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I went to my favourite restaurant for dinner a few weeks ago. While savouring the sumptuous meal before me, I noted how easily the employees served the few customers (between 2 and 5) in the diner. However, as more clients arrived at about 9 p.m., the pace of customer service slowed. The rationale for this is not farfetched; the available staff and resources were insufficient to fulfill the increasing demand (i.e., customers). In other words, there was a scalability issue.

Aside from this scenario, blockchain technology suffers from a lack of scalability. Unlike any other new technology, a blockchain must prioritize scalability since it is a distributed, decentralized ledger designed to make transactions as simple as possible. However, this issue is not limited to blockchain technology. Every organization that relies on progressive expansion must consider scalability issues.

Scalability is a significant issue in 2022, with crypto projects such as Polygon and Solana betting on solving it. With Ethereum 2.0 on the horizon, a discussion regarding scalability is becoming increasingly important. But, given that blockchains have been around for over a decade, why are we still worrying about scalability in 2022?

This article comprehensively examines the concept of blockchain scalability, blockchain scalability solutions, and the relevance of scalability in blockchain technology.

What is Blockchain Scalability?

Scalability refers to a computer system’s ability to manage increasing work. When dealing with massive amounts of data, a blockchain network does not scale effectively (i.e., it has low scalability).

The blockchain system must be modified to accommodate the increasing workload, data, and resources (e.g., servers, computing power, or bandwidth).

However, in the context of Blockchain, “scalability” implies a broader range of connotations. In one of the most important studies on blockchain scalability, every rise in Bitcoin’s throughput, latency, startup time, or cost per transaction was referred to as “scaling.” The resulting blockchain system was referred to as “scalable.”

Despite wildly varying throughput, several blockchain systems can be termed “scalable.” A scalable blockchain system can achieve more TPS (Transactions Per Second) than other existing systems by modifying its consensus mechanism and adjusting specific system components.

Challenges of Blockchain Scalability: Role Played By Throughput, Finality, and Confirmation Time

When people ask if cryptocurrency is scalable, they want to know what that implies. What is the relationship between transaction speed and transactions per second? Before answering these questions, we need to understand what the meaning of throughput, finality, and confirmation time is.

To understand these terms, consider the scenario below:

You’re at a bus station, waiting for a bus to take you home. The route is popular, and there is always a long line of people waiting for the bus. The bus arrives every 16 minutes, and the journey takes 80 minutes.

After 3 minutes, the bus arrived, but there were too many people in line ahead of you, and the bus was full.

You must now wait 16 minutes before starting your journey home.

We can deduce throughput, finality, and confirmation from the scenario above, as illustrated below:

Throughput = bus capacity (6 people per minute).
Finality = the time it takes to get from the bus station to your destination (80 minutes).
Average first-block waiting time = the time required to wait for the bus (16 minutes).
Confirmation time = total duration of the journey (96 minutes)

It is critical to consider confirmation time while evaluating throughput (TPS). Simply put, a protocol that can handle 150,000 TPs is excellent, but if the confirmation time is two days, it is unsuitable for everyday use.

When the network is congested, the throughput does not decrease (since the bus can still carry six passengers per minute), but confirmation time suffers due to the longer average first-block waiting time.

The term “finality” refers to a set amount of time that passes before anything happens. To guarantee that the block isn’t reversible, we need to wait for the “5-block confirmation.” Depending on the situation, the typical first-block waiting time varies.

The Scalability Trilemma

In the early days of Ethereum, Buterin coined the phrase “scalability trilemma” to describe the “difficult trinity” of decisions that blockchain engineers must make: scalability, security, or decentralization.

Because of how decentralized systems are designed, developers can only optimize for two of these features.

Scalability

The network’s throughput determines scalability. Blockchains should accommodate hundreds of millions of transactions on the network without sacrificing settlement speeds or efficiency to deliver on their revolutionary promises.

Security

Blockchain security is determined by the ledger’s immutability and ability to withstand attacks and fraudulent activities.

Decentralization

The core concept of blockchain technology is decentralization. The number of nodes under individual control that maintain the network determines decentralization. The more nodes that support the network, the more resistant it is to censorship.

The Importance of Blockchain Scalability

Scalability is a crucial element in blockchain networks, referring to a network’s ability to handle higher transaction flows. The growing number of use cases and blockchain adoption can not compromise the performance of a fully scalable blockchain. If more people start using a blockchain and can’t keep up, it may be deemed unsuitable for use. This implies that scalability is critical to the future of blockchain.

Furthermore, the blockchain trilemma issue argues that increasing scalability at the expense of security and decentralization is a losing proposition. At the same time, it’s important to remember that blockchain networks can only compete with older, centralized platforms if they can support growth.

In terms of blockchains, scalability takes into account the following factors:

Networking

A scalable blockchain has an endless number of nodes. Scalability also helps reduce propagation delays in a decentralized system that relies on broadcasting transaction data among nodes and miners. This feature reduces queuing (i.e., the time it takes for network participants’ transactions to be approved and completed) by speeding up data transmission.

Capacity and cost

The nodes that offer the computational capacity to verify transactions come at a price. Furthermore, not every transaction-processing node or machine is brimming with inconceivable resources.

Scalability solves this problem by slowly adding new nodes to the ecosystem, which increases its ability to process data. And, of course, the cost per transaction benefits as more resources become available.

Throughput

Blockchain throughput, in the case of scalable systems, decreases as networking potential and capacity increase. But this isn’t true because a lower throughput means that larger blocks are made more quickly, which means more resources and scalability are needed.

You’ll see that scalability isn’t a one-way highway if you examine these issues closely. The necessity for scalability in a blockchain is ongoing and does not stop at a few steps.

Blockchain Scalability Solutions

Regarding mass blockchain adoption, scalability is undoubtedly the biggest roadblock. Additionally, not every ecosystem can be scaled with the same resources. So, let’s talk about some of the best scalability methods that can easily be used to scale almost any network:

Layer 1 scaling solutions

A Layer 1 scaling solution adds scalability to the blockchain’s core software layer. Reduced block verification time and increased block size are two of the most important Layer 1 or On-Chain scaling techniques. Other important Layer 1 scaling solutions include Hard Forking, Sharding, and SegWit.

Layer 2 scaling solutions

On-chain scaling is valuable and reliable, but it isn’t always practicable because the protocol isn’t always accommodating. The blockchain must now turn to off-chain scaling options to address network congestion and space limitations. Lighting networks, Plasma scaling, State Channels, and Side Chains are some of the terms that have been used to describe these methods.

Scalable consensus

While both on-chain and off-chain scaling methods have significant influence, they are solely implementational and not always practical. Here’s where the concept of scalable consensus becomes necessary since it is written into the blockchain schematics. DPoS (Delegated Proof-of-Stake), BFT (Byzantine Fault Tolerance), and POA (Proof-of-Authority are just a few of the key and scalable consensus mechanisms.

Distributed ledgers

Distributed blockchain ledgers can be utilized to scale specialized blockchains with limited capacity. Distributed Ledger Technology (DLT) focuses on block accommodation to improve the speed and throughput of transactions.

In Conclusion,

As the demand for blockchain applications increases, significant scaling challenges have emerged.
Blockchain scalability is a subject of concern because the ultimate solution has yet to be found. And the growing dependence on a decentralized approach isn’t helping newcomers to the crypto space.
A blockchain network’s ability to conduct transactions may be hampered when more users and transactions are added.
Several factors can obstruct blockchain scalability, but the wide range of blockchain scalability solutions is greatly beneficial.
As the scaling debate continues, we will continue to encounter fresh ideas and relevant crypto initiatives.

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