
There are many other problems that come up when trying to find a solution to the blockchain scalability issues. If the solution, for instance, only applies to one specific blockchain, then the work is unnecessary or misdirected unless it is assumed that this specific blockchain would eventually require blockchain scalability. Knowing the potential trade-offs is another factor to take into account. All currently offered options have their limits.
1. Batch Payments into one Transaction
By combining several transactions into one, it reduces the size of a transaction record and permits more transactions overall per block, which can somewhat enhance TPS. Through the RPC sendmany, Bitcoin has supported batch payments. One benefit of doing this is that you only have to pay one transaction charge and you don’t need to type down the entire transaction information. However, it has some restrictions, such as the inability to group transactions from various wallets.
2. Bitcoin Cash
Compared to Bitcoin, Bitcoin Cash may store more transactions in a single block, increasing the maximum TPS. However, it is merely a short-term fix because the TPS is still much lower than the 1,700 worldwide TPS that Visa conducts on a typical day. The approach cannot work for other blockchains because it is specific to Bitcoin Cash.
As an alternative to Bitcoin with the added benefit of speedier transactions, Bitcoin Cash is a hard fork of the original cryptocurrency. Its main function is to raise block size (B); although having faster transactions than Bitcoin, it still lacks the necessary TPS to compete in the world of international trade.
3. The Lightning Network
Transactions between parties happen almost instantly, without fees, off-chain, and are only possible on blockchains built on the Bitcoin core if users have lightning nodes.
The Lightning Network is a Bitcoin-only solution for off-chain dealing, accessible for Bitcoin and Bitcoin-forked blockchains like Digibyte and Litecoin. It allows you to take your Bitcoins off the blockchain and transact privately with another party. The benefit it offers is instantaneous, fee-free transactions, which makes it possible to make little purchases right away, like a cup of coffee.
4. EOS and other High Performance Blockchains
High theoretical scalability is accompanied by centralization, which may result in censorship. Blockchain applications with high performance employ several consensus techniques. Even though EOS only has 21 nodes, its Block Producers froze seven EOS accounts in June 2018. While the justification for the freezing may be sound, it shows how much control one company has over the entire blockchain and their capacity to exercise that control. Scalability is something the blockchain community craves, which is why EOS is so popular, but the cost of scalability is censorship and control because of centralization.
It is a blockchain-agnostic on-chain solution, making it scalable for potentially all blockchains. Although it is still in development, creating and maintaining a global CDN is a costly task that has not yet been completed in the blockchain industry.
Startups are beginning to form outside of blockchain-specific projects to address the issue on a bigger scale. In order to address scalability difficulties, bloXroute proposes to transpose a content delivery network (CDN) onto blockchain networks.
Why does the Finance Sector need Blockchain?
Blockchain technology has made it possible to move money in the financial sector while having faith in the transaction’s security and dependability. Everyone on the network is sent a copy whenever a new transaction and block are added. It offers a precise, time-based history of the transactions. Although many people worry about online scams, blockchain-based payments are rapid and reversible. Additionally, especially for expensive things, they are less expensive than using banking services. Blockchain is a great way to keep track of transactions and guarantee reliable, secure data.
Due to the low cost of blockchain, startups have an opportunity to compete with established banks, hence encouraging financial inclusivity. Due to limitations like minimum balance requirements, limited access, and banking fees, many consumers are searching for banking alternatives.
A Deep Dive into Blockchain Consensus Protocols
While a large number of people can use Bitcoin, a huge number of transactions cannot. Alternative consensus models include:
- Satoshi Nakamoto’s proof-of-work consensus, which offers a fresh approach to the Byzantine Generals Problem in a permissionless environment.
- Classical consensus refers to the conventional algorithms that were studied before Bitcoin was created. They concentrate on fixed peer-sets with numerous voting rounds to achieve network-wide consensus.
