Blockchain phase 2: Will it scale?

As blockchain grows in popularity, so does the conundrum of how to scale it while maintaining or boosting performance so it can compete with today's transaction networks.

abstract blockchain representation of blocks and nodes

More than one organization has been working on solving a major blockchain conundrum: how to improve sluggish transaction performance.

Blockchain distributed ledgers work by linking together a chain of electronic records, each inextricably tied to the one before it; each new set of entries or "blocks" is completed and time-stamped with a hashtag only after passing through a consensus process on a peer-to-peer (P2P) network.

Due to its chain nature, each new record inserted into a blockchain has to be serialized, which means – as the blockchain grows – the rate of updates is slower than traditional databases that can update data in parallel.

Today, the world's most popular cryptocurrency ledgers – bitcoin and Ethereum – use a proof of work (PoW) consensus model that requires nodes (servers) to complete a complicated mathematical problem as a way of authenticating new blocks (similar to how CAPTCHA acts as a challenge/response mechanism for websites confirming human users).

PoW mechanisms are slow by design. Bitcoin, for example, needs around 10 minutes to add a new record or block to the ledger, even with only 1MB of data allowed per entry. While there's no such limit on block size in Ethereum – it's been adjusted dynamically over time – it can only process about 20 transactions a second. By comparison, Visa's financial network processes about 10,000 transactions per second at peak load.

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