Since the early days of the crypto market, there has been a debate as to how to handle scalability issues. Scalability is a term that refers to a project’s ability to meet the needs of a large user base. Scalability is a crucial component of any blockchain system because a lack of it can result in reduced performance and network congestion.
To put the scalability requirements of a cryptocurrency into perspective, you simply need to look at other popular payment processors. For example, major credit cards like VISA and MASTERCARD can theoretically handle around 36,000 tps (transactions per second). This tps rate is enough to enable people around the world to swipe their cards and experience only a few seconds delay.
Scalability Has Always Been a Concern
Early cryptocurrencies like Bitcoin can only handle around 7 transactions per second. Ethereum, the world’s most popular DeFi network can handle around 13 tps. This lack of scalability has caused some serious issues to arise for users of these platforms. For example, in 2017, Bitcoin had transaction delays that extended days. Additionally, it was possible for your transaction fees to be more than your actual transaction.
Ethereum suffered the same fate in 2017. The introduction of the popular Cryptokitties game bogged the network down to the point that it became unusable. While these early congestion problems have been reduced, Ethereum is in the midst of another congestion-related issue due to the influx of DeFi platforms.
Ways To Improve a Cryptos Scalability
Today’s cryptocurrency developers have learned lessons from their predecessors. New blockchain projects commonly integrate protocols to help improve scalability. These systems vary in their strategy but all accomplish the same goal of reducing congestion on the blockchain. Here are some of the most popular ways that cryptocurrency developers improve network performance.
One of the easiest ways to improve a cryptocurrency’s scalability is to increase its blocksize. Blocks are collections of transactions. Each block gets added to the chain of transactions to form a blockchain. Early cryptocurrencies like Bitcoin had small blocksizes. In the case of Bitcoin, a 1MB blocksize restriction is a core part of its coding.
This blocksize restriction has been a point of debate in the past. In the case of 2017 Bitcoin, the crypto market was engulfed in a fevered debate about increasing the blocksize during the congestion issues. The debate focused on expanding the blocksize from 1MB to 2MB.
Proponents for the blocksize increase argued that Bitcoin was unable to perform its duties as an electronic cash system if it took 24 hours for transactions to clear. They believed that increasing the blocksize was the easiest way to improve the network’s performance. It also left room for further improvement as the network grew because the blocksize could continue to increase.
Those against the blocksize increase argued using the same point. They stated that if the solution is a simple blocksize increase that it would eventually lead to a blocksize race. This scenario would make it so that regular PC owners would be unable to participate in the network without specialized PCs. Instead, they proposed another option called SegWit.
The Sewgwit proposal explained another method to reduce blockchain congestion to improve scalability. Segwit functioned by separating the signature data from transactions during the processing. This strategy eliminated a lot of data which resulted in higher capacity for the network. It also led to the ability to leverage Layer 2 solutions like the Lightning Network.
Layer 2 Solutions
Layer 2 solutions are secondary networks that live on top of the primary blockchain. They provide networks with the ability to separate processing and smart contract functionality from validation processes. As such, they provide networks with top-notch scalability and much more.
In the case of Bitcoin, the Lightning Network provides the network with instant transactions times and minuscule fees. The Lightning Network accomplishes this task through the use of private payment channels. Users open and fund these channels. Once open, they can conduct unlimited transactions for a fraction of the cost of using the main network. The transaction data is only recorded to the blockchain once the channel closes.
Layer 2 solutions are very common in the DeFi sector. Networks use these systems to provide staking and other features to the market without sacrificing performance. They are increasingly finding use in connecting different blockchain networks as well. These systems enable users to trade assets directly between blockchains without an intermediary. This approach saves traders time and expenses.
New Consensus Mechanisms
The best way to improve a cryptocurrency’s scalability is through its consensus mechanism. Consensus systems are what keep blockchain networks valid. These systems vary greatly. As such, different consensus mechanisms provide more scalability than others.
For example, Bitcoin and Ethereum both use a Proof-of-Work consensus algorithm. This system requires special network users called nodes, or miners, to compete against each other to add the next block of transactions and secure the rewards. This style of consensus is very secure but is slow and cumbersome. It’s also very power-hungry.
Recognizing the limitations of this form of consensus, developers introduced the Proof-of-Stake (PoS) system. This mechanism eliminates miners and replaces them with regular users. PoS systems are more open to the public because they don’t require you to purchase special hardware to participate and earn rewards. Plus your rewards are predetermined so staking is far more consistent than trading.
All you need to do in a PoS system is stake your tokens. Each network has its own staking requirements and rewards. Notably, the more you stake and the more your earn. Another thing to remember is that once you lock your tokens in a staking contract, you are unable to access them before the contract ends without losing your rewards
Another major development has come in the form of PoS variants. Networks like the META 1 Coin introduce more responsive versions of this consensus. META 1 integrates special nodes called witnesses to the equation. These community-elected nodes reduce the need for all nodes to verify transactions which greatly improves performance. Additionally, regular users can stake their tokens to these witnesses to secure a percentage of the rewards.
Scalability is Still a Major Issue in the Market
As the crypto sector expands, scalability remains a major concern for developers and users. Platforms like META1 use innovative strategies to keep their networks responsive and secure. As the market is still just getting started, you can expect to see even more unique and interesting ways of combating scalability emerge in the coming months. For now, developers remain creative in their efforts to solve scalability issues before they start.