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The blockchain scalability dilemma

What is scalability and why is it important?

Blockchain scalability is a fundamental challenge for cryptocurrency networks

What are scalability and scalable blockchains?

In the crypto ecosystem, we define scalability as the capacity of a blockchain network to adapt and perform well in response to increasing demand.

We also refer to “scalable blockchains” as those blockchain networks that remain efficient even after significant growth in usage.

With the parabolic growth of cryptocurrency usage over the years, scalability has become a central issue among the community. Most importantly, developers have been — and still are — looking for different solutions to the scalability challenges.

Photo by NASA on Unsplash

Why is scalability a challenge?

Blockchains aim to be decentralized and globally distributed networks that enable their users to interact and transact without the regulation of a central authority.

Everyone can run a network node, thus acquiring the right to participate and vote in the networks’ governance and transaction validation process.

It’s crucial for blockchain security and decentralization that every user can run a node. Consequently, hardware requirements must be accessible to any regular user, leading to technical limitations.

To ensure accessible hardware requirements, blockchains set block and transaction parameters achievable by consumer-grade hardware. However, as blockchain usage and adoption grow, these parameters can produce bottlenecks in the process.

When block size isn’t enough to include enough transactions, users tend to pay higher fees to get their transactions cleared first. The higher the demand for s place in the next block, the higher the transaction fees.

Photo by Clint Adair on Unsplash

Additionally, in the scalability debate, a critical factor is consensus protocols, especially proof-of-work. Blockchains that use this type of consensus have an additional hardware requirement, making scaling even more challenging.

As you can see, scalability directly impacts blockchain performance, user experience, and long-term viability and growth. As a result, this problem has become a top priority among blockchain developers.

Scalability and layer 2 (L2)

The first question that comes to mind is why not increase block size or reduce block times to make the network faster.

Indeed, modifying parameters to meet demand sounds attractive. However, it carries implications. For example, a node would require a more powerful computer to process larger and faster blocks.

Increasing hardware requirements for running a node and limiting node-running to specialized actors are hardly a solution. They are superficial adjustments that ignore the root of the problem and could cause an even greater problem.

“For a blockchain to be decentralized, it’s crucially important for regular users to be able to run a node, and to have a culture where running nodes is a common activity.”

— Vitalik Buterin

Essentially, the “scalability problem” consists of finding the balance between the volume a given blockchain can handle and the hardware requirements to run a node.

Photo by Nastya Dulhiier on Unsplash

To properly scale, a blockchain has to find a way to maintain efficiency and performance under growing volume and demand without requiring increasingly powerful — and expensive — hardware.

So, what can we do if changing parameters is not an option to solve scalability issues? There are two popular answers to this question: On-chain technical improvements and layer 2 (L2) solutions.

On-chain technical improvements

On-chain technical solutions refer to updates and improvements to the blockchain protocol that enhance its processing capabilities.

Examples of these technical updates are SegWit on Bitcoin or sharding on Ethereum.

Layer 2 (L2) solutions

On the other hand, L2s are secondary frameworks or protocols built on top of an existing blockchain system.

These solutions can increase the speed and efficiency of blockchains without changing their parameters, thus preserving their decentralized structure.

Popular L2 solutions that tackle the scalability problem are the Lightning Network on Bitcoin or Arbitrum in Ethereum.

Summing up: Blockchain scalability

The future of cryptocurrency looks bright, with new real-world applications and use cases being developed every day.

However, as more people come on board, we have to make sure that we have the necessary capacity to process the increasing volume of their transactions and interactions with the blockchain.

A significant increase in usage volume without scaling would lead to poor user experience and deficient blockchain performance due to long waiting times, exorbitant fees, or centralization and security risks.

Photo by Terry on Unsplash

A blockchain’s potential to scale without risking its security or decentralization determines its viability for the future. Indeed, a network that can’t scale is a network with a growth cap.

However, the development of already live and potential solutions for this kind of issue provide reasons to be optimistic. Among them, Lumerin seeks to provide underlying infrastructure that will enable scalability of proof-of-work networks while simultaneosly mitigating the risk of hashpower centralization.

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