Scalability Issues in Cryptocurrencies

The ability to increase scalability stands as one of the major challenges for most modern cryptocurrencies. As the popularity of digital assets, like Bitcoin and Ethereum, grows, so does the strain on the respective networks, congesting it and increasing the fees within it. That is because classical blockchains only have a certain throughput-the number of transactions they can process during any single given amount of time. Major cryptocurrencies have quite low throughput: about seven TPS in the case of Bitcoin and a maximum of around 30 TPS for Ethereum. By way of comparison, centralized payment processors like Visa can process thousands of TPS. This is a tremendous gap by comparison.

A variety of scalability solutions have been discussed. Layer-1 solutions proposed increasing the capacity of the base layer through changes to the architecture of the blockchain. For example, increasing the size of a block allows for more transactions to be handled per block; this is often at the expense of decentralization, since larger blocks require more storage and bandwidth. Solutions like the Lightning Network for Bitcoin use layer-2 solutions on top of the existing blockchain, enabling off-chain transactions and settling the final balance on the main chain. This relieves the main network's load without sacrificing security.

Others include Ethereum 2.0, which plans to use sharding, splitting the blockchain into fragments of data so it can process many transactions simultaneously. Though promising, this causes serious complexities with security and keeping everything in sync.

Most scalability solutions make a trade-off between decentralization, security, and performance. A very scalable system would have to give up some of its decentralization, while a highly secure system cannot scale efficiently. Hence, finding a solution that can retain the core principles of blockchain technology while scaling up transaction throughput significantly remains an open challenge.

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