What is blockchain scalability?

A blockchain network’s scalability refers to its capability to manage an ever-growing quantity of work (for example, a database or search engine). With more data comes more required resources (like computing power, servers, or bandwidth), and if the system cannot be changed enough to meet these new demands it is considered low scalability.

The term “scalability,” however, encompasses a much wider range of meanings in the context of Blockchain. In fact, the word “blockchain” itself has yet to be fully defined by academics. For example, one of the most groundbreaking papers on blockchain scalability fails to clearly define the terminology it uses. It refers to any improvement made to Bitcoin in terms of transaction speed or efficiency as “scaling” and calls the resulting system a “scaleable blockchain.

When comparing blockchain systems, it’s important to note that the term “scalable” is relative. A system can be deemed scalable if it processes more transactions per second than other current options by modifying its consensus method and adjusting some internal aspects.

Blockchain scaling problems?

Without the ability to scale, public blockchains are hindering the supply of practical solutions to companies and businesses. A system regulated by one organization or entity typically underlies internet transactions between people or corporations.

When two entities (or individuals) execute a digital payment or money transfer transaction, a third-party company, such as a bank or credit card provider, may be involved in the process. If the transaction is completed successfully, the vendor then charges a fee.

Rather than a third-party controlling and managing the information of all stakeholders participating in an online transaction, as is currently done, blockchain instead offers an immutable distributed ledger. 

With this method, cryptographically signed transactions are maintained by a peer-to-peer network. The advantage of using Blockchain is that no third party is necessary to handle the information, and trust among network users becomes moot.

The scalability issue has been recognized as the primary obstacle to Blockchain adoption in many real-world commercial circumstances. The main problem is that when there are more nodes and transactions, Blockchains become increasingly slow and unwieldy. 

This limitation exists in Bitcoin and Ethereum – the two most well-known public blockchains – because every node must store all validated past transactions, as well as carry out a computation to validate each new transaction.

Because of this, public blockchains are always in need of lots of processing power and energy, high-speed internet connectivity, and enormous storage space. Transaction speed (measured by throughput) and how long it takes for a transaction to go through (latency) are the two main arguments when discussing how well a blockchain performs. However, as seen with many recent notable public examples, neither one has reached an acceptable Quality-of-Service level.

Why is scalability so important?

The term “scalability” in regard to a network refers to its ability to maintain a larger transaction volume without being impaired. As blockchain technology is gradually becoming more commonplace, this attribute mustn’t become hindered. 

A completely scalable blockchain should be able to meet the increasing demand for use cases while still sustaining excellent performance; if not, then this would be classified as a lack of scalability.

The blockchain trilemma dilemma posits that increasing scalability would result in decreased security and decentralization. However, it’s crucial to remember that only scalability can permit blockchain networks to compete with centralized platforms. With this in mind, is it possible to create Blockchain scaling solutions without comprising security or decentralization?

What blockchain scalability solutions are available?

One of the main issues holding blockchain technology back from being adopted on a wider scale is its limited scalability. Fortunately, various solutions are currently in development to address this problem. Interestingly, these solutions can be divided into four distinct categories, each offering its own unique approach to solving blockchain scalability challenges.

First-layer scalability solutions

On-chain scaling solutions, or layer 1 solutions, are the most common type of scalability solution for blockchain software. These types of changes necessitate alterations to the core network software and are often difficult or impossible to implement without a fork in the chain.

Layer 1 solutions improve the underlying aspects of a blockchain network, like increasing the maximum block size or decreasing the time needed to verify a block. Three popular segments of layer 1 blockchain scaling methods are sharding, segregated witness (SEGWIT), and hard forking.

