Scalability - Big Trouble for Crypto Investors
There is no doubt that cryptocurrency has proved to be a big revolution in the digital market. It also has given birth to some serious issues that relate to it. One of those issues is scalability. This article throws light on the problem of scalability in the world of cryptocurrency and how to cope with it.
What is meant by the term scalability?
The term scalability refers to the property of a financial system to work well and cope with the increased market demands or workload. A scalable organization can handle the pressure that comes with workload and fulfil the market demands. It can enhance the profit margin while increasing the sales value.
In the context of cryptocurrency, scalability refers to the ability of a digital currency to cope with a load of a massive amount of transactions at a time.
Scalability in a decentralized market
Every digital currency is traded on a particular software. For instance, Bitcoin is traded like this trading system. Trading involves the transaction of funds using different currencies. Every currency allows a certain number of transactions per second.
All other transactions are queued. The lined-up transactions are solved based on the amount of paid commission. The higher the commission, the sooner your turn.
For example, Bitcoin (BTC) allows only seven transactions per second. All other transactions have to wait until their turn comes.
What is the reason behind the restricted number of transactions?
The cryptocurrency works on the system of blockchain technology. The blocks store information regarding the transaction and are essential for ensuring security. Each block is created in ten minutes and is verified by all other connected computers.
The computers in the network are called nodes. After all other nodes validate the mining, a new block is created and added to the blockchain network. This procedure requires a lot of time, reducing efficiency, thereby restricting the number of transactions and leading to reduced scalability.
Factors affecting the rate of scalability
Following factors are responsible for reducing the scalability rate:
- The limitation of hardware decreases scalability.
- The transaction fees correspond to the time taken by the transaction. More payments will lead to less wait.
- Block size is also an obstruction in crypto scalability. Greater the block size, slower the reduction.
- The increased validation time by each node results in reduced scalability.
How can we cope with the problem of scalability?
Every problem comes with a solution. The issue of scalability has hindered the development of crypto technology. For instance, if someone wants to pay a bill in a restaurant or shopping mall and his transaction is queued, he must wait for an extended period.
The proposed solution for scalability problems are mentioned below:
- Enhancing the size of each block: A block on a blockchain network comes up with a specific size to store information. The size of the block can be increased up to eight megabytes. This can lead to a bit efficient transactional system. But, the transactions crossing 8 MBs will still cause scalability.
- Transferring the transaction signature: Every transaction in cryptocurrency is followed by a specific signature. The scalability problem can be solved by dividing a transaction into two portions and transferring the signature from one block to another block structure. This leads to decrease load and increased speed of transaction. Hence, scalability is enhanced.
- Use of Lightning Network Protocol: The phenomenon of lightning network protocol is associated with connecting the nodes using a channel. The channel used is set to a certain amount to maintain the flow of transactions. The transferring capacity depends on the funds deposited in the channel. Right now, it is considered to be the best solution for scalability.
The bottom line
The above discussion can help us infer that scalability is a significant problem and hurdle in the development of cryptocurrency.
This article has mentioned the best solutions to these problems out of many answers. With the progress in technology, the problem will be reduced to a negligible rate in the future.