The Scalability Problem of Blockchains [ELI5]

Since the invention of Bitcoin, scalability has always been a problem with the underlying blockchain that powers it.

Understanding the Scalability Issue

When Bitcoin and other cryptocurrencieswere invented, the designers did not have mass usage in mind. However, as time progresses, more people have entered the crypto space. The scalability issue emanates from the fact that major crypto coins such as BTC and ETH use blocks to confirm transactions. However, when BTC and ETH were created, limits were placed on the maximum size of each block. For BTC, the limit is set at 1MB.

The purpose of the limitation was to make the blockchain more secure. However, it brought about a new problem. Today, the block limit size hampers the number of transactions that can be conducted per second, which is about seven per second. If Bitcoin hopes to gain mass adoption, it would need to be able to process thousands of transactions per second, similar to VISA, which processes around 1700 transactions per second. Without this, as the number of transactions grows, massive delays, sometimes lasting hours, will be experienced before a transaction can be confirmed.

Scalability Solutions

Many developers are actively working on solutions that will help to deal with the blockchain scalability problem. Thus far, some of the most viable proposals for blockchain scalability are:

• Implementing Sidechains

A sidechain is a separate blockchain that is attached to the main blockchain. To achieve this, developers use a two-way peg, which makes assets interchangeability between the two blockchains possible at a preset rate.

Users of the main blockchain have to send the coins to an outpost address where the coins are locked. Once a transaction is complete, a confirmation is sent across the two chains and a short waiting period is implemented for security purposes. Once the wait is over, an equivalent number of coins are released into the sidechain, which makes it possible for a user to access them. The reverse occurs when moving back to the main chain.

Off-Chain Channels

The off-chain channels allow transactions to occur between users of a cryptocurrency without incurring the transaction fee. Off-chain channels work by having some Bitcoin committed to opening a channel with another node. Once a channel is open, you can transaction with the node until the channel closes and the balance is distributed between the two parties involved.

One of the best examples of an off-chain solution is the Lightning Network. The network has about 2000 active nodes and it has about 15,000 channels.

Sharding

Sharding is a technique where a single blockchain is broken into multiple shards. Each shard will run independently and it will process its own transactions. There are already people working on how to improve sharding via cross-sharding, which is a technique that allows shards to share data. The main benefit of sharding is that it reduces the overall size of the blockchain, which has the potential to improve network performance.

Alternative Consensus Algorithms

One of the main causes of the blockchain scalability problem is the Proof of Work mechanism that is used to confirm transactions. The process entails miners using powerful mining rigs to perform complex calculations. A reward is sent to the first miner to confirm a transaction. However, this mechanism presents security as well as scalability challenges. For one, there is the danger that too much of the mining power could be concentrated in a single mining pool or a few mining pools. Besides that, confirming transactions via PoW is usually time-consuming.

However, current solutions to the PoW problem either lower the security of the network or make the blockchain network less decentralized. In general, if blockchains are to become more scalable, some minor sacrifices regarding decentralization and how the network is secured have to be made. Some of the proposed solutions are the federated systems and Proof of Stake.

Batching Payments

The main advantage of bathing payments is that it helps to reduce the size of the transaction record by placing multiple transactions in one transaction. It could help to increase the transaction per second rate to some degree.

Crypto exchanges already batch multiple payments into one. Besides helping to improve the TPS, it can help to lower the transaction fee. By batching transactions, you will only need to pay a single transaction fee, which can be shared amongst all those involved in the batch payment. However, there are limitations to how it works. Batch payments only work when one to multiple addresses not multiple addresses to one address. As a result, batch transactions would be useful for paying for things such as paying utility bills. The other problem with batching transactions is that users have to risk their privacy to some degree.

Interoperability

One of the proposed solutions to the scalability problem of blockchains is interoperability. Currently, Bitcoin maximalists are opposed to this idea. However, it is doubtful that there will ever be a blockchain that is optimized for every use case. Instead, some developers are calling for the implementation of interoperability that allows specialized blockchains to carry out their tasks where communication with each other. Most importantly, the user experience should remain unchanged with only the scalability issue being resolved behind the scenes. One of the platforms working on an interoperability solution to help remove the scalability issue is the Libonomy Blockchain. The idea belongs to Fredrik Johansson. By working in multiple startups throughout the years, Fredrik had gained insight that helped him to realize that there is a big gap to fill in the blockchain industry. Together with a talented team of developers who believe in his idea and know that they can make this world a better place, they created the revolutionary project Libonomy.

Libonomy is a fifth-generation blockchain, centered on the principle of consensus, regulated by artificial intelligence. Libonomy creators didn’t settle on using previously known consensus algorithms because of their significant shortcomings but developed their own, unique, error-free, AI-controlled consensus engine. Algorithms created as a result of a detailed mathematical analysis of AI, and controlled by it, are devoid of human intervention and therefore have an exceptional level of security.

The Libonomy blockchain solution is a secure, scalable, and universal ecosystem that allows users to create smart contracts, DEX, and other DApps. Thanks to the interoperability built into the blockchain, it the DApps built on Libonomy can freely interact with any existing blockchain.

Other blockchains can talk to each other via the Libonomy Blockchain. Developers seeking to create DApps and smart contracts that can be deployed on multiple blockchains can do so within the Libonomy Blockchain ecosystem. The Libonomy Solution is a first of its kind in the world. It is the first time that a blockchain project has implemented full compatibility between different blockchains, which allows them to freely communicate with each other.