Scalability Challenges

The scalability of Blockchain platform will depend on how much it could scale upon the demand of the platform, and it will vary on the types of the Blockchain applications deployed on the Blockchain platform. Decentralized application developers will face the complains of the customers if the cost of using their DApp is expensive, and for companies whose shares are impacted by the profit gained by the use of platform, cost for the basic use of Blockchain platform will be in their consideration for choosing the right payment solution.

For example, at the earliest days of Bitcoin, some software sellers were accepting Bitcoin for their payments from their customers. However, due to volatility of Bitcoin and the rise of the transaction cost came as a realistic wall to accept Bitcoin as payments, and therefore the payment option was replaced to something else.

Not only a simple payment but the scalability issue also effects decentralized applications that are deployed on the Blockchain. If we were building a simple exchange for tokens such as decentralized exchanges, in short DEX, traders will need to pay more than half of the commission for transaction fee paid for sending a simple transaction to Blockchain.

Higher transaction fee will affect the customers user experience and thus Blockchain platform with lower capacity will not be preferred as a main payment solution. Now days there are plenty of competitors compared to the Bitcoin and they offer their transaction solution in lower fees. Instead of using those Blockchain platforms besides the legacy solutions like PayPal or Visa, Blockchain platforms are often considered to be more complex, higher fees, and slower confirmation speed on network.

For Blockchain applications to address these concerns, they need to understand how the fee market works, and fee market depends on the capacity of the network. While we deal with finite capacity of transaction capacity that nodes and miners can handle at the same time, Blockchain applications and smart contracts need to transact with the network, and the market will put the price on the priority of the transaction confirmation and this way we can handle the limited capacity of the network wisely. This was first designed by Satoshi Nakamoto to prevent denial of service attacks on Blockchain so spammer couldn’t throw millions of spam transactions to overload the whole network. While this method was considered as efficient choice, soon after Bitcoin become popular Worldwide, cost for a single transaction has skyrocketed and the motto of using Bitcoin for cheaper transaction cost soon became worthless.

To address this fee market problem developer thought that increasing the network capacity would increase the supply of the fee market and it will fulfill the demand of users on Blockchain network. However, due to the boundary of network capacity of Bitcoin it didn’t worked and the transaction cost of Bitcoin remain high while speed of confirmation was slower than non-Blockchain payment solutions.

In order for Blockchain applications to compete with non-Blockchain payment applications those challenges for scaling must be done and there are multiple suggestions provided by protocol developers of the world. As we want the transaction capacity of the network to increase, it is common knowledge that your peer server should process more transactions than other peer servers, for example the hardware requirement is high for higher density Blockchain platforms which aims for higher transaction capacity on network, like EOS or Ripple. Of course enterprise solutions would have bigger hardware capability and network capacity to handle more transactions for real world use.

Thus, it is essential to have good support from good hardware provided by good miners, and the new consensus algorithm to pick the good miners who have good hardwares that can scale horizontally is needed. Without the utilization of consensus algorithm it would not be able to scale as demand of the decentralized applications.