Scalability Solutions: Overcoming Cryptocurrency Limitations

When you view the extent of development and innovation achieved with crypto, scalability turns out to be one of the issues facing digital currencies. Since the introduction of digital assets like Bitcoin and Ethereum and the growth in the cryptocurrency network, the increasing number of users and transactions carried out, and the cryptocurrency’s limited blockchain capacity to process these numerous transactions efficiently and rapidly have always proved to be a challenge.

Thus, many organisations and crypto exchange platforms over the past decade have been on their toes, shunning out news on continuous developments geared towards ensuring that the network can handle the increasing transactions carried out daily swiftly and seamlessly. 

Over the years, developers and companies have devised different scalability solutions, including layer 2 protocols, improved consensus mechanisms, SHarding, and much more; the quest for scalability solutions has become fascinating, though complex yet necessary. 

What is Scalability?

Scalability refers to a blockchain’s ability to process more transactions, store data, and reach a consensus as additional users join the network. It is essential for blockchain networks because it is critical to keeping performance stable and reducing downtime as use cases grow. Scalability is needed for blockchain to effectively compete with traditional centralised systems like Visa, which can handle hundreds of transactions per second. However, according to the Blockchain Trilemma, increasing scalability could mean sacrificing decentralisation or security. One website that gives you the latest information about events and happenings in the crypto space, as well as information on the list of high-performing cryptocurrencies, is web.mycoinwiki.com. 

Scalability limitations in cryptocurrency

A major drawback is low transaction throughput and slow transaction processing times. A blockchain network may experience scalability problems if it cannot handle an adequate volume of transactions due to a notable surge in cryptocurrency transactions. This results in longer confirmation and processing times and increased fees.

Secondly, with consensus procedures that are used in these networks, which necessitate that each member validates and stores every transaction, the main cause of the scalability problem is an increase in the number of nodes and transactions. This results in a limited transaction throughput but guarantees security and decentralisation. As a result, these blockchains get congested, which causes delays in transaction confirmation and increased transaction costs.

Lastly, Bitcoin blockchain block generation takes an average of 10 minutes and has a block size limit of 1 MB, which limits the number of transactions that may be contained in a single block and causes scaling problems. Compared to conventional payment systems like Visa, which can process thousands of transactions per second, the Bitcoin blockchain’s present processing capability can only process seven to ten transactions per second (TPS).

What are the Scalability Solutions?

Some of the scalability solutions that have been developed and applied include:

1. Sharding

Sharding is a popular on-chain scalability technique that Ethereum introduced to enhance the scalability of its blockchain. In order to do this, the blockchain network is divided into smaller, easier-to-manage data sets called shards.

Transactions can function as the sum of their parts when they are divided into smaller chunks, with each shard managing a particular aspect of the group’s transaction processing.

Sharding essentially does away with the requirement to depend on the functionality of individual nodes in order to achieve faster and more effective transaction throughput.

2. Layer 1 (On-chain)

Layer 1 is the most popular first layer or on-chain scaling solution for cryptocurrency. This solution alters blockchain’s fundamental architecture by optimising the underlying protocols to boost transaction throughput. Layer 1 has three compartments that were developed and implemented by developers, including hard forks, Segregated witness (SEGWIT), and Sharding.

While, the hard fork is a process that concentrates on altering a blockchain network’s basic or structural characteristics. A hard fork could result in a larger block that takes less time to produce. Although layer 1 blockchain scalability solutions require hard forking, the most fruitful alternative is a controversial hard fork. SEGWIT was designed to enhance transactions by changing how data is stored by reducing the size of network blocks, which increases the capacity and storage space available for transactions inside Bitcoin’s 1MB storage blocks. Sharding, on the other hand, essentially do away with the requirement to depend on the functionality of individual nodes to achieve faster and more effective transaction throughput.

3. Layer 2 (Off-Chain)

By adding further layers, or supplemental protocols, on top of the current blockchain network without fundamentally altering the underlying protocol, layer 2 solutions seek to address scalability issues. To boost the primary blockchain’s capacity and improve transaction throughput, these auxiliary protocols would be used to “offload” transactions off the main blockchain process, settling them periodically back on-chain.

These layers may consist of side chains, state channels, and protocols like Lightning Network and Plasma that let users transact quickly and cheaply. 

Alternatively, solutions like proof-of-stake (PoS) and delegated proof-of-stake (dPoS) have also been deployed. These are more scalable systems since they process transactions faster and use a lot less energy. For instance, Ethereum switched from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus method, which increased transaction throughput and dramatically decreased energy usage. 

Final Thought 

Blockchain scalability appears to have a bright future ahead of it, with more developments in scalability techniques anticipated. The balance between security, decentralisation, and scalability will be improved as blockchain technology develops, bringing us closer to a decentralised and scalable future and accelerating blockchain’s widespread adoption across a range of industries.