While blockchain has revolutionized industries with its decentralized and secure systems, the blockchain scalability problem remains a major challenge.
As more users and applications rely on blockchain, its ability to process a growing number of transactions without delays or increased costs has become a pressing concern. Addressing this issue is critical for blockchain’s continued growth and widespread adoption.
Join FMCPAY in this article to explore solutions to blockchain scalability problem, and insights into the future of decentralized technologies.
1. What is Scalability Problem in Blockchain?
First of all, what is the blockchain scalability? This term refers to a network’s ability to handle an increasing number of transactions as demand grows. As blockchain technology gains wider adoption, it faces challenges in processing large transaction volumes quickly and efficiently.
Unlike traditional centralized systems, where transaction speeds can be easily increased by adding more servers, blockchain operates on a decentralized model, making scaling more complex.
The blockchain scalability problem arises because most blockchain networks, like Bitcoin and Ethereum, must maintain high security and decentralization, often at the expense of transaction speed and capacity. Currently, many blockchains can only process a limited number of transactions per second (TPS), leading to congestion, delays, and higher fees during times of high demand.
As shown in the image above, Visa can process up to 24,000 transactions per second (TPS), while Bitcoin is limited to just seven TPS. Ethereum, a main competitor of Bitcoin, only proceeds 20 TPS.
It’s clear that to achieve mass adoption, addressing the blockchain scalability problem is a must, especially when more industries integrate blockchain into their operations and user demand increases.
2. Reasons Behind the Blockchain Scalability Problem
To fully grasp the blockchain scalability problem, it’s important to explore its underlying causes. Here are the main factors contributing to this issue:
2.1. Block Size Limitation
The size of a block in blockchain networks limits how many transactions can be processed at a time. For instance, Bitcoin has a block size limit of 1MB, which allows for approximately 7 transactions per second. In comparison, traditional financial systems like Visa can process thousands of transactions per second.
The block size limitation is a key reason behind the blockchain scalability problem, as it restricts the network’s ability to scale.
2.2. Consensus Mechanism
Traditional blockchain networks rely on consensus algorithms such as Proof of Work (PoW) to validate transactions. PoW, used by Bitcoin, requires significant computational resources, which increases the time it takes to validate blocks. This leads to slower transaction speeds and limits scalability.
2.3. Network Congestion
As more users join the blockchain network, the demand for transaction validation increases, leading to congestion. This can cause delayed transaction confirmations and higher fees, further exacerbating the blockchain scalability problem. During times of peak activity, networks like Ethereum may experience significant delays.
2.4. Decentralization & Security
Blockchain’s security and decentralized nature is one of its biggest strengths, but it also creates challenges for scalability. In a decentralized network, all nodes must agree on the validity of a transaction, which adds layers of complexity and slows down the process. Balancing decentralization, security with scalability is a fundamental challenge of any network.
3. The Blockchain Scalability Trilemma
An important concept when examining the blockchain scalability problem is the Blockchain Scalability Trilemma, a theory first introduced by Ethereum’s co-founder Vitalik Buterin.
The trilemma suggests that it is extremely difficult for blockchain networks to achieve three core properties (decentralization, security, and scalability) simultaneously. Most blockchain systems must sacrifice one to improve the other two, which creates a persistent challenge in the pursuit of scalable and secure decentralized platforms.
3.1. Decentralization
Decentralization is the key feature that allows blockchains to distribute control across thousands of nodes worldwide. However, maintaining a high degree of decentralization can significantly slow down transaction processing.
In the popular decentralized model Proof of Work (PoW), every node must validate each transaction, limiting its transaction throughput to just a few dozen transactions per second (TPS). This bottleneck is one of the major contributors to the blockchain scalability problem, as it limits blockchain’s ability to compete with centralized systems like Visa, which can process thousands of TPS.
3.2. Security
Security in blockchain ensures that the network is resistant to attacks, fraud, DDoS, double-spending, or 51% attack. Typically, the more open and decentralized a blockchain is, the more challenging it becomes to ensure security. This is due to the difficulty in verifying the identity of new participants, who could either be controlled by a malicious entity or collude with others to destabilize the network.
The consensus mechanisms and cryptographic techniques used to secure a blockchain are robust but often resource-intensive. This can slow down transaction processing, thus contributing to the scalability problem in blockchain networks.
3.3. Scalability
Scalability refers to the blockchain’s capacity to handle an increasing number of transactions without affecting performance. BNB Chain is an example of a blockchain that prioritizes scalability by using a more centralized model, employing only 21 validators to confirm transactions. This enables BNB Chain to process up to 100 TPS, far higher than Bitcoin or Ethereum.
While BNB Chain solves part of the blockchain scalability problem, it comes at the cost of decentralization, as fewer validators control the network
4. Solutions for the Blockchain Scalability Problem
As technology continues to evolve, various solutions are being explored to address the blockchain scalability problem. These solutions can be broadly categorized into Layer 1, Layer 2, and other consensus mechanisms. Each approach offers a unique method to mitigate the blockchain scalability problem and improve network performance.
4.1. Layer 1 (on-chain) scalability solutions
Layer 1 solutions focus on improving the underlying blockchain architecture to boost its capacity to handle more transactions. These solutions directly affect the blockchain’s base protocol and aim to optimize its core structure.
Segregated Witness (SegWit)
SegWit is a Bitcoin protocol upgrade designed to change how transaction data is stored. Originally developed to address the transaction malleability issue, SegWit frees up space in Bitcoin’s 1 MB blocks by removing the signature data from each transaction. This allows more transactions to be included in a single block, effectively increasing Bitcoin’s throughput.
