Blockchains and the Scalability Problem: Why It’s So Difficult to Scale Blockchain Technology
“Scalability” is one of the biggest buzzwords in the cryptocurrency industry. Spend a few seconds reading through any cryptocurrency community online and you’ll see ample discussion of scaling issues.
Do blockchains have a scalability problem? Is it harder to scale blockchain technology than, say, a centralized ledger system? Is blockchain doomed to fail because of its scaling problem?
These are all good questions. Toju Ometoruwa answered these questions last week with a blog post on CryptoPotato.com. In that post, Ometoruwa discussed how different blockchain projects are scaling their networks – and the problems they’re encountering along the way.
Blockchains Have a “Scalability “Trilemma”
Ethereum founder Vitalik Buterin first coined the term “scalability trilemma” when referring to the scalability of blockchain technology. Blockchains struggle to scale without compromising any one of the following three core principles:
There are blockchain technologies that are scalable and secure – like Ripple – but they’re not decentralized.
Other blockchain platforms can easily scale – but they’re forced to compromise decentralization or security to properly scale.
Let’s take a look at how different blockchain networks scale – or are attempting to scale.
Bitcoin (Decentralized and Secure, But Not Scalable)
Bitcoin (BTC) was the first blockchain. Considered blockchain 1.0, the bitcoin blockchain is the most secure and decentralized blockchain in the community today.
Bitcoin uses something called sovereign-grade censorship resistance. To be considered sovereign-grade, the network requires enough decentralization to secure a network from being manipulated or attacked by governments. In other words, the bitcoin network is so secure that it’s resistant to government censorship.
Bitcoin is primarily built to store value. Security is of the utmost importance. However, we’ve also seen bitcoin struggle to scale effectively. Block size limits of 1MB have constrained the network, creating bottlenecks, high transaction fees, and long transaction times, among other issues.
As of now, bitcoin (BTC) has no scaling solution. The long-awaited Lightning Network may never be launched – or it could solve bitcoin’s scaling issue overnight. It remains to be seen.
Ethereum (Decentralized, Scalable, and Secure)
Some people refer to Litecoin as “blockchain 2.0” because it improved on the original bitcoin blockchain. However, Ethereum took blockchain technology even further, and it’s now more appropriate to see Ethereum as blockchain 2.0.
Ethereum can be considered a decentralized, scalable, and secure blockchain. Ethereum is highly-secure. However, unlike the Sovereign grade censorship resistance of bitcoin, Ethereum has platform-grade censorship resistance.
Platform-grade censorship resistance refers to the idea that no centralized stakeholder can affect the rules of the platform in a way that would disrupt the ability to continue using the platform.
Ethereum is decentralized and secure. However, like bitcoin, Ethereum has struggled to scale. We’ll talk more about the proposed scaling solutions of bitcoin and Ethereum down below.
Proposed Scaling Solutions
Proposed Bitcoin Scaling Solution #1: Bitcoin Cash (Decentralized, Secure, and Scalable)
Bitcoin Cash (BCH) was launched to address bitcoin’s scalability issues. Bitcoin Cash’s creators originally wanted to implement their changes into the core bitcoin network (BTC). Instead, they were forced to hard fork to achieve their goals.
One of the key goals with the launch of Bitcoin Cash was scalability. The main developers of Bitcoin Cash wanted to achieve scalability by increasing the block size limit on bitcoin. Instead of being constrained to just 1MB in size, the block size limit was raised to 8MB. Since then, the limit has been raised even further – to 32MB.
Bitcoin Cash continues to be decentralized and secure. However, critics of Bitcoin Cash argue that Bitcoin Cash isn’t as secure as the core bitcoin (BTC) chain. Some claim that higher block size limits increase the chances of an attack.
Ultimately, the scaling debate rages on within the bitcoin community. Both versions of bitcoin are built on blockchain 1.0 technology, and it remains to be seen if blockchain 1.0 can scale – or if it will make way for more advanced blockchain platforms.
Proposed Bitcoin Scaling Solution #2: Lightning Network (Secure and Scalable, But Centralized and Unreleased)
Bitcoin’s proposed Lightning Network would transform the way bitcoin handles transactions.
Up to now, all bitcoin transactions take place on-chain. The transactions are validated by nodes on the bitcoin network, then added to the bitcoin blockchain.
The Lightning Network would throw this idea out the window. The Lightning Network plans to take transactions off-chain.
The idea is simple: why do we need to post every transaction to the blockchain? If you’re buying a $2 cup of coffee with bitcoin, then does that transaction really need to be posted to the bitcoin blockchain for all of history? Or can we take certain smaller purchases off-chain for better scalability?
The Lightning Network relies on the idea of “channels”. You would need to pay to open a channel between a retailer and your wallet. If you buy a cup of coffee from your local shop every day, for example, then you might pay $10 to open a channel. With that channel, your daily purchases of a $2 coffee would take place off-chain via the channel. Then, transactions would be grouped together and added to the bitcoin blockchain:
“Off-chain transactions are grouped together and validated independently by small communities. Once validated, they are sent back to the main Blockchain, where they can be processed as one single transaction.”
