Scalability on Blockchain: Is There a Solution?

Scalability: It’s the one thing that could derail crypto’s ambitions to go mainstream. Is there an answer to this long-running issue?

It’s one of the biggest challenges facing blockchain and crypto — a hurdle only the industry can solve. Without a solution, even CEOs from major global exchanges fear that mass adoption will never be achievable.

Scalability is the long-running thorn in the side of this fledgling technology, which is still relatively young and has yet to make meaningful inroads into the world’s economy. At a basic level, this relates to whether a blockchain network is capable of providing the same fast, high-quality experience to all of its users — irrespective of how many are online at any given time.

Consumers and corporations need to know that they can rely on a network whenever they need to use it, and getting this right before a platform goes live is crucial. In 2018, a PwC survey of 600 executives revealed that a whopping 84% of organizations are actively involved with blockchain — either at the research and development stages, piloting the technology, or with a live product.

A bad experience at any point of this journey could be nothing short of calamitous. Companies licking their wounds after a blockchain investment failed to meet their expectations would be reluctant to put the technology to the test again. Consumers frustrated by slow transaction speeds would see no incentive to switch from existing tools that have a far greater foothold in the market.

One of the biggest challenges concerning scalability is that it can be difficult to reach consensus on how to address it. Bitcoin (BTC), the world’s dominant cryptocurrency, has been down this road before. Even by 2017, the network was beginning to buckle under the strain of user demand — and as a result, fees to send BTC increased unless users were willing to wait for days for transactions to be settled.

While one group of crypto advocates wanted to address the issue by increasing block size limits — increasing scalability on-chain — another believed exponential scaling off-chain was a better approach. This has led to innovations such as the Lightning Network, an extra layer designed to deliver faster payments and low fees. At least in BTC’s case, this seems to be the direction of travel. Before this extra layer came along, the Bitcoin network could only handle seven transactions per second (TPS) — but the Lightning Network could theoretically deliver an upgrade of 10,000 TPS, along with lower fees and instantaneous settlement. You may think that this would prove to be the silver bullet to the perennial scalability issue, but a low rate of use has actually meant that operating nodes are losing money when transactions are processed. This has led to claims that BTC is facing an existential crisis, not least because the solution that was meant to save the day may not be justified.

Where e-commerce comes in

Naturally, seven transactions per second isn’t going to cut it for the fast-paced e-commerce sector. In the real world, it’s almost like running a cafe that has just five tables, yet every day there are 200 customers waiting for a seat. Often-quoted figures from Visa, the payment processing giant, claim that it is able to process in excess of 24,000 transactions per second. Despite the fees that merchants face when using this company’s infrastructure, it’s difficult to see why many of them would turn away from a well-established system that’s been embraced by customers for something that can handle 3,400 times fewer transactions a second. That would be like going from a bustling coffee shop with tables to spare to a kiosk where no one had room to sit.

That isn’t to say that these problems are fatal — far from it. Some businesses have been integrating crypto into their platforms despite the scalability woes, and have started to accept digital currencies as a payment method. The motivations for doing so vary. While some are tempted by the notion of attracting new customers by giving them a chance to use an asset that isn’t accepted anywhere else, others are keen for transactions to be settled faster — eliminating the agonizing, sometimes days-long wait to get funds in their business account. Others are simply fed up with the rigmarole of handling cash, not to mention the fees they have to pay when relying on financial institutions that dominate the market.

The business case for crypto

Crypto-focused companies such as ABBC are trying to get ahead of the curve by offering a blockchain platform that’s tailored to merchants and their customers, delivering a seamless experience for using digital currencies when shopping online. According to the firm, old networks increasing block sizes or boosting the frequency of block generation simply isn’t going to cut it — not least because it could throw up new security vulnerabilities and major issues with forks.

ABBC says it has acknowledged that the crypto sector needs to offer the same quality — if not better quality — than the fiat channels that enable instant payments to be made. To this end, it uses a consensus protocol known as delegated proof-of-stake, or DPoS for short. This method of validating transactions is built upon a system of reputation and real-time voting, with delegates placed squarely in charge of accepting or refusing network transactions.

The company estimates that it can handle up to 5,000 transactions per second — a capacity it claims “will only increase in time” and would make it “one of the fastest blockchains in the world.” This scalability is complemented by a multicurrency digital asset wallet that boasts “top-level security” and instant messaging, a shopping mall where crypto enthusiasts can access dozens of major brands in one place, and an exchange that delivers low transaction fees, high throughput performance and an abundance of liquid trading pairs.

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