Charles Small has managed multiple market research projects for companies considering establishing high-tech projects, including in-depth analysis of payment habits. For a free consultation, email Charles at: charles@csmall.co.uk
Scalability is the most integral part of building a successful enterprise. For a business to be scalable, it must be able to expand with minimal incremental cost.
For example, translation services are far less scalable than software services. While the cost in each professional translation project accounts for established expertise and human input, the cost of goods sold of a software product reduce dramatically following development of the first copy.
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For Blockchain, the issue now is whether the network itself has the capacity to support its user base. The distributed ledger in each block contains a record of the transactions which have taken place in the time the block was generated, and there is a limit to how much data each block can contain.
A team of researchers have released a paper addressing this issue, predicting from current trends that the blockchain will reach maximum capacity of transactions per block by 2017.
To Confirm, How Limited is the Blockchain?
For cryptocurrency standards, Bitcoin is slow-paced. It takes around 10 minutes for each confirmation of a transaction. Due to the risk of double spending, those accepting Bitcoin payments often wait for two or more confirmations before the payment is processed. Other cryptocurrencies offer shorter block generation time, but risks associated with lower numbers of users mean that those accepting payments wait for many more confirmed blocks from the network before accepting the payment. This is far from instant.
The number of transactions which the blockchain can handle does not compare favorably to established payment providers. While Bitcoin can confirm up to only seven transactions per second, Visa’s network can confirm 2,000 on average.
The team of researchers state that “fundamental protocol redesign is needed for blockchains to scale significantly while retaining their decentralization“.
The team suggests several techniques to support scalability of blockchain technology, including both incremental changes and radical redesigns. The researchers take on the issue of consensus in the network, and inefficiencies in the current system.
Bitcoin’s Network Plane is identified as the bottleneck in processing transactions due to a combination of local validation of each transaction by each node, and repeated propagation of transactions by nodes in both the validation and block generation phases. Simply put, each node in the network confirms that a transaction happens, broadcasts this to other nodes, then validates it in a block.
The problem of consensus has been addressed by some proof of stake cryptocurrencies, whereby those with a stake in the cryptocurrency have the right of block generation. However, the likelihood of successfully changing the nature of Bitcoin from a proof of work cryptocurrency is minimal.
The community is working hard to solve the problem of blockchain scalability, but it will be a gradual process. Expect more on this issue as we approach the transactions per block limit. Considering the high impact of negative news on cryptocurrency prices, this will come hand in hand with market volatility.
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