The term scalability comes from the English word “scalability”. In the world of cryptocurrencies, it is an expression that is used to designate the ability of blockchains to “scale up”, that is, to be able to process more transactions per second without affecting performance. In this case, the blockchain is said to be “scalable”.
In this article, we will explain why scalability is a major issue for the cryptocurrency industry and what the consequences can be when a blockchain is not scalable.
Why is it important to have a scalable blockchain?
Blockchains have limits on the number of transactions they can perform per second. This is something quite difficult to change because it is the way they are scheduled that defines how many transactions can be processed in any given time.
Typically, when a blockchain hits the market, the number of operations it can perform per second is enough to meet demand. Quite often, this number is even higher to anticipate ever-growing future popularity.
However, the older the blockchain, the fewer transactions per second it can process. So the Bitcoin it can only perform 7 operations per second and theEthereum fifteen. Nowadays, this is quite an insufficient number due to the huge popularity of these two networks.
Upgrades have been made in the past to improve transaction processing, but we see these two blockchains are struggling to scale easily. As a result, many competitors entered the market with tremendous promise of scalability. Future improvements are expected on Bitcoin and Ethereum, but it takes time to implement.
What does a congested network imply?
When you are on a congested network, this can have negative implications for users. There are mainly 2 big problems:
· The costs for carrying out transactions are much higher. Consequently, making small transfers of value is no longer attractive at all due to the percentage of fees charged, which is far too high. Only the big whales can continue to use the net with negligible costs;
· The transaction processing time increases. As there are more and more users on the blockchain and it has reached its limits, then it is necessary to wait for its turn for the transaction to be processed. In some cases it is possible to speed up the procedure by paying an additional fee.
In addition to these drawbacks for users, cryptocurrencies themselves can also be negatively impacted by their lack of scalability. In fact, users will then start looking for an alternative solution to pay fewer fees and have their transactions processed faster. It is therefore an advantage for competitors and can cause non-scalable cryptocurrencies to lose market share.
Are there infinitely scalable blockchains?
All blockchains have a number of transactions per second limited to a maximum. While some like Bitcoin (7) and Ethereum (15) can only get a low number of trades per second, for other digital assets the limit is much higher. Some cryptocurrencies can also process more transactions per second than for example VISA.
However, cryptocurrencies that can perform many trades quickly use much less secure consensus than a proof of work. As a result, very few of them manage to gain the trust of users and therefore find it difficult to establish themselves.
Furthermore, Bitcoin and Ethereum are digital assets that have an excellent reputation. Bitcoin, for example, has never been hacked and Ethereum was the first to offer smart contracts, which led many developers to develop Dapps (Decentralized Applications) operating on this network, thus allowing Ethereum to maintain a significant competitive advantage. on competitors.
At the time of writing these lines (November 2021), some promising blockchains with no concern for scalability have positioned themselves in the most capitalized digital assets. We can mention Binance Coin, Solana or Cardano which represent an alternative to Ethereum. However, the Ethereum network should be able to overcome its scalability issues with its version 2.0.
Conclusion on scalability
Scalability is a recurring problem for some cryptocurrencies. In fact, at the time of their design, they had foreseen a maximum number of transactions that could be processed per second and this has been reached. As a result, the fees for executing transactions on the network explode, as does processing times.
However, the updates allow some networks to increase their efficiency and competitors are coming to the market to solve these recurring problems, even if it is difficult to find a place in a market partially blocked by already established players.
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I discovered the world of cryptocurrencies in January 2018. Arrived at the worst time to invest, I have never stopped training since then and now I share my knowledge in order to facilitate the adoption of cryptocurrencies.