If they are to compete with major payment systems around the globe – e.g. Visa and Mastercard – cryptocurrencies need to step up their game. While Visa and Mastercard reportedly reach thousands of transactions per second, cryptos are lagging far behind. Ethereum, for instance, caps at 20 transactions per second, Bitcoin at 7, and Litecoin at 56, while some claim Bitcoin Cash could potentially reach three digits. To address this issue, the developers of major blockchains have come up with a variety of solutions.
BLOCKCHAIN SCALING ESSENTIALS
- Scaling is necessary to increase the number of transactions per second.
- One solution is either increasing block size or reducing block time.
- Bitcoin’s solutions include SegWit, which virtually increases the block size and facilitates the implementation of layer 2 solutions.
- Ethereum’s solutions include proof of stake.
Bitcoin’s scaling solutions
Increasing block size and reducing block time
Bitcoin’s block size limit was set a year after its conception. At the time, the new block size limit of 1 MB was not problematic. The network was not as busy, and transactions were never large or numerous enough to fill up the 1 MB blocks.
But as Bitcoin’s popularity grew, it became clear that a 1 MB block size limit was not enough for the ever-growing community of Bitcoin users. A block size increase from 1 MB to 8 MB was proposed. Because the community could not reach an agreement, the blockchain was forked.
One part of the community stuck with the original Bitcoin Core blockchain and its 1 MB block size limit. The other part opted for the Bitcoin Cash fork and increased the block size limit first to 8 MB, and later to 32 MB. With blocks currently 32 times as large, Bitcoin Cash can process more transactions in the same time.
Another way of increasing the network throughput is by reducing block time. This was the case with the Litecoin blockchain, which began as a copy of Bitcoin’s source code. The key difference is that its block time, just 2.5 minutes, is a full 4 times faster than Bitcoin’s. This lets it process transactions more quickly, achieving a peak throughput of 56 transactions per second.
Another solution that addresses scaling across Bitcoin and its altcoins is Segregated Witness (SegWit). At first, SegWit was aimed at addressing transaction malleability. Before its implementation, it was possible to change the transaction ID and trick the sender into sending coins twice. Its implementation has made any feature that relied on unconfirmed transactions less risky. But its potential is far greater than that, as it introduces a new concept called block weight.
Block weight is a mashup of block size with and without the signature data, which has a limit of four times higher than before. This means that SegWit virtually increases the block size from 1 MB to 4 MB. Theoretically, this enables a transaction throughput that is four times as high. And, while this sounds promising in theory, experts believe that the network’s condition will not allow for a block size greater than 2.1 MB. In reality, the average block size is nowadays only somewhat larger than 1 MB.
Another important aspect of SegWit is that it enables the implementation of so-called layer 2 solutions. These are blockchain scaling solutions, such as the Lightning Network, that aim to move bulky chunks of data from blockchains to so-called side chains.
Ethereum’s scaling solutions
Proof of stake
To enable a higher throughput, Ethereum’s devs have come up with proof of stake. This protocol changes the block validation process by replacing miners with validators. As a validator, you first have to lock or lock some of your ether in the blockchain as a stake or security. After that, you start validating blocks that you think can be added to the blockchain by placing a bet on them, to put it simply. The higher your stake, the greater the likelihood that your block will be chosen, and for you to get the block reward. But if you bet on the wrong block, your invested stake might get lost.
To implement proof of stake, Ethereum developers introduced the Casper protocol. With it, they have started the transformation of Ethereum to proof of stake, a process known as Ethereum 2.0. This is currently a hybrid system between PoW and PoS. While most transactions are still validated through PoW, PoS is also already in action. A number of Ethereum users have locked some of their ETH in the blockchain for a two year period to be eligible to earn staking rewards. In the meanwhile, Ethereum developers will continue developing Ethereum 2.0 until it reaches a state where PoW is no longer necessary.
Scaling is a must
The crypto community is growing, and the number of crypto transactions is steadily increasing. Blockchain scaling is thus inevitable, which explains all the tweaks and upgrades that are being implemented or developed. Blockchain development never rests, with new and exciting solutions always emerging on the horizon.