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Blockchain Scalability Challenges: How to Overcome Them

Blockchain Scalability

Financial systems to supply chain management and digital identity. Yet, one major stumbling block has prevented blockchain from becoming globally pervasive, even though its potential is great.

Simply put, scalability in blockchain means how well a blockchain network scales with the increasing volume of transactions without compromising security or decentralization.

With the growth of the blockchain ecosystem, the need for faster and more efficient systems has heightened, which has resulted in a search for ways to improve the scalability problem.

Finally, this article examines the idea of blockchain scalability. These obstacles have slowed its journey, what is being worked on to solve those issues, and how the future of scalable blockchain networks will look.

What Is Blockchain Scalability?

Blockchain scalability is the ability of a blockchain network to support an increasing number of transactions per unit of time without sacrificing its decentralization, security, and integrity.

In a word, scalability refers to a situation where a blockchain is capable of processing more users and more transactions without slowing down, adding fees, and bottlenecks.

Due to transaction processing speed, bandwidth, and overall throughput limitations, public blockchains blockchain networks are faced with limitations. As these networks have grown more popular, these networks are now challenged to scale to meet the needs of a global user base.

Key Components of Scalability

To better understand blockchain scalability, we need to examine its three primary components:

1. Throughput: An indication of how many transactions a blockchain will be able to handle per unit of time. How fast can they process transactions is often measured in transactions per second (TPS).

2. Latency: The amount of time a transaction takes to be validated and confirmed from the blockchain. It means quicker confirmation times.

3. Decentralization: How distributed is a blockchain network across multiple nodes? Higher security is often correlated with higher decentralization, but also with scalability.

Blockchains are frequently an effort at scalability balance. Increasing throughput too much can result in a blocking of decentralization and security which are two fundamental characteristics of the blockchain.

On the other hand, excessive emphasis on decentralization can cause performance bottlenecks that slow down the speed of the blockchain from adding/supporting more users.

The Scalability Problem

It soon realized that blockchain networks resembled Bitcoin and Ethereum, which are considered the two largest blockchain networks based on market capitalization, can scale super slowly.

1. Bitcoin’s Scalability Problem

The proof of work (PoW) consensus of Bitcoin and the block size limitation are the factors that make Bitcoin’s scalability an issue.

While traditional financial systems such as Visa can process over 24,000 TPS, Bitcoin’s blockchain averages about 7 TPS. That limited throughput means transaction confirmations can take a long time during spikes in network congestion, and that transaction fees rise.

The 1 MB block size limit is one of the other key factors that limit Bitcoin’s scalability. The Bitcoin network is limited in how many transactions can be stored in each block, because of a lack of data available to store, the network cannot accept a great volume of transactions at once.

2. Scalability Problem with Ethereum

While scalability remains a challenge for Ethereum, there’s also the added complexity brought on by its more versatile functionality.

While Ethereum’s smart contracts and decentralized applications (dApps) have helped to make it a platform of choice for developers, it does not come by without its scalability issues. Currently, with Ethereum 1.0, Ethereum can only handle about 15 – 30 TPS.

Ethereum has tried to solve the problem of scalability via sharding (splintering the network into smaller segments known as ‘shards’), but its transactions are still sluggish, congested, and rife with fees.

When the Ethereum network sees high demand, it becomes congested, meaning payment transactions take longer and gas fees are prohibitively high.

The so-called scalability issues are the primary roadblock for blockchain networks to use blockchain networks in areas like finance, supply chain, and healthcare to achieve mass adoption.

Solutions to Blockchain Scalability

To overcome scalability challenges various solutions have been proposed; some are currently under development and deployed. These solutions can be categorized into several types:

1. Increasing Block Size

Increasing the block size is one of the most simple ways that users can enhance blockchain scalability. It can reduce the frequency of new blocks being generated and hence boost uptime.

One example is Bitcoin Cash—a hard fork of Bitcoin that increased its block size limit from 8MB to 32MB to allow for more transactions. However, there is a problem with increasing block size, increasing storage, and bandwidth requirements for full nodes that could make the network less decentralized.

2. Layer 2 Solutions

Layer 2 solutions involve protocols on top of the existing blockchain network networks (Layer 1) which are expected to enhance scalability by pulling some transactions processing off the original main blockchain. These solutions can introduce significant gains in throughput while keeping security and disruption to the blockchain at bay.

Lightning Network (Bitcoin)

A layer 2 scaling solution for Bitcoin is the Lightning Network. This is an off-chain payment channel that allows users to make transactions without sending every transaction to the Bitcoin blockchain. Loads of the network are significantly reduced as they only record the opening and closing of the channel to the main chain.

By creating its own layer 2 networks, known as the Lightning Network, Bitcoin can offer near-instant transactions at lower fees, and thus make Bitcoin more efficient and scalable for the average person to transact on. However, the scalability of the Lightning Network will increase as the number of channels open and users join the network.

