With the widespread knowledge of cryptocurrency and blockchain, it can be summed up as a solution to displace the local banking system. Fortunately, it has grown and matured rather well in the past couple of years. However, it is now facing the problem of satisfying many people within a short period (transaction speed).
For certain cryptocurrencies (depending on which blockchain is being used), transaction times are lower than other payment methods (Visa and Mastercard). Bitcoin has a time of 7 transactions per second, Ethereum has 20 transactions per second, and Litecoin has 56 transactions per second. While this seems sufficient, compared to Visa with 24000 transactions per second, these crypto transaction times are not competitive enough and need some improvement.
This problem is referred to as “scaling” in the crypto world. It simply refers to the rate at which blockchain systems can handle the increasing number of data and how the system manages the increasing number of transactions performed across its ecosystem. This is extremely important when it comes to processing transactions for relative software that relies on the blockchain, such as a cryptocurrency automatic trader bot.
Major Parts of Blockchain Scaling
Blockchain Scaling can be divided into 3 major parts, which are;
- Blockchain execution
- Blockchain storage
- Blockchain consensus
Blockchain Execution
This is the process of checking how valid transactions are. It considers and checks how valid token balances are and verifies signatures. It also carries out state changes, including transferring tokens, storing data, and updating smart contract codes.
Scaling for blockchain execution does not consider the transaction time in “transactions per second” but rather measures it with “computations per second.” The higher the transaction that flows through the system, the higher the computations the system will need to execute at a specific time.
The scalability problem in this phase can be solved by increasing the number of computations in a second without any considerable increase in the demand placed on each node that executes the validation process.
Blockchain Storage
This is the process of storing data on decentralized networks. They are stored in networks called nodes and on the unused part of users’ hard disks. Blockchain stores data in 2 significant ways, through historical data and global states.
- Historical data includes data used during the transaction process. This data contains information like where the address originated from and where it is being sent to, the amount sent, and each individual’s signature. It also saves block data, including all the data and transactions made and from a particular block (nonce, merle root, etc.).
- On the other hand, Global State can be likened to a blockchain database, which helps check the authenticity of transactions. This data type is mainly built within tree structures where access, modification, and everything the node needs can be quickly drawn.
The node must access historical data and global states to store the blockchain correctly. As the data stored increases, computation rates reduce and become more expensive (this happens because the nodes will need more computation and time to validate). Eventually, the node’s storage becomes full and will require disk space storage. This will further reduce the computation rate because the node must validate the information from the two different environments.
The problem of scaling concerning blockchain storage can be solved by finding a place to store data long-term.
Blockchain Consensus
Blockchain Consensus is a method of coming together to make a particular decision. Since the blockchain system is a decentralized system and people do not make decisions, blockchain consensus helps the nodes to make a decision and reach an agreement about the condition of the data. Consensus allows transactions to be accurately executed without any reversal and helps people build trust in the blockchain.
It also helps to verify data and know which transaction is valid or not.
The problem of scaling concerning blockchain consensus can be solved by finding a way to reach decisions faster and cheaper without compromising trust. The solution has to be predictable, accurate, and stable.
It is not an easy task to solve the problem of scaling in cryptocurrency. It is challenging to solve because it is impossible to change a part of the algorithm without it affecting every other part. However, the solution can come in 3 primary ways,
- On-chain solutions
This is also known as the layer one solution, and this scaling solution is procured by making structural and fundamental changes. The two major on-chain solutions are the Segwit and Sharding methods.
Segwit removes the signature data that checks if the sender owns the funds and if the funds sent are available. This data takes up much space, and Segwit solves scaling by releasing more space for transactions.
Sharding is also known as horizontal partitioning. Sharding helps to split data into different segments controlled by specific nodes assigned to them. This makes several nodes run parallel to each other, aiding transactions.
- Off-chain Solutions
This is also referred to as the layer two solutions. This solution adds a second layer to the system to aid transactions. The two major off-chain solutions include sidechains and payment channels.
The sidechain solution is procured by linking a separate blockchain to the main chain. So data are transferred from the main chain to the sidechain, improving transactions. There can be more than one sidechain attached to the main chain, with each sidechain having a defined architecture.
Payment Channels is an off-chain network that is attached to the main chain. A channel is established between two systems, which helps execute transactions faster. The most common payment channels used are the lightning network (used in bitcoin) and the Maiden network (used in Ethereum).
- Consensus Solutions
Different methods are put in place to solve the blockchain consensus scaling issues, including the Classical consensus, Nakamoto consensus, and Leaderless consensus. Each consensus method has its own way of adding new blocks to its blockchain. Proof of work (PoW), Proof of stake (PoS), for example. Are underlying methods used to confirm those blocks, making it a smaller part of the overall larger consensus method?
Final Words
Cryptocurrency scaling is a must because the crypto community keeps increasing daily, and the transactions carried out are rising exponentially. Thankfully, doing what the Crypto community does best, the need for scaling has been and is consistently being answered as developers continue to provide solutions and upgrades, thus increasing transaction speeds.
The solutions to scaling are still in their initial phase. With the community always coming up with great ideas and ways to improve the cryptocurrency industry, better solutions will be found to tackle this problem. For now, it is best to focus on all the benefits the cryptocurrency industry offers.