Why Proof of Stake Is The Future: Part 3

Bitcoin’s Scalability Issues

This article series titled “Why Proof of Stake Is The Future” is exploring blockchain solutions and evaluating their sustainability. Since Proof of Work was the first and most common method of consensus, the first few articles in the series have detailed some of the biggest concerns with work-based algorithms, including: the extreme waste of electricity, vulnerability to 51% attacks, and now: scalability.

What Is Scalability

First we must understand what this term is referring to. The word “scalable” can be defined as, “the ability of a computing process to be used or produced in a range of capabilities.” As it pertains to blockchain, this is often applied to the volume of transactions that can be handled by the network at any given time.

Since Bitcoin is the most popular Proof of Work blockchain, it will be used for means of comparison.

The on-chain processing ability for the Bitcoin network is limited by Bitcoin’s block size and block time — which are 1 megabyte and 10 minutes, respectively. Calculated using a median transaction size, this limited capacity would produce a throughput of around 3.3 to 7 transactions per second.

For all of the cryptocurrency proponents who constantly talk about “mass adoption” — this number is pitiful. It does not provide anything close to the throughput required for Bitcoin to be used on a regular basis by the public for buying, selling, or storing value. The fact of the matter is that in its current state, the mathematical limits of Proof of Work technology will constrain blockchain’s growth. Crypto enthusiasts must come up with a different option, which I will argue in a later article will be Proof of Stake.

Comparing Bitcoin To Other Means of Exchange

When I use the term “Means of Exchange” I am referring to anything of value that is used to buy or sell goods. Surely when people mention “mass adoption” and “Bitcoin” in the same discussion, they are implying that the average person will use Bitcoin to make purchases. Now that we understand some of the inherent limitations of Bitcoin, let’s take a look at other means of exchange.

Visa

Visa claims that their network can support a whopping 150,000,000 transactions per day. If we take this number and extrapolate down to a tx/s, we get the following:

150,000,000 tx/day / 1440 min/day / 60 sec/min = 1736.111111 tx/sec

That’s 1736.1111 transactions per second, or roughly 250 times more scalable than Bitcoin.

Proposed Solutions: Are They Enough?

People have been aware of Bitcoin’s scalability issues for a while. As a 2018 survey conducted by Tata Communications points out that 44% of participating companies are implementing Blockchain technology, this scalability issue is causing serious limitations for its adoption. After all, if companies are going to build profitable applications on top of the blockchain, the chain must be able to adapt to the demands placed on it by its growing pool of institutional users.

Some have suggested that in order to mitigate this problem, Bitcoin developers should consider implementing a hard fork to allow shorter block times and higher block sizes. Segwit would theoretically increase the block size to 4MB, which though it is an improvement, it falls tragically short of the requirements of companies that rely on high speed networks.

Conclusion

The sad truth is that Proof of Work is old technology, and is not capable of meeting the demands of a modern digital economy. If Blockchain is going to continue to blossom into adoption by consumers and institutions alike, these issues must be addressed. It’s time for Blockchain to mature past Proof of Work. Enter: Proof of Stake.