Scalability broadly refers to the ability of a system to grow to meet increasing demand. A company with 100 or 1,000 customers needs to carry out payments, registrations and transactions efficiently and quickly, so doing without a scalable platform is not an option. When we talk about scalability on the blockchain we mean increasing their capacity to handle transactions. Scalability on the blockchain
When a new transaction is processed on the blockchain, each node adds information about it to the ledger and each transaction must go through a validation process. The more transactions queued, the longer it takes to process them. This increases during peak hours. Bitcoin can currently handle around 7 transactions per second (what is known by TPS figures). Ethereum, which can execute smart contracts, can manage around 20.
Therefore, while Bitcoin is a protocol that has great strengths, scalability is not one of them. If Bitcoin could be run on a centrally controlled database, it would be easier for the administrator to increase the rate and speed of transfer. But a great value such as censorship resistance, for example, requires many participants to synchronize a copy of the blockchain.
If the number of transactions were to grow too fast, the nodes would be unable to keep up. As a result, we are faced with something similar to a bottleneck. If everyone tries to be on a network saturated with pending transactions at the same time and capacity is limited, the price of fees that users must pay will be high, if they want theirs to be included in a timely manner. The blocks or block gas limit cannot scale infinitely, as this would make it much more expensive for nodes to stay on the network. Ethereum creator Vitalik Buterin conceptualized the concept of the “Scalability Trilemma” to describe the challenge that blockchains must face. Protocols must achieve a compromise between scalability, security and decentralization. It is complicated to meet these properties: by focusing too much on two of them, the third will perform poorly. What is scalability on the blockchain? First, we need to talk about blockchain’s scalability trilemma.
What is the blockchain scalability trilemma?
The three main characteristics of blockchain are: security, decentralization and scalability. Let’s take a brief look at what each one consists of:
Scalability of the blockchain
It is the speed and adaptability in handling increased demand and community and, as we discussed previously, sets an upper limit on the potential size of the network. The maximum number of users is a critical aspect of network evaluation.
Advantages of scalability
When the application must support a higher volume of users than expected, a scaled network can be used to achieve this. For example, the Cryptokitties network on Ethereum did not have great scalability, which is why it encountered serious problems.
Disadvantages of scalability
The main disadvantage of scalability is the low degree of security. Almost all security threats are increasing in a large-scale network. Actively growing networks must have a fast consensus mechanism to confirm more transactions and process user requests at the same speed. This is only possible in blockchains with proof of ownership or delegated proof of ownership. But in such a network, decentralization is reduced. In protocols with proof of work performed, it will be necessary to simplify the tasks of searching for hash algorithms or mining to ensure fast transaction processing. This undermines security and, to some extent, decentralization (mining groups will benefit if the tasks of finding a hash become easier).
Security of the blockchain
That the network can be resistant to external attacks and immune to being corrupted in its entirety. Security is the level of protection of the blockchain against external attacks, and from the point of view of the internal blockchain system, the degree of its immutability. Most blockchains are significantly susceptible to security risks. There is a connection between decentralization and security. Generally the more nodes there are in the network, the less dependent on the central authority, which means there is less risk of breaking a single point of failure. However, there are other types of attacks that threaten decentralized networks:
- An attack > 50%: Occurs when one or more participants receive more than 50% of all tokens and take control of the entire network
- Sibyl Attack: One or several participants create many identifiers in the system to gain control of a large part of the property and/or make decisions in the network
- Spam Attack: One or several participants fill a network with transactions with low amounts to cause inconveniences in the blockchain
These are some examples of attacks.
Advantages of security
The main advantage of high security is the degree of protection of the blockchain network against external attacks, especially for systems that require a high degree of security and work with sensitive data, for example – as we well know – the financial services industry.
Disadvantages of security
A high level of security is beneficial for all network components and has no drawbacks, but it does create some side effects. Many blockchains use PoW protocols, where miners need to solve complex hash lookup tasks to create blocks. These protocols consume a large amount of processing power and energy. This can generate rejection from potential users who are used to near-instantaneous transactions on centralized networks.
Decentralization of the blockchain
This feature is completely indispensable for any type of blockchain network, usually the one that affects the rest the most. It ensures that no single party or group can introduce changes to the network or censor it.
Decentralization is the degree of distribution of rights, ownership and influence within the blockchain. Many people mistakenly believe that networks are decentralized or centralized, or that all blockchains are decentralized in the same way.
More centralized organizations generally do not use blockchain for their processes and/or decision making. In them, control is exercised by a small group of people: the management, which often owns a large part of the company and is composed of decision makers and an advisory board. Most companies work on this principle.
Decentralized networks, on the other hand, put control in the hands of the users. They can use the platform’s services, vote and earn profits. In all blockchains, users buy tokens to vote, but they receive different powers of influence for this, depending on the structure of the network in each particular case. In protocols with proof of ownership, the strength of the user’s voice depends on the number of tokens owned. In protocols with delegated proof of ownership, participants use shares to select a third party to vote on their behalf. Most of this management structure is written into their code, so voting is usually carried out to resolve disputes. In other systems, decisions about operations, changing strategy, and shareholder’s rights are usually made by management or administration.
In decentralized blockchain, most of the value belongs to the participants. There is no leadership in the form of a centralized body that first takes its share and distributes the rest to the rest of the participants. This system is beneficial to everyone except the founders.
Advantages of decentralization
- Management rules in blockchain are written in the code and cannot be changed, therefore, the network provides maximum distribution of power, wealth and property rights
- The more decentralized the system is, the more reliable it is: it has no central point of failure vulnerable to external attacks
Disadvantages of decentralization
- In decentralized protocols such as Bitcoin and Ethereum, miners create new blocks using the Proof of Work (PoW) protocol: they solve complex problems to find a hash. A large amount of energy is needed, performance and speed are reduced, which negatively affects the efficiency of bandwidth-hungry blockchains
- In blockchains where disputes are resolved by all members of the community, there are no central moderators. This can lead to a lack of organization of information and fake news in the face of the external community
- A decentralized blockchain is difficult to lock down, as it has no centralized server or authority. On the one hand this is a great advantage, but if the blockchain would like to be taken down and its participants cannot solve the problem, the decentralized nature of the network will complicate the process
Covering all three at the same time is complicated and that is why we refer to this as the blockchain trilemma. Many believe that scalability should be achieved off-chain, while security and decentralization should be maximized on the blockchain itself. We will take a deeper dive into off-chain scalability solutions in our next article. Developers choose the most suitable platform for their needs, and users choose the most productive, fast and frictionless. Some are willing to sacrifice security for scalability; others are willing to sacrifice scalability for security.