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.

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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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