Bitcoin transactions had approached network limits in late 2017
Why is scalability an issue?
In order to support the adoption rate of cryptocurrencies for everyday transactions, to begin with, a network needs to demonstrate its capability to handle a certain amount of transactions without processing issues and delays beyond doubt. Secondly, the network needs to provide credibility that it will be able to handle a growing amount of transactions in the future. This is what “to scale up” a network means – to increase in size, capacity and consequently, in security. On the other hand, a network needs to provide sufficient incentives to miners in terms of transaction fees to keep them engaged and competitive.
Compared to traditional payment providers such as VISA or PayPal, the transaction capacities of cryptocurrencies such as Bitcoin and Ethereum are very low. The world’s leader in digital payments, VISA, claims that it is able to handle more than 65,000 transaction messages a second and actually handles an average of 150 million transactions every day. In contrast, the payment network PayPal “only” handles 193 transactions per second, or about 5 million transactions a day.
Therefore, network speed and security are the two prevailing factors that determine the reputation of a payment network. Consequently, the present infrastructure of cryptocurrency networks will need to be expanded in a suitable way to absorb increasing transaction volumes along with an increasing number of users.
Listen to the Video and learn why Bitcoin on its own is dead in the water
Bitcoin transactions had approached network limits in late 2017, two basic schools of thought on network scaling emerged. Supporters of one group wanted to focus on increasing the limit of block size, the other focusing on off-chain scaling by adding additional protocols on higher layers, somewhat similar to the present structure of the internet.