Scalability, the endless cycle - and Raiden Network - P.1

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Blockchain technology is still in its early stages and for that reason is unable to meet the scaling demand of the market

Anytime someone bring up the subject of blockchain, it seems that a simple explanation like: “It’s a chain of interconnecting blocks of data” would satisfied the Average Joe’s curiosity. To understand it better, the things that blocks contain are “trading information” of Bitcoin, Ethereum and other alternative coins - or “altcoins” in short (obviously, each kind of cryptocurrency is stored on a separate blockchain system according to their specific technological requirements).

Nevertheless, nowadays, beside the development of primary applications (such as direct payment), the gigantic systems like Ethereum and Bitcoin are also used for developing secondary activities such as Initial Coin Offering (ICO) or Decentralized Application (DApp).

However, in the face of rising demand for applications, blockchain technology remains expensive and slow in terms of processing power. Unfortunately, blockchain technology is still in its early stages and for that reason/therefore is unable to meet the scaling demand of the market.

1. The race between the tortoise and the hare?

As mentioned above, blockchain keeps transactions data in “blocks”, Bitcoin and Ethereum are not exceptions. With a community of 24 million digital wallet users, the average volume of transaction on a daily basis amounts up to billions of dollars, one would expect a massive amount of data to be processed by Bitcoin’s blockchain in a day.

Unfortunately, in reality, Bitcoin’s blockchain can only create one 1Mb “block” every 10 minutes, in another word, this billion-dollar system can only handle 1Mb of data per 10 minutes. To put that figure into perspective, a 3-minute-long music file with a minimum quality of 128kb on average amounts to 3Mb.

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And about Ethereum, even though this system only takes 14-15 seconds to generate one approximately 1Mb block of data, the difference between Ethereum and Bitcoin is a slight improvement from 3-4 to 15-20 exchanges/sec. But these figures are nothing compared with the leading payment service - Visa. In one second, Visa’s system processes on average 1,700-2,000 exchanges, with its maximum capacity topping up to 30,000 exchanges/sec. (check how do Bitcoin blockchain and Ethereum blockchain work here)

Obviously, the 1Mb/10min mechanism has made Bitcoin inefficient as a payment solution for financial operations. But even with reduced execution time to about 15 secs as for Ethereum, the problem still exists.

In reality, the fundamental reason for such sluggishness is usually linked to the “transparency” of blockchain, or as they say - “Slow but steady”. In the distributed ledger of blockchain like Bitcoin or Ethereum, the member nodes of blockchain will continuously receive updates of transactions from the whole system. And only with the consensus of the majority of members, can the transaction be approved - thereby ascertaining transparency and security of all activities in the system.

However, these consensuses are not reached fast, nor they are reached in large number; at least not enough to meet the real huge demand. Below is the graph showing the number of pending transactions on the Ethereum blockchain dated between March 24th and 29th this year, denoted in thousands.

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Current pending transactions

 

For simplicity, imagine a new block as a bus, and transactions are passengers. A new bus with only 15 seats arrives every 10 minutes, but there are 100 people waiting at the bus stop. Only by paying an extremely expensive ticket can someone get on the bus. This ticket is a transaction fee or gas money, the more gas you pump into the bus, the faster it comes and picks you up. If you don’t pay or pay a minimum fee for the ticket, you will have to wait at the bus stop waiting for the bus to come for a few hours, or in some cases, even days.

So, you can be as certain as you want, but, in the end, speed determines the practical application of cryptocurrencies (it doesn’t matter whether it is for direct payment or other auxiliary application).

Currently, Bitcoin is a financial intermediary appropriate only for high-value transactions where processing time of less than an hour and more-than-10-dollar cost are reasonable. Still, the day when users will be able to just “carded” their Bitcoin for a cup of coffee is still a long way down the road.

So, are there any other ways to carry more “passengers” on the Bitcoin express?

(to be continued)

Written by nami.today

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