Blockchain scalability problem
Understand consensus algorithms and Bitcoin main idea, main assumptions and technological benefits for the society, as well as the technical problems, especially issues with scaling, security and decentralization motivated me to research real case studies, papers and solutions for scalable, decentralized secure solutions around blockchain technology.
It is critical to understand that not all solutions fit all problems. At “the promise of blockchain” paper from McKinsey an example for a UK start-up called Tradle who is working on a blockchain solution to follow the KYC (Know-Your-Customer) rules on clients that need to be kept private probably can’t not be achieved in a public ledger. So permissioned blockchain networks are valid in some cases where protection of private data is requested, transaction speed is needed or dealing only with private companies is required. But in order to be able to trust centralized blockchain-based solutions, a local history of hashes needs to keep local so it is possible identify manipulation or fraud.
Bitcoin solves the double-spend problem by imposing a confirmation mechanism and keeping a chronological-ordered, time-stamped transaction ledger. That transaction is unconfirmed until it is published in a block. Every 10 minutes a block is found by mining and added. As part of the Bitcoin technical problems the high electrical consumption during the mining process is critical causing a tendency toward a small number of miners winning the majority of the blocks and as consequence having the most influence over the network. The growth trend of the bitcoin blockchain is increasing the number of transactions of various types, including different type of coin base transactions, and transactions that encode and store some sort of metadata.
The growth popularity of digital currencies has made scalability a critical issue. The bottlenecks in Bitcoin limit the ability to support high throughput and low latencies on the P2P network. Neha Narule, Director of Digital Currency Initiative at the MIT Media Lab, explained on her article “The Importance of Layer 2” that layer 2 blockchain technology main purpose as a solution to scale blockchain transaction capacity while retaining the decentralization benefits. In consequence, solving the scalability technical problem identified on Bitcoin blockchain. Also Professor Silvio Micali, MIT professor and founder of Algorand, explained how this decentralized currency and payment platform addresses the blockchain’s scaling issue through rapid and efficient user consensus guaranteeing agreement and consistency. It is a true decentralized solution that increases scalability and security. Also he explained that Algorand main assumption differs from Bitcoin main assumption focusing on majority of money is in honest hands instead of the majority of computer (mining) power to be in honest hands.
