Blockchain Scalability: When, Where, How?

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Blockchain Scalability, a very real problem!

The scalability problem of cryptocurrencies

For bitcoin and ethereum to compete with more mainstream systems like visa and paypal, they need to seriously step up their game when it comes to transaction times. While paypal manages 193 transactions per second and visa manages 1667 transactions per second, Ethereum does only 20 transactions per second while bitcoin manages a whopping 7 transactions per second! The only way that these numbers can be improved is if they work on their scalability.

If we were to categorize the main scalability problems in the cryptocurrencies, they would be:

  • The time is taken to put a transaction in the block.
  • The time is taken to reach a consensus.

Proof Of Stake

The change from proof of work to proof of stake

One of biggest things happening right now is Ethereum’s shift from proof of work to proof of stake.

  • Proof of work: This is the protocol that most cryptocurrencies like Ethereum and Bitcoin have been following so far. This means that miners “mine” cryptocurrencies by solving crypto-puzzles using dedicated hardware.
  • Proof of stake: This protocol will make the entire mining process virtual. In this system we have validators instead of miners. The way it works is that as a validator, you will first have to lock up some of your ether as stake. After doing that you will then start validating blocks which basically means that if you see any blocks that you think can be appended to the blockchain, you can validate it by placing a bet on it. When and if, the block gets appended, you will get a reward proportional to the stake you have invested. If, however, you bet on the wrong or the malicious block, the stake that you have invested will be taken away from you.

To implement “proof of stake” Ethereum is going to use the Casper consensus algorithm. In the beginning it is going to be a hybrid style system where majority of the transactions will still be done the proof of work style while every 100th transaction is going to be proof of stake. What this will do is that it will provide a real world test for proof of stake on Ethereum’s platform. But what does that mean for Ethereum and what are the advantages of this protocol? Let’s take a look.

Advantages of proof of stake

  • Lowers the overall energy and monetary cost: The world’s bitcoin miners spend around $50,000 per hour on electricity. That’s $1.2 million per day, $36 million per month and ~$450 million per year! Just put your head around those numbers and the amount of power being wasted. By using “Proof-of-stake” you are the making the whole process completely virtual and cutting off all these costs.
  • No ASIC advantage: Since the whole process will be virtual, it wouldn’t depend on who has the better equipment or ASICs (application-specific integrated circuit).
  • Makes 51% attack harder: 51% attack happens when a group of miners gain more than 50% of the world’s hashing power. Using proof of stake negates this attack.
  • Malicious-free validators: Any validator who has their funds locked up in the blockchain would make sure that they are not adding any wrong or malicious blocks to the chain, because that would mean their entire stake invested would be taken away from them.
  • Block creation: Makes the creation of newer blocks and the entire process faster. (More on this in the next section).
  • Scalability: Makes the blockchain scalable by introducing the concept of “sharding” (More on this later.)

How does this help in Blockchain scalability.

Introducing proof-of-stake is going to make the blockchain a lot faster because it is much more simple to check who has the most stake then to see who has the most hashing power. This makes coming to a consensus much more simple. Plus, implementing a “proof of stake blockchain” is an integral part of Serenity, the 4th and final form of Ethereum (more on this in a bit.)

At the same time proof-of-stake makes the implementation of sharding easier. In a proof-of-work system it will be easier for an attacker to attack individual shards which may not have high hashrate.

Also, in POS miners won’t be getting a block fee, and they can only earn via transaction fees. This incentivizes them to increase the block size to get in more transactions (via gas management).

What is the future of proof of stake?

As of right now, Casper stage one is going to be implemented on the blockchain, wherein every 100th block will be checked via proof-of-stake. Yoichi Hirai from Ethereum foundations has been running casper scripts through mathematical bug detectors to make sure that it is completely bug free.

Eventually, the plan is to move majority of the block creation through proof-of-stake and the way they are planning to do that is….by entering the ice age. The “ice age” is a difficulty time bomb which is going to make mining exponentially more difficult. Having an impossibly high difficulty will greatly reduce the hash rate which in turn will reduce the speed of the entire blockchain and the DAPPS running on it. This will force everyone involved in Ethereum to move on to proof-of-stake.

However, this entire transition is not without its obstacles. One of the biggest fears that people have is that miners may forced a hardfork in the chain at a point before the ice age begins and then continue mining in that chain. This could be potentially disastrous because that would mean there could be 3 different chains of Ethereum running at the same time: Ethereum classic, Ethereum proof of work and Ethereum proof of stake.

This is currently all speculation. For now, the fact is that, for a scalable model, it is critical for Ethereum to use proof of stake to get the speed and the flexibility it requires.

CART chain; thus has no scalability issues as it already uses Proof of Stake (POS) as its consensus algorithim.

Article Courtesy of Block Geeks.