One of the hot topics in the world of cryptocurrency is scalability. The issue of how cryptocurrencies can support more users and transactions is usually discussed in relation to Bitcoin. The truth is that all digital currency platforms have similar challenges. How will Ethereum scale, for example? The world’s second most-popular blockchain platform is not immune to the issue of scalability.
Just like any other public blockchain, the developers of Ethereum have a desire to support as many users as possible. The whole concept of the Ethereum platform revolves around the practical application of a blockchain. It is difficult at present to pin down the specific limitations of Ethereum as it moves forward in development.
Of particular concern is the number of transactions that Ethereum can process compared to those processed by VISA or other payment systems. That number currently falls far behind what would makes widespread acceptance and usability a reality.
There is hope, not just for Ethereum but for all cryptocurrencies. New technologies that work hand-in-hand with blockchains are being developed, and progress is being made toward a viable resolution for Ethereum and Bitcoin scaling. Let’s take a closer look at two of the solutions that are being proposed.
Many cryptocurrencies are now exploring the realm of off-chain transactions as a means to scale. These protocols allow some cryptocurrency transactions to be carried out in a platform that sits on top of an existing blockchain. The result is that similar payments between two parties can be conducted in payment channels which are then settled on the blockchain at a later time.
The Lightning Network developed for the Bitcoin blockchain has set the standard in off-chain transactions. Although this protocol was established specifically for Bitcoin, similar applications can also be applied to Ethereum and other crypto token platforms. The Lightning Network and similar apps are being used to make blockchains more accessible and competitive with fiat payment systems.
The hallmark of The Lightning Network is off-chain transactions accomplished through the use of micro-payment channels that are sitting atop the primary blockchain. Two parties who regularly exchange cryptocurrencies can create a payment channel and fund the channel with Ether or another token. A running ledger is then kept of the transactions being made over a period of time, say a month. When the payment channel is closed the transactions are added to the public blockchain. This allows the parties involved to still receive their token distributions immediately, but it relieves the burden of having to verify each individual transaction on the blockchain.
With Ethereum’s ability to allow individuals to create and execute smart contracts, off-chain transactions could be more effectively managed than they are on the Bitcoin blockchain.
Sharding is another strategy that is being deployed to address the scalability of Ethereum. To understand Sharding one must consider how blockchains are maintained. Nodes, or computers which are connected to the Ethereum network, verify blocks and store an updated version of the blockchain. Sharding has the potential to permit the use of partial nodes instead of the full nodes that store the entire database.
What sharding does is breaks up the database so that it can be maintained on different servers. A partial node would only be responsible for storing a portion of the data from the blockchain. These nodes would verify and maintain the subset of data. When additional information is required the nodes could communicate with one another to receive the necessary data.
The main problem with sharding is that it moves blockchain technology away from being a trustless system. Nodes would become more interdependent on one another to maintain the blockchain as a whole.
The developers of Ethereum have proposed that economic incentives be granted to those who are tasked with running these partial nodes. It is hoped that the incentives will promote standardized behavior among nodes. This would help to insure that valid and reliable data is being shared between nodes.
Scalability is a Difficult Problem
For Ethereum, Bitcoin, and other cryptocurrencies there is no question that scalability poses a challenge. It is not a simple problem to solve. The biggest issue seems to be how to preserve the decentralized nature of blockchains while making full nodes easier to run as a network grows larger. Many perceive the proposed solutions to Ethereum scaling as a threat to decentralization.
What all can agree on is that some type of protocol must be perfected before Ethereum and other blockchain platforms are able to compete with traditional methods of payment processing. The vision is a world where the majority of physical retailers will permit the use of Ether to buy a coffee or a pay for a service. Before this can happen blockchains have to be able to process more transactions in a shorter period of time.