Plasma (Ethereum)

It’s a Layer 2 solution to the congestion plaguing Ethereum’s main chain. It creates child chains, also known as ‘Plasma chains’, which can carry a very high number of transactions but are independent of the Ethereum mainnet.

Periodically these child chains send summarized data back to the main chain to allow for faster transaction processing while keeping it secure.

Plasma is still in development, though, but has great potential to vastly improve Ethereum’s scaling so that large-scale dApps can work more efficiently.

Optimistic Rollups

Further another Layer 2 solution is Optimistic Rollups, which aim to improve Ethereum’s scalability. Transactions get off-chain and only the final state is pushed to the Ethereum main net, leading to large throughput.

That’s where Optimistic Rollups exist: they’re ‘optimistic’ because they assume off-chain transactions are valid until proven otherwise, which makes them much more ways than traditional Layer 1 solutions.

Over the last couple of years, rollups, both optimistic and zk rollups, have become very popular due to the scalability issue that Ethereum shares.

3. Sharding

The term sharding refers to a method of splitting the blockchain network into smaller chunks when it comes to shards. It enables each shard to do its own transactions and smart contracts, which process its transactions and smart contracts that each independently improve throughput and reduce network congestion.

As Ethereum upgrades to Ethereum 2.0, we approach sharding. The idea is to partition the Ethereum network into Shards, which can handle transactions in parallel, thereby making the whole network much more scalable.

Sharding is an idea that each shard processes a subset of transactions instead of every node processing all transactions. Such allows for increases of massiveness in scalability as error processing power is parsed from each node rather than all huddled together.

4. Proof-of-Stake (PoS) and Alternative Consensus Mechanisms

In trying to scale their networks up, too, many blockchains are shifting – including Ethereum’s – to Proof of Stake (PoS) from Proof of Work (PoW).

That is what PoW makes harder than PoS — it forces miners to spend an enormous amount of energy solving complex cryptographic puzzles, which in turn limits the speed at which a network can process transactions.

Instead of a centralized source of truth, PoS creates new blocks based on the number of tokens a validator has and is willing to ‘stake’ (i.e. act as collateral). Such energy efficiency of this consensus mechanism helps in faster processing of transactions.

Ethereum 2.0 is expected to drastically improve scalability with its move to PoS. By combining PoS, sharding, and other innovations we can get Ethereum to handle thousands of transactions per second making it a scalable alternative to traditional financial networks.

5. Sidechains

A two-way peg is a sidechain that is docked on top of the main blockchain (the parent chain). The side chain enables asset transfer between the main chain and the sidechain, bypassing the main network.

This is a way for activities to begin being offloaded to the sidechain by delegated decentralized applications (dApps) so that the main blockchain’s scalability can be improved.

Sidechains are an elegant way of scaling the blockchain without changing the main blockchain architecture. Projects can offload certain tasks to sidechains so that they can guarantee that their dApps will scale on no penalty of performance.

6. State Channels

State channels are in some ways similar to Layer 2 solutions such as the Lightning Network, but can instead be used to facilitate any kind of interaction.

State channels allow for multiple off-chain transactions to occur, on which only the final state of the interaction is recorded to the blockchain. This is very efficient for highly complex transactions such as for Gaming or DeFi applications.

State channels enable the high scalability of specific use cases in blockchain networks, lowering the congestion on the main chain.

Scaling Blockchain, The Future, There is one solution for blockchain scalability; it’s multi-faceted. But when you combine various approaches like Layer 2 solutions, sharding, and alternate consensus mechanisms blockchain networks are getting better at scaling up their applications to the global and large scale.

If these solutions do not develop, the future of blockchain scalability is much less certain. As more blockchain platforms adopt new technologies like zero-knowledge proofs, rollups, PoS, or sharding scalability will improve enough to make blockchain networks strong enough to support everything from microtransactions to the global financial system.

Furthermore, too, the interoperability of different blockchain platforms will become more and more important. It will be extremely important for the vision of a decentralized future that blockchain ecosystems can easily interact, and scale on the same basis.

Conclusion

One word that lies at the heart of blockchain scalability — global adoption — is crucial to solving the latter.

While networks such as Bitcoin and Ethereum still suffer from scalability problems, the development of creative solutions, including new consensus mechanisms and Layer 2 protocols, sharding, and improvements in their existing implementations, can hopefully allow developers and users to overcome these intractable scalability issues.

As the blockchain space matures, scalability will increase, paving the way for using blockchain technology on real-world use cases that require high throughput and low latency. In return, it will fully unlock the power of blockchain across industries ranging from finance to supply chain.

In reality, even an increase in throughput doesn’t make blockchain scalable, it’s about building systems that are efficient, secure, and able to support decentralized networks at a global scale.

While we are still on the journey to the big blockchain network, the future of the blockchain looks very bright to power the next generation of decentralized applications.

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