Scaling Issues Faced by Different Cryptocurrencies
How Cryptocurrencies are Handling Growth
We’re at a pivotal point in time for many of the top coins in the cryptocurrency market. Following the recent rise in popularity of cryptocurrency in 2017, many of the top coins have been facing growth issues as their networks continue to increase in size and usage. So how do some of today’s crypto giants handle satisfying their users while also keeping up with industry demands and competition? Well, it sounds like a lot of work — which it most certainly is — that goes into making it all happen, so let’s go over what these challenges look like and how industry leaders are tackling them.
This is not financial investment advice.
This article will touch upon key aspects of scaling issues faced by cryptocurrencies today.
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As soon as a cryptocurrency launches and takes off, you can typically expect problems to arise once its network experiences high growth. As such, there are several different scaling issues which can arise from growth in a blockchain network including the inability to grow further due to the same block sizes, security issues, and varying average difficulties to arrive at a block.
The first of several major reasons why these scaling issues occur, is because the base code has not been significantly updated or modified to keep up with the demands of the industry. Let’s take Bitcoin for example, as it has been running, for the most part, on the same basic code and software since its inception. Although there have been various improvements and updates made to the software, key components of what makes the blockchain work including the block size limit, have not been updated to handle the increasing amounts of transactions made every second.
Bitcoin’s block size limit of 1mb was issued as a security measure, restricting any block sizes that exceed this limit in the event that hackers would create an infinitely large block to paralyze the entire network. However, this security measure has created an efficiency issue, since it can only go through so many transactions at a time with that block size limit. When it was first created, the block size limit made sense and could still be capable of handling all of its transactions. Fast forward ten years, and now the transactions number into the hundreds of thousands, slowing down how many transactions can take place at once thanks to the insanely large number of users on the network.
If cryptocurrency has a chance at becoming, mainstream or even take over fiat as the principal monetary system, then this rate will not suffice. However, simply adding more capacity to each block size or implementing a new policy is not as easy as it sounds. Before any changes can be made, it needs the support of miners, business owners, and any stakeholders before it can be enforced. Yet, there are still a few solutions to these scaling issues which many cryptocurrencies have been using today.
There are several scaling issues which arise from growth in a blockchain network, including the inability to scale thanks to the same block sizes, setting the average difficulty of arriving to a block, and security issues.
Solutions for Scaling
Although these scaling issues may seem difficult to circumnavigate, there are actually a few ways to get around any problems which may arise. Several proposals have been made to simply change the block size limit, but none of them have been implemented. These proposals are known as hard fork solutions, which means that any changes implemented to the software would automatically make it incompatible with all previous versions of the software.
CIrcling back to the Bitcoin example, we have actually seen soft forks and hard forks result from the scaling issues its experienced. One of the most popular soft forks of BTC is known as SegWit, which fixed transaction malleability by removing the signature information (otherwise known as the “witness” information) and storing it outside the base transaction block. With that, signatures and scripts can be changed without affecting the transaction ID. SegWIt was activated on the Bitcoin network on August 23rd, 2017, with an initial purpose of fixing transaction malleability, but is now hailed as being the key to unlocking all of Bitcoin’s potential.
Another hard fork solution to Bitcoin’s scaling issue is Bitcoin Cash (BCH). In May 2018, Bitcoin Cash successfully activated an upgrade which quadrupled its block size to 32MB. It is hoped that the increase will allow the cryptocurrency to cater to future demand and pave the way for new features to be introduced. However, critics have argued that the changes make operating full nodes more expensive, and this in turn could cause less decentralization on the network. Supporters of BCH, which was the result of a hard fork in August 2017, say its enhanced block size is one of the reasons why it is far superior to Bitcoin.
Outside of forking, blockchain networks can rely on sharding to deal with scaling issues within their infrastructure. Sharding breaks a big database into smaller pieces called shards so that computers can processes those pieces in parallel. Most solutions that aim to increase the transactions per second typically compromise security or decentralization for speed, but sharding could potentially enhance efficiency without a compromise. With sharding, groups of computers can process separate divisions of the blockchain, resulting in more efficient processing compared to the status quo, in which each computer verifies the entire blockchain.
Each of these potential solution have been implemented by one or more existing blockchain networks, so let’s go over the ones we’ve seen thus far.
There are several solutions to the scaling issue faced by many blockchain networks including hard and soft forks, sharding, and proposed modifications.
How Different Cryptocurrencies Are Handling Scaling
Bitcoin, Ethereum, Litecoin, and more top coins have been dealing with scaling issues for a while now. Just like any other successful coin, you have to be able to deal with an increasing amount of users without compromising your network efficiency. Thus, many of the top coins have relied on forking and sharding as solutions to these problems, so let’s go over what some of these actions have resulted in.
