When first doing research into blockchain technology and digital assets, it’s likely that you’ll read that one network is faster than another, or that it’s capable of processing a million transactions per second. Network speed and transactions per second refers to one of the three parts of the blockchain trilemma: scalability. Theoretically, a blockchain network wants to be secure, fast, and decentralized, but this is easier in theory than in reality.
This is the blockchain trilemma, as it’s very hard to have all three components working well, and no network has yet been able to fully solve it. That said, there are networks such as Bitcoin’s that essentially have two of the three dilemmas solved, but are still stuck working on scalability.
We’re going to discuss the dilemma of scalability, current solutions, and where we may be headed.
The Scalability Dilemma
With blockchain, scalability refers to the ability for the blockchain network to maintain its transactional processing speed and support a growing number of users. If the blockchain starts to slow down as more users begin using it, that’s a network with poor scalability. Similarly, it’s not good if a network has high scalability but isn’t decentralized or secure.
As mentioned in the introduction, there are blockchain networks, such as Bitcoin, that have strong security and decentralization, but poor scalability as the network can only process 7 transactions per second at a base level.
A good analogy for scalability is to think of a restaurant that has special on for the week, or has been featured on a food show. Publicity like that would increase demand and business would increase. If the restaurant doesn’t increase staffing and ordering if they’re expecting more customers and sales, it won’t be able to meet demand and will suffer in various ways.
Scalability Solutions?
The lack of transactional throughput for Bitcoin is why the Lightning Network, a layer-2 (L2) network built on top of the main Bitcoin network, is so exciting. It allows for millions of transactions per second on the network, but still needs mass adoption. If enough nodes start running the Lightning Network, then it’s possible that Bitcoin will be the asset to solve the trilemma.
L2s are a second blockchain layer built upon the blockchain’s base layer. On the second layer, blockchain transactions and processes can take place independently of the base layer (main chain), while still maintaining the security of that layer. These are generally referred to as off-chain transactions. These transactions can be bundled and processed later while still having the security and immutability of blockchain.
Ethereum is in a similar position to Bitcoin where it is a very secure and decentralized network, but the fees and transaction throughput leave a lot to be desired. There are many popular L2 solutions for Ethereum that are competing with each other including Polygon (MATIC), Optimism (OP), Arbitrum (ARB), and Coinbase’s Base (BASE). Ethereum itself is looking to upgrade its own network over time to solve the scalability issue for itself, but this is still ongoing and will take some time.
Layer-2 networks are currently the most popular way to try and achieve scale for both Ethereum and Bitcoin, but other networks are also working on similar solutions while there are more still that are simply looking to solve scalability at the base layer.
What Networks Are Closest to Achieving Scalability?
Networks such as Cardano (ADA) are also working on a L2 scaling solution (called Hydra), but there are also some Layer 1 blockchain networks that are doing scalability pretty well already, albeit with some caveats which we will discuss.
Solana
Solana (SOL) is certainly a popular new blockchain network, and it is a layer one that aims to compete with Ethereum as a place for decentralized finance (DeFi). Solana has performed incredibly well since its all-time lows, and the network can theoretically process 65,000 transactions per second. However, the most it has ever processed in reality is under 2,000 per second, and the network has experienced outages when at peak usage because the security of the network isn’t as good as with Bitcoin (the trilemma strikes again). Solana is still a very fast network and has a chance to achieve scalability if it can iron out its outage issues.
Near Protocol
Near Protocol (NEAR) is another layer 1 blockchain network that saw a lot of interest during the last bull run. NEAR uses sharding to help it achieve a theoretical transaction per second throughput of 100,000, with near instant finality (finality is when a transaction is guaranteed). Of course, this speed isn’t there yet as the network still has some upgrades to undergo before hitting these numbers, but in theory NEAR could solve the scalability dilemma while still being secure and having low transaction costs.
Layer-2s
Currently, the networks that are closest to solving the scalability dilemma are the L2 networks that have been created for that specific goal. The various Ethereum L2s are all much faster than the main layer and with lower fees. Similarly, the Bitcoin Lightning Network can theoretically process millions of transactions per second as long as enough people use it. The issue for any of these solutions, and the real challenge for crypto in general, is mainstream adoption.
Closing Thoughts
Scaling a blockchain network isn’t an easy task. You can end up having a lot of speed but run into other issues like Solana has, or like most other networks, it ends up being a long-term upgrade process or layer-2 solution that helps the network improve its scalability.
Overall, the biggest issue for scalability will be adoption of the networks that can scale, as it’s not that useful if a network can process a million transactions per second but is only having to process a few hundred at a time.
