What is the scalability (scaling) problem of blockchain? Explanation for each virtual currency
Typical virtual currencies (cryptographic assets) such as Bitcoin and Ethereum are attracting attention due to their high future potential, but there are problems in expanding their spread. Among them, the representative one is the scalability problem.
With the current system, it is difficult to keep up with the increase in usage, which tends to result in slower processing speeds and higher fees.
This is a problem that needs to be solved in order to expand the use of cryptocurrencies in the Dapps/NFT field as a means of payment.
In this article, I will explain the scalability problem that virtual currency has, and introduce the solutions that are currently considered to be the most promising.
If you are aware of scalability issues, buy a wide range of cryptocurrencies
What is the scalability (scaling) problem of blockchain?
Scaling and scalability mean "scalability" and refer to the degree to which a system or network can cope with an increase in usage load.
The scalability (scaling) issue in blockchain refers to the risk of increased system load due to an increase in users . If the scalability problem is left unaddressed, it will hinder the use of virtual currency.
Risk of concern
Specific risks of concern for scalability issues include slower processing speeds and higher fees . In typical cryptocurrency blockchains, an increase in the number of users slows processing speed, hindering smooth transactions.
The fees to be paid will also be high, and the more popular it becomes, the less convenient it will be as a payment method.
Unlike conventional banks, blockchain is a system without a centralized administrator. Therefore, it has the advantage of being able to use it at a low cost without incurring a brokerage fee, but if the fee increases due to scalability problems, that advantage will be lost.
Failure to solve the scalability problem will lead to a decline in the attractiveness of using cryptocurrencies.
Representative cryptocurrencies with scalability (scaling) problems
Two major cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH), have scalability problems. I will explain the problems that each of them has.
Bitcoin (BTC)
The scalability problem with Bitcoin is the block size. Since the block size of Bitcoin is 1MB, it is easy for the transaction volume to be recorded to reach the block limit.
The processing speed slows down as the block capacity increases.
Increasing the processing speed in such a situation swells the mining fees involved in recording and approving transactions. As a result, the fees borne by Bitcoin users will also increase.
Ethereum (ETH)
Ethereum can automate the execution of transactions through smart contracts, but the transactions must be approved by the network.
As the number of users increases, the time required for approval also increases, reducing processing capacity.
Ethereum is also attracting attention in the Dapps, NFT, and DeFi fields, so the number of users is likely to increase, and in recent years.
The burden on the network has increased significantly, and the fee called gas fee has also increased.
A solution to Bitcoin's scalability problem
Lightning network
In order to solve Bitcoin's scalability problem, it is important not to burden block capacity as much as possible.
For example, if transactions are made off-chain outside the blockchain and only the results of transactions are recorded in the block, processing speed can be improved and fees can be reduced.
The Lightning Network is a mechanism that is expected to facilitate such off-chain transactions .
In off-chain transactions, it is necessary to launch a payment channel each time a transaction is conducted between two parties, but the Lightning Network eliminates the need to launch a new one and allows transactions to be performed by connecting existing channels.
It is expected to build a new network through payment channels and streamline transactions.
Side chain
A sidechain is a concept that serves as a sidechain of a blockchain, and is a mechanism for processing transactions on a blockchain that is different from the main blockchain.
With this mechanism, the functionality of Bitcoin can be extended without directly updating Bitcoin. Sidechains are linked by a method called pegs, with Bitcoin as the main chain.
To give a specific example, Liquid is a sidechain that facilitates Bitcoin transactions, and Rootstock introduces smart contracts to Bitcoin to increase scalability.
A Solution to Ethereum's Scalability Problem
Leiden network
The Raiden Network is a solution that takes a similar approach to Bitcoin's Lightning Network and is the Ethereum version of the Lightning Network.
The difference from the Lightning Network is that it conducts an ICO, issues its own tokens, and publishes open source on Github to increase transparency.
However, both networks are expected to improve transaction efficiency for small-value transactions, and have the problem that it is difficult to deal with large-value payments.
Second layer solution
A second layer solution is a blockchain that exists as a complement to the main blockchain. With Ethereum as Layer 1, execute transactions on the second layer (Layer 2).
A specific example is Polygon (MATIC) , which is attracting attention as a project that solves the scalability problem of Ethereum due to its transaction processing speed of 65,000 transactions per second and lower transaction fees than Ethereum.
Hard fork is also one solution to the scalability problem
A hard fork is the birth of a new virtual currency by branching the blockchain, and by splitting it can be expected to make transactions more efficient. Specifically, Bitcoin Cash (BCH) and Ethereum Classic (ETC).
Bitcoin Cash sought to solve the lack of block capacity by increasing the capacity, and expanded the capacity of one block to 8MB.
Currently, the capacity has been increased to 32MB with an update.
Since Ethereum Classic was hard forked after Ethereum's THE DAO incident, the purpose of the hard fork is not necessarily to solve the scalability problem.
If you are aware of scalability issues, buy a wide range of cryptocurrencies
Bitcoin and Ethereum, which are representative virtual currencies, also have their own problems.
In recent years, there are multiple virtual currencies that are expected to solve the problems of Bitcoin and Ethereum, but it is not yet known which virtual currency will solve the problem in the future.
If you are conscious of scalability issues, we recommend buying not only Bitcoin and Ethereum, but also related stocks widely.
If you want to trade various virtual currencies including Bitcoin and Ethereum, open an account at a domestic exchange that handles many stocks.
Coincheck and GMO Coin boast the highest number of currencies handled among domestic exchanges, so there are a wide variety of virtual currencies that can be traded.
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