- All network participants are permitted to suggest recent transactions in a new emergent direction utilizing leaderless consensus. These transactions will eventually propagate throughout the entire network, allowing the network as a whole to reach an agreement on which transactions to include or exclude.
New Directions for Ramping up Blockchain Scalability:
Blockchain scaling is challenging, however several initiatives are being made by the academic community and the cryptocurrency sector to address the scalability trilemma. There are three ways to scale blockchain technology:
- Layer 1 (on-chain)
- Layer 2 (off-chain)
- Other consensus
Layer 1 Solutions:
First layer solutions necessitate modifying the blockchain’s core programming. A blockchain with on-chain scalability represents structural change.
1. Segregated Witness:
The Bitcoin protocol upgrade known as SegWit modifies the structure and method of data storage. Segwit was designed with the goal of resolving the transaction malleability issue. A transaction’s digital signature, which confirms the sender’s ownership and fund availability, takes up a lot of space. Each transaction’s signature data is removed, freeing up additional space and allowing for the storage of more transactions.
Despite the fact that SegWit boosts throughput and makes it possible for Bitcoin to process more transactions, it is not a viable scaling solution for a number of reasons. Segwit is not a universal scaling solution, to start with. Second, it can be used with the sole blockchain built on bitcoin. Third, Segwit increases the number of transactions that Bitcoin can handle but does not shorten the confirmation time.
Sharding, commonly referred to as horizontal partitioning, is a type of database partitioning. A large database is divided into smaller, more manageable chunks as part of the process, which aims to boost efficiency and speed up query execution. One way to think of blockchain is as a distributed database. The blockchain network will be split into many segments thanks to sharding, and each segment will be controlled by specific nodes that have been assigned to it.
By doing this, the system’s throughput can be significantly increased because arbitrary numbers of node clusters can operate concurrently to process the transactions.
Processing Things Piece by Piece: What is Sharding?
Blockchain sharding involves dividing the network into numerous units known as shards. A distinct set of smart contracts is stored in each shard. Instead of the entire blockchain network, a shard will be used for transaction validation. The blockchain may be grown indefinitely by adding shards and carrying out transactions. Security and complexity are the biggest drawbacks.
In a segmented blockchain, hackers can quickly take over a single shard due to the low hashing power needed to manage individual segments. Once compromised, malicious transactions can be broadcast to the system’s central network, causing havoc throughout. In contrast to side chains, sharding has the property of tight coupling. Given that sharding requires network splits and state reassignments, implementing it on existing blockchain networks is exceedingly challenging.
Blockchain’s Perceived Importance:
Even though it is for those who write about it, blockchain is not the next big thing for IT professionals. Out of the eight, blockchain had the lowest adoption recommendation rate (51%), was seen as having the least chance of developing (11%), having the highest chance of not developing (22%), and ranking in the top two of technological possibilities that people were unsure about.
Layer 1 Scaling Solutions: A Revolution in the Blockchain World:
The only tested approach that might function in the Bitcoin network is the lightning network. Joseph Poon and Thaddeus Dryja first introduced the lightning network in a white paper in 2015. A second-layer payment protocol that operates on a blockchain-based system is called the lightning network.
By committing a fund transaction to the appropriate foundation blockchain, it enables users to establish payment channels between two parties on Layer 2. These channels can last as long as necessary, and because they can only be established between two parties, transactions nearly always happen instantly with very little cost. The total balance of the transactions will be published and recorded in the base blockchain once the payment channel has been closed.
Digital cryptocurrency systems are built on the blockchain, which does away with the necessity for a centralized authority in a decentralized network. Blockchain is a method that enables information sharing in a peer-to-peer connected, decentralized network made up of unreliable people in a transparent and secure manner.
By adhering to a clear set of guidelines known as a consensus protocol, blockchain technology protects the security, equality, and fairness of the system. Blockchain technology’s key consensus protocols protect the network from numerous frauds and threats. If a system is protected by these protocols, it is almost impossible to compromise it.
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