Scalability of Blockchain: Current Challenges, Solutions, Consensus Mechanisms

The emergence of blockchain and decentralized technologies presents a perfect opportunity for humanity to make a significant change. Institutions that we once entrusted with our trust have become increasingly powerful, leading to the abuse of power and manipulation of ordinary individuals, as seen in recent events such as the surveillance scandals involving Facebook and the blatant monitoring mechanisms employed by the Chinese government.

Fortunately, the emergence of blockchain, cryptography, and distributed systems allows us to counter extreme power consolidation. They serve as a defense technology that enables the majority to resist the few in power. Cryptocurrencies and decentralized applications are nearly impossible to shut down once they are deployed on the chain and stored in blocks without tampering. Smart contracts will run endlessly once activated, and in case of errors, a new one must be redesigned to replace it.

Current Challenges

Fundamentally, blockchain is a "distributed ledger" linked to time. Each miner in the network, also known as a node, retains a copy of the ledger, thereby reducing the risk of damage by any individual or organization in the network.

The compromise of this distributed ledger mechanism is that because each node must retain a copy of the ledger, it imposes significant limitations on the system's "throughput." As mentioned earlier, the characteristics of blockchain mean the system can only process transactions as quickly as any computer would. This creates scalability issues, in simple terms, the ledger storage space managed by each node is insufficient.

Take Bitcoin as an example, this issue started to surface gradually from 2017 when the originally set 1 MB became inadequate, leading to slow transaction speeds. According to statistics, only seven transactions can be completed in one second, a speed that clearly does not align with Bitcoin's vision of becoming a global currency for everyone to transact with.

I can see the comparison of transaction speeds in the chart below, with Bitcoin ranking last and Ethereum second to last. VISA, on the other hand, operates at a much faster speed.

Debates Arise

This bottleneck has sparked debates on scalability, dividing the community into two different viewpoints:

• One camp aims to focus on scaling the chain, meaning they seek to increase the block size limit. This approach could alleviate fee pressures in the short term but only offers linear improvements, not enough to achieve global adoption as increasing block sizes would involve complex security issues across all nodes in the network.
• The other camp aims to focus on scaling exponentially by building additional protocols at higher layers. Each layered protocol would benefit from the security of the Bitcoin blockchain while adding functionality off-chain. Using the existing mechanisms as a reference, this layered approach is how our current internet is constructed.

Solutions

The Bitcoin community clearly leans towards "Layered Solutions" rather than expanding the original block size. The primary off-chain scaling solution currently is the Lightning Network, which can significantly increase Bitcoin's throughput, reduce transaction times, and increase circulation. However, if the Lightning Network is successful and implemented on the main chain, it means many sidechains linked to Bitcoin must be modified, such as Schnorr signatures, Liquid sidechains, etc.

Another solution is Segregated Witness (SegWit), which does not increase the capacity on the original chain but verifies the scriptsig signatures in a new additional data structure to ensure transactions are valid, thereby increasing capacity to 2MB. An introduction to Segregated Witness will be covered in upcoming articles, so stay tuned!

Alternative Consensus Algorithms

While it appears that there are solutions to Bitcoin's problems, it does not mean we should abandon research into more scalable blockchain architectures. The industry is still young, and we should assume more challenges will arise.

Existing work has proven quite effective, but we still need alternatives. Bitcoin uses Proof of Work (PoW) to form consensus in the network. This has proven to be very secure for Bitcoin but is also resource-intensive. We should focus on developing other consensus mechanisms with different trade-offs to support various use cases such as voting, social, machine-to-machine economics, and supply chain sourcing, instead of creating more PoW blockchains.

One viable consensus mechanism is Delegated Proof of Stake (DPoS), invented by Daniel Larimer, based on "deposit-based proof of stake," and uses real-time voting and social systems for consensus algorithms.

Another is Byzantine Fault Tolerance (BFT), abbreviated as pBFT, developed by Barbara Liskov and Miguel Castro in 1999. This consensus mechanism can achieve consensus even when malicious nodes attempt to propagate erroneous data to other peers.

Concerns

In DPoS, users vote for a few representatives who maintain the ledger. You can think of it as a representative democracy. The reduction of active nodes means the network can increase its throughput. Each node is rewarded through inflation and can prove that running large data centers to support the network is correct.

However, this is also a drawback as the network becomes more centralized, limiting the blockchain's censorship-resistant, open, and borderless capabilities. DPoS is particularly susceptible to being acquired by oligarchs. Malicious oligarchs can buy votes to retain power and potentially alter network rules. For instance, EOS blockchain is currently concentrated in the hands of a few token holders and claims to use 11 so-called "Block Producers" to control the majority of the EOS network.

In the pBFT system, nodes take turns in a round-robin format to validate states. While pBFT is not technically a blockchain, it performs many of the same functions. Compared to PoW blockchains, this can achieve higher throughput and lower resource consumption. However, pBFT is quite vulnerable to attacks as creating new nodes on the network is relatively easy. Malicious actors can create enough nodes to reach 33% of the network, in which case they can successfully attack the chain.

Relatively speaking, the 50% mechanism of PoW is much more secure.

Conclusion

Each consensus mechanism has its own set of trade-offs, and each technological project aims to solve different problems. To fully decentralize all content, we need more innovative approaches to protect these distributed networks.

There is still a significant amount of room for improvement, and there is still a long way to go to truly change society. One thing is certain: blockchain has brought much-needed transparency. Public ledgers can shed light on the dark corners of our society. Hopefully, this will lead to power decentralization and establish a healthier society for everyone.

Further Reading

• Research shows: Bitcoin actually accounts for over 90% when measuring liquidity flows
• 2019 Cryptocurrency Industry Mid-Year Report

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