Understanding Blockchain Scalability Challenges - Defiway
Scalability in Blockchain: Challenges and Ways Forward photo
By: Aly

Scalability in Blockchain: Challenges and Ways Forward

Table of Contents

Blockchain has the potential to revolutionize many industries. However, it needs to overcome one challenge that prevents its massive adoption. And I talk about the blockchain scalability problem.

At first, this technology was just a new source of geek entertainment where a limited number of people exchange digital tokens for physical goods. So it is programmed with the bandwidth that suits small communities.

People liked this technology so much that it became a solid payment option. But the bandwidth of the old network stays the same, leading to scalability troubles.

Luckily, new developers decided to face those challenges to fix blockchain scalability issues. And today I want to show you how we, as a community, can overcome those concerns.

Scalability Challenges in Blockchain

It is the ability to handle an increasing transaction number efficiently as the user base grows. Scalability is crucial for every business that deals with a vast amount of data. Thus, it’s vital for every blockchain startup. Otherwise, they won’t handle the increased demand once a service becomes popular.

However, many services are not listening to experienced developers. And it leads to blockchain scalability problems. It negatively affects transaction speed, making those services slower.

Bitcoin is one of the most famous examples of a coin with insufficient speed. Bitcoin’s forming time is 8-12 minutes. Sometimes it can be 15-20 minutes since the system approves transactions slowly due to user influx.

But when blockchain has fine scalability, it will take far less time to approve the transaction. Ethereum’s average waiting time varies between 15-30 seconds.

Block forming time is closely related to its size, which refers to the maximum data capacity of a single block. It’s different on various networks. For example, Bitcoin's size is 1 MB, while Ethereum's block size is dynamically adjusted depending on the demand.

When more people use Ethereum, miners may increase the gas limit to process more transactions per block. But if there's congestion, they might reduce it for network stability, potentially leading to slower transactions.

Network latency is another concern that spoils the life of crypto enthusiasts. It's the time it takes for data to travel from one node to another. A network’s latency can vary based on the geographical distance between nodes, their connectivity, and the network size. High latency can significantly slow down transaction speed.

As you see, those two most common cryptocurrencies have drastically different scalability. And there is no wonder. Bitcoin still uses the old Proof of Work (PoW) consensus, while Ethereum switched to the more efficient Proof of Stake (PoS) in 2021.

Addressing these challenges is crucial for blockchain enthusiasts. Otherwise, the technology may not achieve desired broad adoption. The most common way to partially solve this problem is to add sharding, off-chain scaling, and layer-two scaling solutions.

Case Studies: Scalability Challenges Faced by Well-Known Blockchains

In the previous chapter, you saw how consensus, block size, and transaction speed affect network scalability. And I want to provide you with an even deeper dive into this topic by continuing my comparison of Bitcoin and Ethereum.

The Main Bitcoin problem is its poor scalability. With a fixed block size of 1 MB and a block time of approximately 10 minutes, Bitcoin can process only 7 transactions per second (TPS). As its popularity grew, transaction confirmation became slower, and transaction fees rose to unprecedented levels.

It was one of the reasons why Bitcoin won’t overcome traditional finance services back in the 2010s. Paypal has 190 TPS, Visa can handle 1700 transactions per second. Bitcoin literally can’t compete with those speeds.

As more users and applications sought to use the network, it faced congestion, delayed transactions, and higher costs, affecting user experience and limiting practical use cases. That’s why many people switched to the faster Ethereum since it has 90 TPS in the basic version, but with layer-2 services it can boost up to 100 000 TPS.

Its block time is shorter than Bitcoin (around 13-15 seconds), but it still has a limited number of TPS. That’s why many layer-2 solutions write transactions off-chain, adding them only when they will have the necessary amount of transactions to proceed to the leading network as a single operation. It accelerates the transaction speed and saves money on pricey gas fees during peak times.

Efforts to Address Scalability Challenges

Most of Bitvoin’s users decided to stay with old consensus mechanisms and don’t implement new technologies. Other, more change-oriented users have called them "grumpy grandpas”, “OK, boomer’ and other unfitting words.

