, 2 years ago
One of the most common problems for cryptocurrencies is scalability. How are crypto going to address this specific problem?
The Bitcoin blockchain is a perfect example of the scalability issue. On average every 10 minutes a new block is created and because of its limited size it can only manage a limited amount of transactions.
The more people are trying to send transactions at the same time, the longer it takes to confirm a Bitcoin transaction. The only way to avoid long transaction time is to pay a higher fee to ensure that miners have an incentive to include your transaction within the next block or at least within one of the next couple of blocks.
The problem is that with very high usage the fees can be ridiculously high and transactions with a low or moderate fee are getting slowed down.
One approach to solve this issue is by increasing the block size. With Bitcoin each block it is currently 2 MB in size, but could theoretically expand up to 4 MB. If the block is getting bigger, then a lot more transactions can be included. If you imagine block size as piece of paper, then there is simply more space to write down all the transactions if the block is bigger.
But this also comes with technical difficulties. As critics pointed out a large block size could result in increased costs for Bitcoin node operators. It can also facilitate mining centralization and last but not least the network security could suffer, because of lower block subsidies.
Now, keeping a lower size comes with certain disadvantages and increasing it comes with a different set of disadvantages as well.
One very famous alternative to meddling with the block size limit is to introduce a technology that interacts with the blockchain rather than creating a certain amount of on-chain transactions within one block.
These so-called second layer technologies are opening payment channels between two parties that get executed instantly and are settle on the blockchain later. If you like to take more in-depth view on that topic, please bear with us and read on to our article about “The Lightning Network”, which is Bitcoins second layer solution.
But to conclude the scalability issue, even these technologies come with certain technical difficulties, so that scalability still remains a problem to be solved.
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Bitcoin is decentralized and secure. The downside of both features is that Bitcoin doesn’t scale very well and cannot execute complex smart contracts as Ethereum does. This limits its use and while the mother of cryptocurrencies still stands tall, it needs to change and adapt to the existing demand. The most promising technical approach to solve at least one of both issues is the so-called Lightning Network. It is a protocol that runs on top of Bitcoin and offers almost instant finality of transactions by facilitating them off-chain and confirming them at a later point in time. In this sense, the Lightning Network is the transactional layer that still profits from Bitcoin’s security and finality of its blockchain. TARO is a brand-new invention that was brought to life by Lightning Labs and just introduced in late September 2022 as an alpha version.
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