How Scalable is Blockchain Technology?

Scalability issues in blockchain

Almost every scalability issue is related to the decentralized nature of the blockchain and the consensus algorithm used. We can not have a blockchain without these two key parts as we would not enjoy some of blockchain’s critical benefits such as fault tolerance, strong guarantees of security, political neutrality, authenticity, etc.

  • Transaction throughput and speed: This is one of the main problems being faced already in well-known blockchains such as Bitcoin and Ethereum. Both of them, for now, are based in a proof of work consensus algorithm. Therefore, every complete node of the system will need significant computational and bandwidth requirements. Furthermore, in order for a transaction to be verified, every node of the system will have to process the transaction. All of these, makes the process of validating transactions and spreading its validation pretty slow, reducing considerably the amount of transactions per second that can be performed.
  • Data Limits: Related to the transaction throughput limitations and the consensus algorithm used, a new issue appears and this is the data limit per transaction. For now, there is a data limit of the information that may be included in a single transaction. This may not be an issue in blockchains such as Bitcoin were we only record currency transactions information, however, it may be a problem for future use cases. Moreover, this fact will definitely condition the amount of transactions that may be processed per minute. A nice analysis of the amount of Gas and the amount of transaction per minute achievable by Ethereum is shown in Preethi’s Medium article.
  • Large energy consumption: Current main cryptocurrencies are based of proof of work (Ok, Ethereum is evaluating proof of stake but we still have proof of work running). Proof of work requires that every miner in the network has to aim to solve a hard computational problem in order to validate a transaction. Every miner will be using a great amount of computational power to solve this problem. This computational power consumes a great amount of energy in the process, leading to its related ecological and economic problems. Furthermore, dedicating this computational power do not assure miners that they will be the ones finally validating the transaction, so if this is not the case, all the computational power used will be completely wasted. This is trying to be fixed with brand new consensus algorithms that fix, or at least minimizes this problem. I will dedicate a post on consensus algorithms in the following weeks to get a feeling on what is going on ;)

Potential solutions

Thus, some solutions being proposed to fix these issues are the following:

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Research at Protocol Labs | Avid reader seeking for constant innovation. [https://twitter.com/adlrocha] [https://adlrocha.substack.com/subscribe]

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