Security and Scalability in Blockchains: Seeking A Delicate Balance
Introduction
Two of the most concerning topics in the adoption of blockchain networks are security and scalability. A balancing act is often required to achieve both, as focusing heavily on one results in the detriment of the other. In this article, we will consider the ongoing approaches utilised by top industry players to create networks that are both safe and usable.
We will cover:
- Common blockchain security threats
- How to keep your crypto assets safe
- Scalability challenges and current solutions
- Interoperability in blockchains
- The road ahead
Common Security Threats
Blockchains are secure by design — thanks to cryptography and all. But you would be mistaken to assume they are invincible. As with every other system, you need to navigate with some level of caution. That, ideally, should begin with learning the possible loopholes that bad actors do well to exploit.
Below are some common concerns:
Hacking
As I mentioned, blockchains themselves are highly secure, but vulnerabilities can exist in individual apps, smart contracts, or cryptocurrency exchanges.
Hackers often exploit these vulnerabilities to steal cryptocurrency or disrupt network operations.
There isn’t much you can do on this front as an individual — besides carefully choosing what apps or exchanges to keep your funds in or interact with. Using a secure, non-custodial wallet is highly advised.
Social Engineering Scams
As a young and rapidly growing industry, Blockchain technology is a breeding ground for innovation. But it also attracts scammers in almost the same breadth.
Phishing attacks, social media impersonations, and fraudulent investment schemes are some of the most rampant examples.
Goes without saying that it’s extremely vital to stay vigilant, verify information, and avoid interacting with suspicious sources.
Rug Pulls
In Decentralised Finance (DeFi), rug pulls are a specific scam where developers create a seemingly legitimate project, hype it up, and then abruptly abandon the project after investors have poured money in.
Think of these as pump-and-dump ponzi-inspired endeavours. Rug pulls leave investors with worthless tokens and money (sometimes, a lot) down the drain.
There’s a whole art to identifying quality projects with the potential for good ROI. But the simple gist is: conduct thorough research into projects and their teams before investing.
51% Attack
A 51% attack involves gaining control of more than half of a blockchain’s computing power. This is mainly theoretical.
With such dominance, an attacker could potentially manipulate transactions or disrupt the network.
Though a probable loophole, the risk of a 51% attack is generally considered low for major blockchains with large, distributed networks.
Keeping your money safe
It’s a hard feeling to lose your hard-earned money to bad investments, but an even sadder option is to lose it to hackers and thieves.
Keeping your crypto safe is a no-brainer. Below are two main methods to store your assets:
Hardware Wallets
These offline devices are like USB drives and offer the highest level of security. Your private keys, which are essential for accessing your crypto, are stored offline. This makes you immune to online hacking attempts.
Software Wallets
These are convenient apps on your phone or computer for storing and managing your crypto. While user-friendly, they can be more susceptible to hacking compared to hardware wallets. If you will go this route, use reputable software wallets and prioritise strong passwords.
The best approach often involves a combination of these methods. You can store your long-term holdings in a hardware wallet for maximum security and keep smaller amounts for frequent trading in a software wallet.
Scalability Challenges in Blockchains
Another major hurdle for blockchain technology is scalability. In fact, this has probably been the single most discussed topic from the early days of the industry’s unprecedented growth.
Many blockchains can only process a limited number of transactions per second, leading to slow transaction times and high fees when network congestion occurs.
To replace Web 2.0 or, at least, compete favourably, many blockchains still need some work in this department. Fortunately, new solutions are springing up at high speed.
The Security-Scalability Trade-off
The consensus mechanism utilised by a chain plays a significant role in both security and scalability. This often results in a trade-off between the two in blockchain design.
Basically, the more decentralised a network is, the longer it takes to verify transactions.
Highly secure, decentralised blockchains like Bitcoin, which has a PoW consensus, may sacrifice transaction speed. On the other hand, faster blockchains like Ethereum have to compromise on decentralisation to some extent.
Recently, layer 2 solutions and ongoing research in consensus mechanisms with regard to balancing scalability and security have been promising.
More on Scalability Challenges and Current Solutions
Traditional payment systems, e.g., Visa, can handle tens of thousands of transactions per second, far surpassing the capacity of popular blockchain networks such as Bitcoin and Ethereum. Bitcoin can average 7 transactions per second (TPS) and Ethereum manages 2–3x that speed.