Ultimately, the Lightning Network may or may not work. Certain tests have been completed on the Lightning Network, although it appears to be a long way away from becoming reality. Critics of the Lightning Network believe it will never actually work, or that it compromises the entire concept of bitcoin.
Supporters of the Lightning Network, meanwhile, claim it will scale bitcoin overnight, allowing the network to instantly begin handling thousands of transactions per second.
Proposed Ethereum Scaling Solution #1: Plasma
Ethereum has its own proposed scaling solution called Plasma. Plasma was proposed by Vitalik Buterin and Joseph Poon (Poon is also the co-creator of bitcoin’s Lightning Network).
Ethereum’s proposed Plasma scaling solution works in a similar way to bitcoin’s Lightning Network: it would take some transactions off-chain without compromising Ethereum’s core functions:
“With Plasma, ‘child-chains’ are created on the Ethereum Blockchain (main-chain), with their own validators.
A company can create a Plasma child-chain on top of the main-chain with agreements/rules set by a smart contract on the main-chain. Child-chains can spawn their own child-chains, which can spawn their own child-chains, and so on.”
Proposed Ethereum Scaling Solution #2: Raiden Network
The Raiden Network is another proposed scaling solution for Ethereum. It’s very similar to bitcoin’s Lightning Network. Like the Lightning Network, the Raiden Network is based on the idea of providing off-chain scaling by opening multiple channels.
Proposed Ethereum Scaling Solution #3: Sharding
Sharding is not just an Ethereum phenomenon. However, some have proposed sharding as a way for Ethereum to scale effectively.
Sharding distributes nodes to certain groups, which means nodes don’t have to validate the entire history of the blockchain before validating a new transaction.
How Do Other Blockchains Handle Scaling?
A number of other blockchain technologies are handling scaling in different ways. We talked about bitcoin and Ethereum’s scaling solutions above. How are other blockchains handling scaling? Let’s take a closer look.
Cosmos was founded with the goal of creating “the internet of blockchains”. Cosmos wanted to create interoperability between blockchains, solving the scaling issue.
Cosmos scales using a horizontal and vertical approach. Here’s how Ometoruwa explained vertical and horizontal scaling in his blog post:
“With vertical scalability, additional resources are added to a single system node or computer, resulting in additional CPU, processing power and memory for the operating system and applications to run faster. With horizontal scalability, multiple parallel chains are running the same application, and are operated by a common validator set.”
EOS aims to be a new and improved version of Ethereum. EOS tries to facilitate scalability using delegated proof of stake (DPoS) consensus and “witness nodes”.
With EOS, witness nodes are representatives that can make high-level decisions more quickly without polling the entire network. This creates an ecosystem where approximately 100 witness nodes have significant control over the EOS network, with each witness node voted in by the community.
This creates better scalability. However, EOS sacrifices some degree of decentralization in order to achieve that scalability. In test configurations, EOS has been able to process as many as 50,000 transactions per second. However, witness nodes are not immune to internal politics and other issues.
Hashgraph Proves You Can Scale a Distributed Ledger Without Blockchain
The solution to blockchain’s scaling issue might come from outside the industry. Some have proposed hashgraph as a successor to blockchain.
Hashgraph, like blockchain, is a distributed ledger technology (DLT). However, it works in a much different way than blockchain.
Hedera Hashgraph was the first hashgraph platform. Hedera creates a distributed ledger with no proof of work, proof of stake, or awkward scaling solutions required to achieve consensus. Instead, Hedera achieves consensus using a completely different system of distributed nodes.
Hedera’s hashgraph, for example, uses a consensus mechanism based on a virtual voting algorithm combined with a “gossip protocol”. With the gossip protocol, each node “gossips” about the information it learned from a transaction. This allows data to spread more quickly from one node to another, with data propagating across the network in a random but rapid way.
The end result is powerful scalability: hashgraph DLTs like Hedera may be capable of achieving hundreds of thousands of transactions per second.
The main criticism of hashgraph DLT is its centralization. Hashgraph DLT is a patented technology. The inventor, Leemon Baird, and his company own the patent for hashgraph DLT.
The good news is that Baird claims they patented the technology to prevent the network from forking like bitcoin and Ethereum. Baird claims they will make all of their code open source as soon as the first version of the platform is released.
Today, the debate rages on within the crypto community: how can we achieve scalability without compromising security or decentralization?
Some groups have solved scalability issues – but only by compromising decentralization. Bitcoin’s Lightning Network, for example, may be able to achieve better scalability, but it comes with increased centralization and additional issues like off-chain transactions. Bitcoin Cash, on the other hand, boosted scalability by raising blocksize limits, but the higher blocksize limits may compromise the security of the network.
Ultimately, we don’t know how blockchains will scale – but we’re confident someone will come up with an effective solution.