All posts by Levente

Blockchain – crypto currency

5 things you MUST know about Blockchain Scalability

Just like in business, scalability is a central topic in Blockchain as well. Scalability refers to the blockchains capacity to support new users into the system while maintaining performance. Here are 5 things you need to know about one of the greatest challenges the technology faces in its adoption.


1., Bigger is not always the better

For blockchain, network externality returns are undoubtedly great. The more nodes there are in the system, generally the more stable and trustworthy it becomes. However, growing also increases both the hardware requirements, both the time to make transactions in public blockchains. Issues inducing great debates that Bitcoin and Ether have been struggling with quite some time. Although Bitcoin has been avoiding disaster so far, the lack of consensus in the matter forced the core developers to postpone the upcoming fork, Segwit2x.

Permissioned blockchains also benefit from network returns; firms who use blockchain for supply chain transactions are interested in adding more and more partners into their ecosystem to reduce overhead and transaction costs. They work quite differently from public ones; for instance, they do not require validation from every node for all the transaction, greatly improving transaction speeds, numbers per second and their scalability as well. However, hardware is an issue there as well, and many question their utility over public chains, because they are more centralized. Whichever will become the new standard, is still unpredictable.

2., It is a technical problem

Blockchain scalability is one of the most complex aspects of the technology, and its’ limitations are hard coded into systems such as Ethereum and Bitcoin. Although contrary to popular belief it is very much possible to understand, evaluate and even design business models based on blockchain with minimal knowledge in coding, to understand the limitations and implications of scaling developments such as forks require more tacit and deep knowledge. To decide when to invest into a cryptocurrency or an ICO one should always look at the business model and the people behind it rather than the technology itself. However, to know when to sell, that might not enough, the actual blockchain protocol and the impact of updates need to be understood better.

3., Build to scale

The developments around Bitcoin and other early blockchain versions clearly teach us that scalability needs to be part of the core design of future ecosystems, regardless of the business model. Surprisingly enough, the original Bitcoin chain was never designed to be adopted so widely, and the lack of consensus in a large decentralised system threaten to tear it apart. As Blockchain will become mainstream, the scalability of the businesses will be more and more dependent on the scalability of the underlying ecosystem.

4., Uncharted territory

Blockchain itself is still considered to be an infant technology, but research on scalability is even more of an uncharted territory. So far, the scaling of Bitcoin was more forced and experimental, rather than planned, and Hyperledger has only initiated a Work Group to set up measures of blockchain performance in relation to scale a few months back. Although there are several initiatives to overcome the challenge, such as sharding, Plasma, off-chains and others, they all come with significant trade offs over their benefits, so there is no telling which will be adopted and with how much success.

5., The winner might take it all / It is not all bad

Despite the built-in limitations, lack of enough use cases and reliable solutions, the industry seems rather optimistic. The Bitcoin survived the controversial forks without major losses in value, and continues to grow. Still, its’ most recent record high was reached right after the announcement of the postponement of the upcoming fork, clearly demonstrating the uncertainty around the issue. Developers of Ether, Hyperledger, monero, zcash and others are all confident of their respective ability to overcome the challenges, and some currencies like IOTA even claim that they have found the workaround already. Whoever comes up with a reliable and field tested solution first, can be predicted to have a great opportunity in setting the standard for future blockchains to come.