Scalability

What is Scalability?

Scalability is the measure of a system’s ability to handle an increased workload without experiencing a decrease in performance and reliability.

The Long Definition

Scalability is a term commonly used in information technology (IT) and computer systems. It refers to the ability of a protocol to adapt to an increased workload. Therefore, a scalable system is one that can handle increasing demand for system resources without suffering reduced performance and reliability.

This definition can be applied in the context of blockchain technology. Here, it refers to the ability of a protocol to handle a growing number of transactions without affecting its efficiency.

Scalability in Blockchain

Scalability in blockchain refers to the ability of a network to handle an increasing load of transactions. Its biggest indicator is the maximum number of transactions per second (tps) a blockchain can handle.

Generally, scalability is one of the most crucial features among public blockchains. The more scalable a blockchain is, the more tps it can handle. Therefore, transactions will be faster and cheaper on a scalable blockchain.

What Makes a Blockchain Scalable

Several factors affect a protocol’s scalability. These are:

The Consensus Mechanism

Consensus mechanism refers to the technique used by the protocol to agree on valid transactions. The slower it is, the more it will affect the network’s ability to process a high volume of transactions.

For example, Proof of Work (PoW) is a slow and resource-intensive consensus mechanism. Therefore, blockchains that use PoW, like Bitcoin, tend to be less scalable. Bitcoin can process 7 tps.

Other consensus mechanisms, like Proof of Stake (PoS), take less time to verify transactions. Therefore, blockchains that use PoS allow for faster transaction processing. For example, Solana handles around 4,500 tps.

Block Size

Transactions are usually lumped together into blocks before they’re written to the blockchain. The block size refers to the size of each block.

A large block size will allow for more transactions to be processed within each block. However, it will increase the time required to validate the block before adding it to the blockchain.

This means the best block size is not too large or too small. It should be large enough to hold an acceptable number of transactions, but not too large as to take too much time to verify.

Network Design

The way a network is designed will affect its scalability. This can be interpreted along the lines of the blockchain trilemma.

A blockchain that’s designed to favor decentralization and security will be less scalable. Similarly, a design that favors security and scalability will be less centralized.

Note that the trilemma assumes that the protocol is well-designed and functions as intended. A poorly designed protocol will likely not be scalable, secure, or decentralized.

Blockchain vs Traditional Payment Systems

Blockchain technology presents itself as an alternative to existing payment systems. So, to be successful, protocols should at least be as fast as Visa and Mastercard. Visa can reportedly handle 24,000 tps. On the other hand, Mastercard can process up to 5,000 tps.

So, do blockchain networks hit the mark?

As blockchains have become popular, many people have started using cryptocurrencies. This has increased the demand for processing transactions on public protocols like Bitcoin and Ethereum. And as this has happened, it has become clear that they aren’t nearly as scalable.

The Scalability Problem in Blockchains

Most blockchains are not scalable enough to compete with traditional payment systems like Visa and Mastercard. Bitcoin and Ethereum provide the best examples.

Despite being the most popular blockchains, Bitcoin and Ethereum can only process a small number of transactions per second. Bitcoin can handle 7tps while Ethereum does 15-30 tps. Therefore, they tend to struggle during peak periods, when the demand for processing transactions exceeds the network’s capacity.

This results in slower transaction times. A transaction can take several hours or even a day to be processed. The increased demand also causes higher transaction fees and can make the protocol less responsive.

But why don’t protocols just fix this?

Well, it’s not just a matter of pushing a button. The problem of scalability is part of a bigger phenomenon known as the blockchain trilemma.

The Blockchain Trilemma

Three features define a blockchain network– security, scalability, and decentralization.

The blockchain trilemma argues that it is difficult to achieve all of them simultaneously.

The concept was first introduced by Vitalik Buterin, the founder of Ethereum. In a 2017 blog post, he explained that it’s difficult to ensure security, scalability, and decentralization all at once. Therefore, developers have to make trade-offs when designing blockchains. This involves sacrificing one feature for the other two.

This argument holds true for most blockchains. For example, Bitcoin and Ethereum are highly decentralized and secure. As a result, they are not very scalable. Bitcoin can only handle 7tps while Ethereum does 15 to 30 tps.

On the other hand, Binance Smart Chain (BSC) is a more scalable blockchain. It can handle around 2,200 tps. However, compared to Bitcoin and Ethereum, it is more centralized.