Understanding the Scalability Issue of Blockchain
This article is part 1 of 3 in our blockchain scalability series.
Scalability has always been a big question for people in the world of blockchain. What happens as this technology becomes more and more mainstream, with networks rapidly filling up with millions of users?
Can blockchain — a technology that started out as a niche project between enthusiasts — successfully scale to a global level? It’s a big question. Right now, the answer is no, but that‘s quickly changing.
In this article, we’ll explore some of the challenges around blockchain scaling, some of the proposed solutions, and what the future holds.
Bitcoin network scaling
To really understand the scaling problem of blockchain, it’s useful to go back to the early days of Bitcoin. Bitcoin is a very simple blockchain with one straightforward use case: send and receive digital money.
From the start, Bitcoin users noticed a scalability problem. How do you ensure that this decentralized network can handle large (and growing) numbers of users?
It’s a basic computer networking problem. There is only so much bandwidth available to handle the transactions taking place. On top of that, you need to validate each transaction by checking the records, and this requires a certain amount of storage space.
Eventually, the inevitable happened — the Bitcoin protocol got full. The result was problems with processing more transactions, which slowed everything down. A host of new projects emerged trying to solve the problem, which were essentially just new copies of the Bitcoin code (Litecoin is one example).
But this wasn’t a real solution because these new chains were separate networks to Bitcoin, and it wasn’t possible to communicate between the two chains. On top of that, these new blockchains were destined to encounter the same problem as they filled up with more and more users over time.
We needed a better solution. But before we get to that, let’s take a quick dive into how Ethereum dealt with this problem.
Smart contract network scaling (e.g. Ethereum)
The rise of Ethereum expanded what we could do with blockchain. It allowed for smart contracts, which made it possible to have much more complex use cases than Bitcoin and for computer programs to be built on the blockchain.
One problem with this was something called the halting problem. This is essentially when you create an infinite loop in a program, causing it to run forever. If this happened too much on the Ethereum blockchain, it would clog up the entire network and ruin it.
The solution was something called gas. This allowed users to run programs on Ethereum as long as they paid for enough gas. When the gas ran out, the program stopped running. It was a neat solution to the halting paradox, making it impossible to run infinite loops without incurring infinite fees.
This keeps the network running and avoids blockages and slowdowns, which allows the ETH blockchain to run computer programs without being overwhelmed.
Understanding the scalability issue of blockchain
To explore some of the solutions to the scalability challenges of blockchain, it’s easier to return to the example of Bitcoin.
What if too many people start sending BTC to each other? Only so many transactions can take place at a given time, so what happens when the demand outstrips that?
The result is lots of transactions and not enough room on the blockchain, which leads to long waiting times and high fees for every transaction.
The initial solution was to simply increase the amount of information that the blockchain can store. Raise the block size limit, doubling the number of transactions you can run.
It was a simple solution, with a simple flaw — when it fills up, you have to do it again. Keep doing this, and the amount of storage needed to hold the blockchain spirals out of control, making it impossible for ordinary users to run the Bitcoin software in their own homes.
Another solution was to shorten the time needed to create a new block. The problem with this was that there needs to be a confirmation period to confirm the validity of new blocks. With a shorter time, you could create 100 new blocks before even realizing there was a problem.
We call these ‘layer-one (L1) solutions,’ and neither of them really work as long-term solutions. So what does?
Solutions toward blockchain scalability
The next set of solutions for scalability can be called ‘layer-two (L2) solutions.’
An example is state channels. This works based on the principle that you can seriously reduce the strain on blockchains by simply grouping similar transactions together, reducing the overall number of transactions.
For example, if I want to transact a number of times with you, we can just wait until all of our transactions stack up and then run one big transaction that combines them all. By tracking relationships between people who transact frequently together, it’s possible to group their transactions this way and allow many more overall transactions on the same blockchain.
The future for blockchain scalability
Over the past decade, the scalability situation has improved considerably. We can liken it to the early days of the internet, where the technology was grappling with a radically increasing user base and the challenges and slowdowns associated with that.
The solutions we have today — particularly L2 solutions — work fairly well, but they aren’t enough to support blockchain on a global scale. However, things are improving.
The answer will ultimately require a combination of many different solutions. Our CEO, Matthew Gould, predicts 100x improvements in the future — enough for blockchains to work successfully on a worldwide scale. Matthew and the team at Unstoppable Domains are already working on an L2 solution to build the world’s first and largest scalable blockchain domain naming system. Stay tuned for more.
To learn more about blockchain, cryptocurrency, and all things web3, check out The Unstoppable Podcast.
