Cryptocurrency Scalability

Cryptocurrency Scalability

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What is scalability?

Scalability refers to the performance, a characteristic of a company´s system. It is a processing ability to perform at high demand, showing it has the capability to successfully handle increases.

Cryptocurrencies must be scalable. It is an important characteristic to search for when choosing a coin or token to invest.

Let´s take a look at an example, so we can understand what scalability looks like in cryptocurrency system put simply. Even though we will look at Ethereum in particular, this is an important issue or could be for any given crypto.

Ethereum is a platform that was first created without the intention of being used worldwide. But it has successfully become a worldwide cryptocurrency and platform.

As it grew, scalability showed up to be an issue.

Ethereum does 20 transactions per second, which is a very low performance when compared to major companies.

VISA for example does 2000 per second.

Why such low volume for Ethereum though?

The validation process of Ethereum´s platform is the reason behind the low volume of transactions.

While it provides a potent security, its processing of validation creates a scalability issue.

All nodes in the Ethereums network must have a blockchain system downloaded and processing requires several of these nodes to come to a consensus in validating a transaction.

The validation processing used by Ethereum´s platform used to be POW.

POW or Proof of Work: miners pick up transactions according to its prices from highest to lowest.

Highest rewards are picked first. And lowest prices may take more than 13 minutes to be processed. Wow.

Once picked by a miner, they are validated and placed into blocks.

In order for transactions to “move” within the Ethereum´s blockchain it uses GAS.

Just like a car that needs gas to transit the streets. No gas, no move.

The Gas Limit of a Block, the maximum amount of gas that can “fit” within a block is 6.7 million. Which is a problem, I will explain a little further.

Vitalik Buterin affirmed that Ethereum’s platform can perform up to 1 million transactions per second.

What!? That´s amazing, and shows Ethereum has great potential to handle high volume of transactions.

But because the blocks have its limitations, can only handle a certain gas limit, the whole process becomes limited when there is a high demand.

So, at the end of the day, it doesn’t matter how many transactions Ethereum can perform per second if the blocks can´t handle them.

So how will Ethereum Scale?

Ethereum has made some changes recently and is currently working on fixing this scalability issue.

Ethereum´s Platform Updates

First, it has changed its validation processing to Casper POS — Proof of Stake. The difference is that instead of going for the highest gas prices first, miners or validators just keep the fees instead of collecting block rewards.

This is a faster process in itself. But to some people this is debatable, and does not eliminate the block size issue.

So as we can see the main scalability problems in cryptocurrencies in general are:

  • TIME TAKEN TO PUT A TRANSACTION IN A BLOCK.
  • TIME TAKEN TO REACH A CONSENSUS.
  • BLOCK SIZES.

Issues that have caused many cryptocurrencies to fork like Bitcoin and Bitcoin Cash.

Learn more with Blog Post: “HARD FORKS X SOFT FORKS

Ethereum´s Fix.

To improve blockchain´s scalability Ethereum´s team come up with two solutions:

  1. A way to require fewer nodes for validation.
  2. And Off-chain transactions.

There has been other improvement ideas out there like:

  • Solution Idea #1: Increasing block size but not endlessly because it is not a sustainable idea in the long-term because would become impossible for a regular individual to deal with it. Meaning, it would kill the proposal of cryptocurrency blockchain being for everyone. And developers would be the only people who´d be able to deal with such long list of codes.
  • Solution Idea #2: To have a different blockchain for each type of transaction, instead of all types of transactions being recorded on the same and cause an overload. Transactions would be much faster then.

Ethereum´s main solution proposals for scalability are called Sharding and Plasma.

Shard means a fragment. And with Sharding a partitioning is proposed, dividing large databases into several shards.

Plasma is a blockchain “division” called child-chain (blockchain babiesJ). Refers to the procedure used for off-chain transactions that rely on the underlying blockchain — a Plasma chain that can even spawn their own child-chains. Everything that is done “off chain” is still connected to the main chain. Transactions done on the Plasma chain can be transferred to the main chain.

Closing Thought.

Scalability problems are a good issue to have in case you decide to be positive and see it from the “growth” and expansion point of view; it means your company is growing. From another angle, in case your company or cryptocurrency is not scalable it will have to create a way to perform accordingly. Scalability is something very important for every company and should be well thought of from the planning of the company.

Study the cryptocurrencies you have chosen to invest in, to better understand their Scalability.

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