The road to mainstream blockchain adoption, while hailed as a journey that will have breakthrough technological and economic ramifications, is fraught with numerous obstacles.
Above all, these obstacles include the scalability tremma that the global blockchain community has been grappling with since the technology was considered for mainstream applications.
It has been more than a decade since the advent of blockchain or distributed ledger technology. And despite the fact that the first practical use case of the blockchain, Bitcoin, is still going strong, other uses of the technology have yet to take effect. While blockchain theoretically promises revolutionary changes in numerous areas through numerous applications, very few of these applications have gone beyond the proof-of-concept phase. This is especially true for applications and use cases that are the most ambitious in scope, e.g. B. global payment and peer-to-peer money transfer platforms or a unified nationwide system for electronic health records (EHR). This is due to the seemingly low scalability of the blockchain. Apart from the steadily growing Bitcoin network with over 7 million active users and 32 million wallets as well as similar cryptocurrency networks, large-scale applications of blockchain and distributed ledger technology have not yet been realized due to the scalability problem or “scalability” trilemma “, as most would like to refer to it.
Understanding the nature of distributed ledger technology and its unique advantages will help demystify the scalability tremma.
1. Advantages of distributed ledger technology
Most of you may already know what a distributed ledger is – a database that is shared and synchronized across a network by multiple nodes or entities. Any addition to this common ledger must be approved through a consensus mechanism that requires the majority of participants to review the operation as legitimate. And every new change or addition to the database is immediately displayed on all nodes, which means that every participant sees the same thing. This way of functioning provides blockchain and distributed ledgers with an almost unique combination of advantages that make them suitable for many novel applications.
The most obvious benefit of using distributed ledger technology is the ability to implement decentralized control and decision making and record the results of these in a common reference source. This makes blockchain the perfect solution for numerous modern business applications, as companies switch to the democratization of power, resources and information in order to enable more transparency in their processes. With the help of a distributed ledger, all participants in a distributed ledger or blockchain network can influence the results through voting and consensus without having to worry about the legitimacy of the process, since trust is an integral part of blockchain and distributed ledger technology. The trusted environment that blockchain networks provide can be used for numerous revolutionary applications, such as fully digitized elections for business and government purposes.
Another problem that the decentralization of the blockchain seeks to solve is that it does not require central regulators or transaction partners. Most overseas financial transactions for purposes such as microfinance are carried out by multiple intermediary parties between the sender and recipient. These intermediaries need to facilitate the transactions by taking on various roles, e.g. B. Check the legitimacy of transactions. While required, the involvement of intermediate agents increases operational costs and the time it takes to raise funds, making the processes impractical and in some cases even unsustainable. Because blockchain and other distributed ledger networks do not require intermediaries to review and document transactions, they can be used to streamline such transaction systems. They can also be used to streamline peer-to-peer payment systems by minimizing the chance of fraudulent transactions by taking into account the origin of each asset on a blockchain.
While blockchain offers transparency, it also ensures the security of critical data. It is very immune to external threats, which ensures that the data on a blockchain is not accessible to anyone outside the network. Since the data in a distributed general ledger cannot be changed, it is also largely protected against manipulation by individual participants. Since there is a copy of the blockchain data on every participating node, there is not a single point of failure that guarantees security against data loss. However, this need to replicate data inherent in the blockchain is also a major cause of its greatest challenge – scalability.
2. Understanding the Blockchain Scalability Tribemma
The biggest hurdle holding blockchain technology from mainstream adoption is the scalability trilemma. In order to use the technology for applications that can offer the greatest added value – for example to support international payment systems or to ensure transparency across large supply chains – blockchain developers must find a way to strike a balance between the attributes of decentralization, security and speed (or scalability). Because of the blockchain architecture, it is becoming increasingly difficult for developers to find a way to ensure that the technology can be used without compromising any of these three components. Because blockchain is decentralized, it cannot provide high security without sacrificing speed and scalability, and it cannot provide the speed required for mainstream applications without sacrificing security. And when speed and security are a priority, blockchain loses its core set of decentralization and is no different from the existing centralized global payment networks already used by banks and credit card companies. Due to decentralization and the fact that replicating the same information on all devices consumes a lot of resources, it is difficult to scale blockchain networks beyond a certain size while offering the same speed as existing transaction systems. Breaking, or rather avoiding, this three-way deadlock is proving to be a difficult challenge for blockchain developers. However, the search for a solution to the scalability tremma is still ongoing, which has already led to the emergence of a number of potential solutions.
3. Possible Solutions to the Scalability Tremma
One of the many possible solutions to the scalability tremma is to add a secondary layer to the main blockchain network to make transactions faster. An example of such a solution is Bitcoin’s lightning network. The lightning network is designed to make Bitcoin transactions faster and cheaper. To minimize the latency and other resources required to record every minor transaction, the Lightning Network uses a secondary bi-directional connection between two peers that conduct frequent transactions. Through this channel, these two parties can exchange money without having to wait long and without having to pay their transaction fees to miners. Once the channel has served its purpose, that is, when the two parties have completed the required series of transactions, the transactions are added to the main blockchain.
Another possible solution is to use different forms of decision-making and consensus mechanisms, such as the “delegated proof of engagement” method. With this method, instead of a consensus across the entire blockchain network, only a few nominated nodes are queried in order to check important transactions. This speeds up transactions while maintaining the integrity of the blockchain. Although this method slightly detracts from the decentralization aspect of the blockchain, it manages to improve scalability significantly, making the adoption of the technology more practical.
Since these solutions are imperfect and still in their infancy, the search for possible solutions to the blockchain’s scalability tremma continues. Aside from solving the scalability trilemma, there are other challenges the blockchain must address before it becomes mainstream. Needless to say, addressing these challenges is only a matter of time as the push for blockchain continues to grow around the world. And it’s not surprising, because the promise of a blockchain future is too good to remain unexplored.