For Bitcoin, we’ve already gone over the emergence of Bitcoin Cash and the implementation of SegWit, but what else are they doing to facilitate their transaction efficiency? Well, the scaling problem has been under scrutiny for quite a while now. The first two serious attempts at fixing it were BIP 100 and BIP 101, where BIP stands for Bitcoin Improvement Proposal. They were introduced in 2015 by the Bitcoin core developers Jeff Garzik and Gavin Andresen respectively. Both were aimed at increasing the block size limit and both were hard-fork solutions. Yet, neither BIP 100 nor BIP 101 have been realized in any noticeable way in the network today.
As for Ethereum, the issue of scaling is a little different from that of Bitcoin’s. Ethereum has adjustable block sizes, meaning that the crypto is not currently restricted to a hard block limit like Bitcoin and Bitcoin Cash are. It’s flexible and shifts on the go, but Ethereum’s going to need to scale further just like every other crypto project. The good news, though, is that ETH has some major forthcoming updates just around the corner.
Lastly, we have Litecoin. Under Charlie Lee’s guidance, Litecoin has approached scaling in a different way as well. Litecoin is the sleeker and more nimble version of Bitcoin regarding scaling — at least as it stands right now — because it has already implemented SegWit. The coin process blocks in 2.5 minutes, making it 4 times faster than Bitcoin’s 10 minutes at the moment. Thus, all signs point to Litecoin being a coin that’s scaling well right now and is poised to scale well in the future as well.
So now that we’ve seen how cryptocurrencies are scaling, let’s analyze some of these solutions to see which one seems to be the best way to go.
Bitcoin, Ethereum, and Litecoin have all scaled in completely different ways, catering to the specific needs of the users on their networks. From forking to sharding, many of today’s top coins have to adjust and adapt in order to stay successful.
Pros & Cons
Between hard forks, soft forks, and sharding, there are several pros and cons between them to consider when scaling. Obviously, none of these protocols are better than one or the others, but there are noticeable differences in function which should be discussed.
From an investor’s perspective, hard forks are actually extremely beneficial, because you are more often than not airdropped an equivalent amount of new coins from the hard fork for free. Again, going back to Bitcoin’s hard fork Bitcoin Cash, every investor who owned Bitcoin received Bitcoin Cash at a 1:1 ratio. Considering the volatile history of BCH, everyone who owned Bitcoin at the time of the fork had the opportunity to gain a lot of money if they invested right. Although there are, and have been, several hard forks which have failed relatively quickly. This offers investors a new investing avenue.
From a miner’s and developer’s perspective, forks are actually the source of much of the heated arguments and drama that take place between them. A prime example of this is the Bitcoin Segwit2X hard fork, which sparked many heated debates between people from all sides of the blockchain community. Of course, this was ultimately scrapped and done away with since the discussions and debates regarding its implementation almost always ended in stalemates. Are these disagreements just growing pains necessary for blockchain’s evolution, or are these unproductive discussions building up to its downfall? Only time can tell.
Some people have discussed the potential use of sharding when it comes to dealing with scaling, but it doesn’t come without a few pros and cons. Sharding — as we mentioned before — breaks a big database into smaller pieces called shards so that computers can processes those pieces in parallel. With sharding, groups of computers can process separate divisions of the blockchain, resulting in more efficient processing compared to the status quo, in which each computer verifies the entire blockchain. Although it seems more efficient in theory, there are some drawbacks which discourage its widespread use.
Sharding can be incredibly complex to implement and if done incorrectly, can often lead to corrupted or mismatched data, more critical shards, and more. Even if you do execute the sharding process correctly, it can be annoying to no longer have a single point of entry when trying to access your data. Generally though, at large scales, all giant companies will shard. When done correctly, it’ll simply offer you faster databases and better efficiency. Overall, these scaling protocols have numerous pros and cons which you should be aware of before engaging in discussion regarding scalability.
Forking and sharding have several pros and cons which should be understood. Forking can help investors who receive free airdrops of the new cons resulting from the fork, while causing drama between miners and developers who argue over certain protocols. Sharding increases efficiency without compromising its decentralization.
So, as certain coins continue to take on an increasing amount of users across their network, they’ll have to deal with some scalability issues which could make or break their future success. Although potential scaling protocols which can serve as solutions to these problems exist, each coin requires an individualized plan to cater to the specific needs of its users.
Forking and sharding have been at the forefront of these solutions, resulting in Bitcoin Cash, Segwit, and more realized solutions. Moving forward, as the blockchain and cryptocurrency industry continue to amass hundreds of thousands of new users every year, let’s keep an eye out for coins like Bitcoin and Ethereum who have been dealing with scalability issues for some time now, to see who comes out on top and who drowns under the sea of growth.
How do you think leading coins should handle scaling?
Let us know in the comments!