• Sharding – On-chain scalability is improved with sharding which involves breaking the blockchain into smaller sections, or shards. The network would then be able to run these shards side by side. By dividing the network into shards, each shard handling a portion of the group’s transaction processing; would increase the efficiency and output of the entire network. In other words, the whole would be greater than the sum of its parts. Sharding effectively eliminates inactive nodes and provides quicker and more efficient transaction throughput overall.
• Hard Forks – A hard fork is a process where drastic changes are made to a blockchain network’s features. For instance, this could be increasing the block size or decreasing the time it takes to create one block. Although controversial, a contentious hard fork is usually the most beneficial option when trying layer 1 scalability solutions for blockchain. A hard fork that splits the blockchain network occurs when a segment of the community disagrees with the core community on certain topics. In these instances, a subset may choose to modify the underlying source.
• Segregated Witness – SEGWIT, or Segregated Witness, is a protocol improvement for the Bitcoin blockchain network that focuses on altering how and where data is stored. Getting rid of extra signature data associated with each transaction allows for more capacity and storage space which leads to higher scalability. 7/10 of the space in a transaction is used for the digital signature that validates the sender’s ownership and ability to pay. If we remove this, it leaves more room to add new transactions.

Second-layer scalability solutions

On-chain scaling methods rely heavily on changes to the primary blockchain network, but research into solving scalability challenges in a blockchain has given rise to off-chain scaling methods.

Layer 2 solutions are a series of supplementary protocols that take some pressure off of the primary blockchain by ‘offloading’ transactions. These solutions can have a profound impact on reducing space and network congestion issues. Some popular examples of second-layer solutions include state channels and off-side chains.

• State Channels – State channels are usually seen among layer 2 solutions for blockchain scalability. This is because state channels permit two-way communication between various off-chain transaction channels and blockchain networks. By doing this, state channels have the potential to drastically increase transaction speed and capacity. Keep in mind that the state channels validate transactions without needing miners present from the start. State channels are integrated with a smart contract or multi-signature system and act as resources near the network. Once a transaction or series of related transactions is completed on a state channel, the blockchain records the final ‘state’ of that ‘channel.’
• Sidechains – Sidechains are a type of layer 2 solutions that can be used to solve scalability issues on a blockchain. A sidechain is a transactional chain that runs alongside the main blockchain. Sidechains use different consensus mechanisms than the primary chain.
• Lightning Network – The Lightning Network is a great example of an off-chain blockchain scalability solution. It uses smart contracts through private channels separate from the main blockchain network. Off-chain channels can provide faster transactions at lower costs. And by taking some transactions away from the main chain, lowers congestion and reduces fees paid to miners for block confirmation.
• Plasma – Plasma is a layer 2 scaling solution that focuses on using child chains. These child chains inherit the properties of the parent blockchain, and each chain functions as its own separate blockchain. By Designing Plasma with certain objectives in mind (ex. transactions involving large data sets), we can assure execution in environment-enhanced security.

Scalable consensus mechanisms

You might find the answer to your question, “how do you address a scalability problem in the blockchain?” by looking into scalable consensus techniques. These are various algorithms created to make it easier to reach an agreement. Consequently, these kinds of scalable consensus algorithms may result in more scalability and transaction capacity. Here are some notable examples of scalable consensus processes that also serve as potent blockchain scalability solutions:

• Delegated Proof-of-Stake – Delegated Proof-of-Stake, or DPOS is a consensus method similar to how countries are controlled democratically. With this system, token holders get to elect validators for network transactions. According to the system, the number of delegated validators can range from 10 to 100 and fluctuates regularly.
• Byzantine Fault Tolerance – Byzantine Fault Tolerance (BFT) is a type of consensus technique that has been proven to be reliable in dealing with the Byzantine Generals Problem. BFT generally refers to a system where multiple participants (some of which may be working against each other) need to agree on something before any action can be taken.
• Proof-of-Authority – You might also want to look into Proof-of-Authority as an option among blockchain scalability options. The selected nodes are responsible for validating network transactions with the use of the Proof-of-Authority consensus technique.

Although Blockchain technology is one form of distributed ledger technology (DLT), there are others. These other forms don’t utilize the same data structures as blockchain to organize information into a succession of blockchains.

Final thoughts

The growing demand for blockchain applications has caused severe scalability issues. When more participants join and there are more transactions, it can slow down or even stop a blockchain network from working. Although many things can cause these scalability problems, thankfully there is also a large number of possible solutions to the issue.

There are many ways to scale a blockchain, including layer 1 solutions, layer 2 solutions, scalable consensus methods, and DAGs. LeewayHertz has the expertise and skilled developers needed to use agile methodologies for software development and offer robust scalability solutions that can reduce latency in a blockchain.