Although SegWit has increased transaction throughput for Bitcoin and been adopted by other blockchains like Litecoin, it has its limitations. It is not a generic scaling solution and applies only to blockchains using similar structures to Bitcoin. While it enables the processing of more transactions, it does not reduce transaction confirmation times, making it a partial rather than comprehensive solution to the blockchain scalability problem.
Sharding
Sharding is a technique commonly used in databases to improve performance by dividing a large dataset into smaller, more manageable segments. When applied to blockchain, sharding divides the network into smaller segments (shards), each managed by a specific subset of nodes. This allows the blockchain to process multiple transactions simultaneously across different shards, significantly improving throughput.
Sharding is considered one of the most promising solutions to the blockchain scalability problem, with Ethereum 2.0 being a prominent project implementing this method.
4.2. Layer 2 (off-chain) scalability solutions
Layer 2 solutions operate on top of the existing blockchain infrastructure and focus on offloading some of the transaction data to secondary layers (off-chain). These solutions aim to reduce the load on the main chain, providing faster and cheaper transactions without compromising the security of the underlying blockchain.
State Channels (or Payment Channels)
State channels allow off-chain transactions to occur between two parties, bypassing the need for global consensus. These channels operate parallel to the mainchain and execute transactions using smart contracts, which makes them faster and often cheaper than on-chain alternatives. Payment channels follow a three-step process:
- Step 1: Establish the channel by signing and funding it.
- Step 2: Proceed P2P (peer-to-peer) transactions within the channel.
- Step 3: Close the channel and broadcast the final transaction state to the mainchain.
Notable examples of Layer-2 payment channels include Bitcoin’s Lightning Network and Ethereum’s Raiden Network, both of which enable faster and more efficient transactions.
Sidechains
Sidechains are separate blockchains linked to the mainchain, enabling assets to move between them at predetermined rates. This mechanism allows specific tasks or applications to be offloaded from the mainchain, reducing the workload and easing network congestion. Multiple sidechains can connect to a single mainchain, each operating independently with its own architecture, governance, and consensus mechanism, making them highly flexible.
Popular implementations of sidechains include Plasma on Ethereum and Parachain on Polkadot, which use a network of relays and sidechains to tackle the blockchain scalability problem. When inter-blockchain communication continues to improve, sidechains may become one of the most promising scalability solutions.
Plasma
Plasma is a scalable solution that creates a hierarchical structure of smaller, independent blockchains called Plasma chains. These chains are anchored to the main blockchain, allowing off-chain transaction independently process, reducing the load on the main chain.
To maintain security and prevent fraud, Plasma chains periodically send updates (merkle root hashes) to the main chain, ensuring that the off-chain transactions are consistent with the on-chain state.
Rollups
Rollups are another method to address the blockchain scalability problem by bundling multiple off-chain transactions into a single transaction. This reduces the amount of data that needs to be recorded on the main chain, improving scalability and reducing fees. There are 2 types of rollups:
- Optimistic rollups: These rollups assume that all off-chain transactions are valid unless proven otherwise. If a dispute arises, the transaction is challenged and verified on-chain.
- ZK-rollups: These rollups use zero-knowledge proofs to compress the transaction data and provide cryptographic guarantees of validity without revealing the transaction details.
4.3. Other consensus mechanisms
In addition to Layer 1 and Layer 2 solutions, there are other innovative consensus mechanisms that created to address the blockchain scalability problem. These mechanisms explore protocol upgrades to improve their scalability, streamlining consensus and offering excellent throughput.
New consensus mechanisms, such as PoS (proof-of-stake) and dPoS (delegated proof-of-stake), require significantly less energy than PoW (proof-of-work) and can process transactions more quickly, leading to improved blockchain scalability. For example, Ethereum’s transition from PoW to PoS has increased its transaction throughput and significantly reduced energy consumption.
Proof of Stake (PoS)
In response to the blockchain scalability problem, Ethereum implemented Proof of Stake (PoS) as part of its upgrade strategy. This new consensus mechanism replaces miners with validators, who are selected randomly and can validate transactions or create blocks without solving complex mathematical problems. By selecting validators based on their stakes in the network, PoS allows for faster transaction processing and reduced energy consumption compared to PoW.
Delegated Proof-of-Stake (DPoS)
DPoS is another solution designed to address the blockchain scalability problem. In this consensus model, token holders vote for trusted validators to confirm transactions and create blocks. By limiting the number of validators, DPoS enhances transaction throughput and reduces network congestion, offering a more scalable alternative to PoW or PoS.
Proof of Authority (PoA)
Proof-of-Authority (PoA) is a scalable consensus mechanism based on a reputation-driven algorithm. Only limited selected nodes have the authority to validate transactions, ensuring a streamlined and efficient process.
PoA provides a practical solution to the blockchain scalability problem by offering a high-throughput, low-latency environment. This method is especially popular for private and consortium blockchains, where trust among participants can be more easily established.
Byzantine Fault Tolerance (BFT)
This consensus mechanism is designed to address the Byzantine Generals Problem—a scenario in distributed systems where some participants (or nodes) may act maliciously or fail to communicate correctly, leading to possible breakdowns in consensus. BFT aims to ensure that a blockchain network can reach consensus even when some of its validators are unreliable or malicious.
In a BFT system, the network continues to operate securely as long as the majority of nodes act honestly. This system addresses the blockchain scalability problem while maintain stability and security. The key advantage of BFT is its ability to function in highly distributed environments, making it suitable for large-scale blockchain networks where the risk of node failures or attacks is higher.
Conclusion
The future of blockchain is promising, with further advancements expected to address the blockchain scalability problem. As blockchain technology evolves, new solutions will continue to refine the balance between security, decentralization, and scalability.
For businesses and organizations, staying informed about these developments and adapting to the evolving blockchain landscape is essential. Read more crypto insights from FMCPAY to stay ahead in this rapidly changing industry!