The limited throughput of blockchain networks stems from their emphasis on security and decentralisation over speed and efficiency.
The original blockchains were simply not designed for heavy traffic. Imagine a highway designed for a few cars now handling a rush hour traffic jam — that’s the crux of the scalability challenge.
Older Blockchains could only process a limited number of TPS, leading to two major problems:
- Slow Transaction Times. Making a payment could take several minutes or even hours to confirm. This is a bad user experience, especially when you consider web 2.0 solutions.
- High Transaction Fees. Network congestion often drives transaction fees up. And making small transactions on such a network becomes impractical.
Several innovative solutions are emerging to address these challenges:
Sharding/parallel execution
The Sharding technique partitions the blockchain into smaller databases (shards), with each of them processing transactions in parallel.
In this scenario, the highway is divided into different sections to handle traffic more efficiently.
This puts resources to better use because instead of one broad freeway, you get sub-threads running multiple transactions at the same time.
Sharding is still under development but has been a very effective way to increase scalability.
Blockchain protocols that use sharding/parallel processing include Ethereum, Polkadot, Near, and Zilliqa.
Layer 2 Scaling
This approach involves building protocols “on top” of existing blockchains to offload some of the processing burden.
This is similar to adding additional lanes to the highway — Layer 2 solutions handle transactions off-chain but leverage the security of the main blockchain (Layer 1) for final settlement.
Popular Layer 2 solutions include Polygon and Optimism, both built on the Ethereum blockchain.
Block Size Increases
Some blockchains are exploring increasing the size of data blocks to accommodate more transactions per block. For instance, Bitcoin originally only allowed a block size of 1 MB.
The performance of the blockchain network is directly dependent on the size of the blocks. A larger block size can enhance transaction throughput by enabling the processing of more transactions simultaneously.
However, larger block sizes may also result in drawbacks such as heightened resource demands for network users and prolonged validation periods.
Interoperability: Connecting the Blockchain
This may come as a surprise to newbies, but blockchain networks were not originally designed to communicate with each other. Trying to send Bitcoin on the Ethereum chain to the Solana chain would result in a loss of your assets.
Blockchains operate in silos, hindering communication and data exchange. This fragmented nature of blockchain leaves much to be desired. Expectedly, different innovations are emerging to provide much-needed interoperability.
For instance, Cosmos’ Inter Blockchain Communication Protocol is one such innovative solution connecting blockchain ecosystems; another worthy mention is Polkadot.
What are Cross-chain Bridges?
As the name suggests, these protocols are developed to enable communication and asset transfer between different blockchains.
If a blockchain is like a highway, these bridges link different highways, allowing easy movement across networks.
Cross-chain bridges are immensely crucial for realising an interconnected ecosystem. However, there are significant costs or fees associated with such endeavours.
Examples of interoperability protocols are Wormhole, Multichain, and Celer cBridge.
Interoperable Standards
Many layer 1 blockchains are currently in the market, all existing in silos. For Web3 to truly function like Web2, aka the internet, a connection protocol similar to TCP/IP is necessary.
These are similar to your established traffic regulations that work across all highways to simplify communication and avoid possible mishaps.
Standardisation efforts will help create common languages and rules for blockchains to interact.
The Road Ahead: A Scalable and Connected Future
The quest for scalability and interoperability is an ongoing journey that has birthed so many top-tier projects.
Many layer 2 solutions, sharding protocols, and flexible systems have seen mainstream acceptance by the crypto community because they simply make life easier.
Existing layer 1 projects, like Solana, are already providing unmatched throughput 1000Xs Ethereum’s. Upcoming projects like Monad are also promising revolutionary speed.
However, this retinue of solutions across the ecosystem has also led to fragmentation concerns, giving rise to projects like the Omni Protocol, which aims to connect all layer 2s across Ethereum.
Additionally, cross-chain bridges and interoperability standards are paving the way for a more connected blockchain ecosystem.
Conclusion
As the industry keeps evolving, these advancements will continue to mature. And hopefully, more innovative concepts will emerge until the problem of scalability and security is efficiently resolved—the future is indeed bright.
Blockchain technology is already revolutionising how we do things, and I deeply believe that it will only gain wider acceptance from here on. Various industries can benefit from a fast, secure, and, more importantly, decentralised system that supports transactions across a global network.