While I prefer to say that everyone has their taste and let people decide what they like to use. At the same time, I can’t pass over new blockchain scalability solutions to address those challenges. So I’ve gathered the 5 fascinating ways to combat those industry calls:

  1. Layer 2 solutions. These protocols build on top of the main chain to provide additional scalability. They interact with the main chain periodically, but they can use its security and immutability.
  2. Off-chain scaling. It refers to moving some transactions off the blockchain and onto a separate, more scalable network. This action improves transaction speeds by reducing the excessive load on the blockchain.
  3. Sharding. As you guess from its name, it is a technique of splitting the chain into smaller shards. It increases the number of transactions processed in parallel.
  4. New consensus mechanisms. They are better, more scalable, and more energy-efficient versions of ways to run blockchain networks.
  5. Hardware improvements. They may go unnoticeable since blockchain never stops, but they can improve blockchain scalability. For example, the development of faster and more powerful computers can increase the network's throughput.

One of the most common blockchain scalability solutions is Lightning Network for Bitcoin and Plasma for Ethereum. The first one is an off-chain scaling solution for Bitcoin that works by building a network of payment channels between users. These channels are mini-blockchains that are used to process payments between users.

The Plasma is a layer 2 solution for Ethereum allowing independent developers to create sidechains. Plasma uses a technique called state channels to transfer data between the main chain and the side ones. Most transactions are processed off-chain, which improves scalability in time.

Role of Defiway in Addressing Scalability

But what about Defiway? How do we address and solve blockchain’s scalability issues? The first and main thing is that most cryptocurrencies in our services are energy efficient. It’s Ethereum, Polygon, Kava, Avalanche, and many more.

We have a built-in exchange, so you don’t need to use another service to switch one coin to another. We also have a crypto bridge where you don’t need to sign multiple smart contracts, only the “Send” one. It’s not just eliminating the number of transactions and making the chain faster, but it saves you from possible hacks.

The more smart contracts you sign during a single transaction, the more possible breakthrough points. But it’s almost impossible to hack the wallet when you get only a “Send” transaction without an “Approve” one. Moreover, this approach won’t overload chains since they must run a single transaction to exchange coins from different networks.

Our Wallet tool also supports credit cards. In most rival services, when you wanted to top up your wallet, you needed to go to a third-party exchange and find a person to exchange fiat for crypto. Later that unknown person sends money to you, and only after that you may use those coins. It’s a long process with multiple transactions that overload the network. Defiway saves your time and refuses friction from the most popular crypto networks.

Predictions for the Future

The blockchain scalability challenges are part and parcel of blockchain’s growth. First crypto projects like Bitcoin weren’t ready for modern fame levels. They were created as a source of entertainment for crypto geeks.

But now, when blockchain is a solid and integral part of many fintech services, we need to change systems to address the scalability issues. That’s the only way to solve these challenges and make blockchain a fast and accessible option to store and exchange any data, including financial one.

We will see the implementation of new technologies. We already witness hard folks to more efficient consensus mechanisms and many Ethereum layer-2 solutions. We will see even more similar decisions in the foreseeable future.

New consensuses it’s the most complex yet powerful solution to solve those challenges. Ethereum’s Proof-of-Stake is far more efficient than Bitcoin’s Proof-of-Work (PoW). At the same time, Proof-of-Action (PoA) is even more efficient than PoS. The most widely known PoA networks areBitgert, VeChain, Xodex, and Palm Network.

Sidechains and Layer-2 solutions are still complex but simpler than implementing new consensus. Those blockchain scalability solutions are protocols that build on top of the blockchain to provide additional scalability. Lightning Network and Plasma are the two most well-known examples of it.

Sharding is a completely new technology, so we will see it only as an experimental feature in the next few years. It increases the transactions that can be processed in parallel.

All those actions will lead to higher speeds and improved security of the network. So we will see increased adoption in different industries, which speeds up the innovation process.

Wrapping Up

Scalability is one of the major challenges for blockchain. As the transaction amount increases, the efficiency capacity decreases. Thus many developers are looking for solutions to fix this mess.

Users of some networks decided to hard-fork it, implementing new consensuses. At the same time, users of other cryptocurrencies want to stay with old sluggish solutions.

However, new technologies allow users to use the same networks with higher scalability. Level-2 dApps and side chains are built on top of the main chain allowing users to use the scalability enhancement while taking advantage of main network benefits.

The resolution of the scalability challenges will impact blockchain’s future of technology by making it even more appealing to the general user. Those who will see new trends among the firsts and implement them into the workflow will win the innovation race in the blockchain.

So, I highly encourage you to stay with Defiway to learn new crypto daily and instantly use new tools in our DeFi services. Save your money on a single multi-network wallet with built-in exchange and bridge. It saves you time and money on fees while reducing the possibility of being hacked due to the fact of multiple service usage. Stay progressive, stay with Defiway!