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Why Scalability Is Essential For Crypto

What does scalability mean for cryptocurrency and why is it so important?

Crypto is one of the most exciting and intriguing tech developments in modern times. It has generated an enormous amount of attention, no longer known only to computer experts, the average person is now following the charts and checking the Bitrise Token Price.

Crypto has long been tipped as the future of the tech world and a new standard for online payments and digital transactions. While the tech has been adopted across a range of different issues, it is yet to achieve true mainstream integration. Why is this? Many point to scalability as the reason why crypto has failed to take that final step. Let’s look at what scalability is and discuss why it’s essential for crypto. Read on to find out more.

What Do We Mean by Scalability?

Scalability is a term you have likely come across before. In the business world, scalability usually refers to a company or a system’s capacity for growth. This could be the potential a company has for expansion into new territories or product development, or the capability a system has to handle increased traffic.

When discussing crypto, the idea of scalability is more specific. It refers to the capacity a crypto network has to handle a higher number of transactions. For example, Bitcoin can handle approximately seven transactions every second, and Ethereum can cope with around 27. These numbers are significantly lower than Visa, for example, which can process upwards of 1,700 transactions per second.

Why is Scalability Important?

Crypto was designed as an alternative payment method that would eventually replace traditional means of conducting transactions. The technology certainly has its advantages, but it still remains a relatively niche payment method that has yet to truly overtake long-standing options like credit cards and bank transfers.

If crypto wants to become the de facto method for making online payments, it’s going to need to be able to handle a far greater volume of transactions. Seven per second just won’t cut it, unfortunately, and it seems like many cryptocurrencies are unable to increase their processing capacity.

A Flawed Design?

To understand why crypto struggles to increase its transaction processing speed, we need to understand how these digital assets work.

Crypto is decentralized, which means transactions are authorized by other users, rather than a financial body such as a bank. Transactions are logged and stored on a digital ledger called the blockchain, where they are added as blocks after being validated by users.

While this attribute of crypto makes it secure and protected against fraud, it can also create a bottleneck as more and more transactions wait to be authorized. In periods of high network activity, transactions can often wait 90 minutes or more for validation.

Crypto’s scalability issue lies in the very structure and design of the technology itself. Putting the power of transaction verification back into the hands of the people means processing speeds must be sacrificed.

This is a problem known as the Crypto Trilemma. Scalability can only come at the expense of decentralization, which would erode one of the core principles the technology is built upon.

Is There an Answer?

At first glance, this appears like a fatal flaw in crypto technology that will make it impossible for the tech to ever achieve true mainstream acceptance.

One of the first attempts to address this problem was through the implementation of something called the Lightning Network. Developed by a company called Blockstream, the Lightning Network is a protocol that is overlaid on the Bitcoin blockchain network. In times of high traffic and network congestion, transactions can be processed automatically via this protocol to ease the pressure on the network.

While that has improved transaction speeds, detractors maintain that it goes against decentralization principles and is a system akin to traditional payment methods.

However, crypto companies and engineers are nothing if not creative, and new systems are being devised that appear able to circumnavigate this issue without sacrificing decentralization.

The process of transaction validation is known as a consensus mechanism, and we’re beginning to see a proliferation of new consensus mechanisms that offer far greater scalability.

Traditionally, cryptocurrencies like Bitcoin use a consensus mechanism called Proof of Work, through which users solve complicated mathematical equations to validate transactions. Lately, a new system called Proof of Stake has become more popular. This selects validators from a pool of users who have staked crypto into the blockchain and who are then allowed to quickly and efficiently validate transactions without the need to solve complex sums.

This makes the transaction processing speed far faster and is a step in the right direction for crypto scalability. Crucially, the Proof of Stake consensus mechanism allows for improved transaction speeds without coming at the expense of decentralization or security.

Conclusion

If crypto wants to become the go-to method for online payments and transactions, it needs to find some way to solve the Crypto Trilemma. What good is a decentralized network if scalability means decentralization is no longer possible? This has been a thorn in the technology’s side for years and has perhaps been the one thing holding it back. Will new consensus mechanisms be the answer? We’ll just have to wait and see.

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