What Is Blockchain Scalability and Why Does it Matter?
When we talk about the need for increased blockchain scalability, we primarily refer to its capability to process more transactions and therefore allow a more extensive user base to maintain or get the access to the network. This matters because, well, the end goal is to at least try to switch to decentralized systems and their currencies and leave the centralized institutions such as banks or any other middleman behind.
However, that wouldn’t be possible, at least not with an un-scaling blockchain network, and allow me to explain why.
We want to erase the middleman, right? Well, let’s take one as an example. Visa is a middleman between financial institutions and consumers, and it’s a popular platform because its users can benefit from cross-border transactions, data processing, digital cards, non-card payment options, and similar services for a semi-reasonable (and non-negotiable, I’m afraid) fee.
But not only is it a convenient option for clients, it’s also fast. When you use your card in the supermarket or gas station, the card reader takes less than 10 seconds to process the payment.
Visa’s processing network differs significantly from blockchain networks, but the main difference lies in transaction processing speed. According to their official website, Visa can process around 60,000 transaction messages in one second. Realistically speaking, that number has to be a lot lower, as regular technical issues do affect the processing speed.
Photo illustration: Freepik
Nevertheless, blockchains couldn’t come close to Visa’s processing speed for a very long time. Bitcoin still only supports a total of 7 TPS (transactions per second). But, if we could come up with a scaling solution that would not only match Visa’s processing power but also surpass it, the idea of decentralized adoption would be more realistic and achievable.
What Is the Actual Problem Here?
As I mentioned earlier, scalability wasn’t the top priority for the OG blockchain builders. And now that the demand has risen, the technology we have cannot scale along with the demand. As a result, for example, the Ethereum network was regularly congested before switching to the Proof-of-Stake (PoS) consensus mechanism. This continuous restriction resulted in higher network fees and gas prices. People still had to wait to interact with the network, and the rise in demand didn’t spare them from paying higher fees.
The volume of processed transactions needs to increase to unlock the power of decentralization and ensure every user can hop on the network and use it to their advantage. More specifically, the network must process more transactions per second (TPS) in order to scale.
However, to achieve that, we must not sacrifice other integral parts of the network – security, and decentralization. Besides, some theorize that, between scalability, decentralization, and security, blockchain devs can only implement two of these features successfully. But this scalability trilemma is soon to be fully disproved, as our blockchains are scaling rapidly. And no, security and decentralization won’t be sacrificed for the sake of scalability.
Types of Scaling Solutions
Networks such as Bitcoin and Ethereum weren’t really scaling-friendly when they first appeared on the scene. Don’t get me wrong; Bitcoin still struggles with scalability. And who am I kidding? With roughly 30 processed TPS, Ethereum struggles too. But let’s give Ethereum credit because the numbers have tripled since The Merge happened, and could reach 20,000 TPS in the near future. But then again, more is needed to achieve their scaling goals; hopefully, the upcoming sharding implementation will help Ethereum gravitate toward faster scaling.
But sharding, for example, is just one of the possible scaling solutions. So, let’s explain what it is and see what other answers to scaling problems exist out there.
Layer-One Scaling Solutions
We can separate blockchain scalability solutions into two groups – Layer 1 and Layer 2 solutions. The term “Layer 1” describes the base level of every blockchain architecture. That said, when implemented, the Layer 1 solutions affect the core rules and mechanisms of blockchain technology.
Some of the most popular Layer-1 scaling methods are:
Sharding – a scaling method including network partitioning. With sharding, which, of all networks, Ethereum first embraced, the blockchain will be divided into segments, or shards, that will exist within nodes. Since its inception, nodes on blockchains each keep a record of all transactions within the ecosystem. Sharding, on the other hand, will partition that data and put it into shards, and each shard will be responsible for processing a certain amount of data. However, blockchain sharding is still just a theory, which is why lots of security issues still exist.
Hard forks – similarly to other Layer-1 scaling solutions, hard forks are radical changes to the network’s protocol. When an ecosystem goes through a hard fork, all nodes within the network must switch to the new protocol and abandon the previous version. The divergence is permanent, and all nodes or users must agree to it. Changes following the fard fork could be anything from changing the block size to switching from PoW to PoS – exactly what Ethereum did during The Merge.
Segregated witness (SegWit) – is a scaling solution primarily for Bitcoin and a few other blockchain ecosystems. When implemented, SegWit improves network scalability and capacity by dividing transactions from signature data. The signature data, which is essentially a signature attesting transaction uniqueness, is then stored outside the blocks, leading to increased blockchain capability to handle more transactions per second.
Photo illustration: Freepik
Layer-2 Scaling Solutions
Layer 2 solutions won’t affect the network directly. Instead, they bring in external networks to fix the scalability problems. For example, creating an external network and running it in parallel with the main chain will allow users to facilitate more transactions and, therefore, increase scalability. Here are some examples of 2-Layer scaling solutions:
The Lighting Network – a prominent off-chain approach to improving Bitcoin’s blockchain capacity. The Lighting Network is an external network built on top of the Bitcoin ecosystem that enables smart contract functionality for the leading network. The Bitcoin mainchain doesn’t integrate it, but it does interact with it.
State channels – one of the primary choices for Layer-2 scaling. It refers to creating state payment channels right outside of the blockchain or off-chain – as it’s often referred to – to support upcoming transactions. These off-chain transactions improve blockchain scalability without changing the fundamental network structure.
Sidechains – as the name says, sidechains are independent blockchains, and they work in parallel to the main chain, reducing it transaction load and improving scalability.
All of these solutions, whether they are Layer-1 or Layer-2, are effectively solving the blockchain trilemma, a theory stating that one feature must always be sacrificed to achieve the other two (according to this, either security, decentralization, or scalability needs to go to achieve the other two) goals. Although that might have been true, the current blockchain development is far more advanced than five years ago, not to mention the difference between recent blockchain development and what we used to do when it first appeared on the scene.