Scalability determines the network’s capacity, including the number of nodes it has, how many transactions it can process, and how quickly it can process them, amongst other factors. Throughput, finality, and confirmation time are the three main bottlenecks for a blockchain’s scalability.
Scalability is arguably the holy grail and bottleneck of the cryptocurrency world, mainly referring to transaction speeds and cost, as the current transaction times of many blockchains don’t compare to other centralised payment methods. While Visa can process around 24,000 transactions per second (tps), Bitcoin can process only seven per second. Ethereum can handle 20 to 30 tps, while Solana can handle over 7,200 transactions per second.
Scaling a blockchain is complicated, and there are numerous efforts to maintain scalability, security, and decentralisaiton at the same time. Three directions for blockchain scalability include Layer-1 (on-chain), Layer-2 (off-chain), and other consensus mechanisms.
Layer-1 solutions require changing the codebase of the blockchain (hence, ‘on-chain’), a solution that represents a structural or fundamental change for a blockchain. Examples of on-chain scaling solutions include SegWit and sharding.
Layer-2 off-chain scalability solutions add a second layer to the main blockchain (mainchain) network to facilitate faster and more transactions. The secondary protocols are built on top of the mainchain, where transactions are ‘offloaded’ to save space and reduce network congestion. Examples include sidechains and payment channels like Lightning Network (Bitcoin) and Arbitrum (Ethereum).
