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31st of October, 2018, marked a landmark for cryptocurrencies – it was the tenth anniversary of the Bitcoin whitepaper, meaning cryptocurrencies have turned ten years old. A lot has been achieved over the past ten years – but there are many goals which have been left unfulfilled. This is particularly in reference to the issues of scalability and adoption, problems which continue to haunt the cryptocurrency ecosystem.

Scalability is a problem which wasn’t really envisioned in the early days of cryptocurrencies. However, it was because only a handful of people were using Bitcoin back in 2009. As the technology boomed and the handful became thousands and the thousands eventually became millions of people. The blockchain systems which power cryptocurrencies tend to get overwhelmed with such large influx of traffic and tend to slow down.

One of the key propositions of the blockchain systems over traditional banking methods was that blockchain-based transactions are much faster and cheaper. Thus, it has been revolutionizing legal systems as well. But, when scalability goes off-balance and blockchain networks run past their capacity, the transactions get slower and the costs begin to rise. This is counterproductive to the very idea of cryptocurrencies and blockchain system – and no foolproof solution has been arrived to as of now.

PayPal

While there have been attempts to solve this problem, Bitcoin (or any cryptocurrency for that matter) is far, far away from actually competing with a payment processing giant such as a MasterCard or even the likes of PayPal which handle transactions at a much larger scale with ease.

What Are Scalability Issues and Why Do They Occur?

Before understanding the true cause of scalability, one needs to understand how a blockchain system functions. It is a decentralized system where ‘nodes’ verify transactions – and it is only after this verification takes place. The number of nodes on a blockchain network is limited. However, the number of transactions are on a constant rise due to the rise in popularity of cryptocurrency payments.

The pressure is now on the nodes to verify transactions at a faster speed – which is where the scalability issue lies. The load on the blockchain in terms of pending transactions keeps increasing, while the speed of the verification by the nodes remains the same, making the network go quite slow.

The number of transactions per second is also affected. If it was running on a single computer, the Bitcoin blockchain can process as many as 4,000 transactions per second. However, in order to obtain an appropriate consensus from nodes in the network, it brings down the speed to 7 transactions per second. This is again where a fundamental conflict lies – because if the network is centralized, the transaction speed would be faster – but that beats the purpose of creating cryptocurrencies and blockchain networks altogether.

While 7 transactions per second sound pretty slow when compared to the 4000 transactions per second number, there never was any problem before late-2017. It was in the final quarter of the year that the price of Bitcoin grew at an astronomical pace and resulted in the number of transactions too, surging. This led to some transactions taking hours to days to be confirmed, leaving the users in fits of frenzy given how volatile the crypto markets are. Similar problems were encountered across many other major cryptocurrencies including Ethereum and most other names in the list of top-10 cryptocurrencies in the market.

Impact of Scalability Issues on Mass Adoption

Scalability affects the cryptocurrency ecosystem in several ways – it impacts the applications that run on blockchain networks, it impacts the users who are looking forward towards a quick transaction – but most of all, it hurts the cryptocurrency industry by hindering mass adoption.

The idea of mass adoption is to get a large number of users making use of cryptocurrency payments. However, once a large number of users get on to the blockchain network of any cryptocurrency, scalability issues begin to rise and transactions become not only slower but also more expensive at times. However, with slower and more expensive transactions, adoption would be hindered and people would rather prefer to make payments over regular payment networks as they will be faster and cheaper.

Scalability can be safely assumed as the biggest challenge towards mass adoption. If you want to grab a cup of coffee from your local Barista but they won’t accept Bitcoin payments, you can totally blame it on scalability! Once the Bitcoin blockchain is upgraded to a level that it can handle mass transactions regardless of the value of BTC being transacted, it is only then that mass adoption can be achieved – which might even take another decade to be fully achieved!

Attempts to Solve The Scalability Problem

While scalability has emerged as one of the biggest problems of the cryptocurrency ecosystem, developers and influencers are trying to solve it for quite some time now. Vitalik Buterin, the co-founder of Ethereum has been one of the most vocal names when it comes to addressing this issue. Buterin has called it the ‘Scalability Trilemma – stating that a blockchain needs to be decentralized, secure and scalable. At the moment, they are decentralized and secure but scalability is becoming a problem.

Vitalik Buterin

The Scalability Trilemma is all about enhancing the scalability without compromising on the other two factors: security and decentralization. Several attempts have been made in the past to address the scalability issue – Bitcoin tried it with the failed Segwit2x in late 2017, which didn’t really work out well. However, while the Segwit update didn’t really work out the way it was intended to be, the Lightning Network came as a huge step up for improving the scalability of the Bitcoin blockchain network. Ethereum too, has been taking several steps to ensure better scalability with the Raiden Network being one such step forward in the right direction.

Conclusion

While the scalability problem continues to haunt cryptocurrency networks across the globe – the only thing that brings some relief is that work has already begun towards solving the issues that this causes. With technologies such as the Lightning Network and the Raiden Network coming forward, it appears that the future of cryptocurrency payments is in safe hands – and that this problem is likely to be solved over the next decade or so.

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