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Performance and scalability of blockchain networks to be key focus areas in 2022

Performance and scalability of blockchain networks to be key focus areas in 2022
27 Dec, 2021

Blockchain technology is on the cusp of a boom, as it makes its way into all realms of life, unlike a few years ago when it was tailored only for financial transactions. The wide adoption of this decentralized distributed ledger technology has caused the creation of many applications that touch our daily lives.

It made headlines for its ability to support vaccine distribution and tracking during the pandemic, indicating its reach and depth. From pharmaceuticals to farming, from delivery of citizen services to e-governance, gaming and education, and from cross-border payments to commercial payments, this technology will rewrite the existing rules in the coming years. 

Every country is aware of its pervasive potential and is making pro-reform policy initiatives to support it. India has announced setting up a national framework to accelerate the use of blockchain. 

The advantage of this shared ledger technology lies in its immutability, indisputability, and accuracy. It assures various other benefits like data security, autonomy, transparency, and auditability. With no middlemen in between the peer-to-peer transactions, it showcases the control by none and everyone at the same time. The technology's charm is that there is no central authority, but all the participating nodes have equal rights. Every individual node in the blockchain network can govern and manage transactions, which makes its future brighter and prosperous. 

Gartner projects that blockchain’s business value will reach $176 billion by 2025 and $3.1 trillion by 2030. Research by MarketsandMarkets predicts that the blockchain technology and services market will grow to $67.4 billion by 2026, from $4.9 billion this year. 

For any IT or IT-enabled system, performance and scalability decide the success rate of the systems. In the case of blockchain, it is more important that the distributed and decentralized model that requires every peer to collaborate and build trust with the other over a business network scales equally well. Each peer node should make computations and communicate to validate transactions, arrive at a consensus, and update the shared ledger. Performance refers to the average time taken for a transaction to be validated and stored in each peer node or what is called throughput, in other words. Scalability indicates the ability of the platform to bear the load of nodes and transactions.

Now the blockchain networks have limited capacity to handle a large number of transactions. As per the available data, the Bitcoin network can process just five transactions per second (TPS), while another prominent network – Ethereum – can process up to 30 transactions. This throughput is minimal compared to the Visa network, which can carry 1700 TPS. This limited throughput is the biggest challenge we will face this year as blockchain networks are rapidly adding millions of users.

On the scalability front too, limitations are more. The Bitcoin network takes around 10 minutes to generate one block, consisting of 2800 transactions. The challenge is to reduce the block generation time or increase the block size (so the number of blocks holding transactions can reduce). These limitations (increasing transaction history and hardware), higher transaction fees, non-optimum block size, and lower response times are the four critical factors defining scalability.

There are many factors influencing the performance of blockchain technology. First, the choice of consensus mechanism is highly important as this protocol or algorithm is responsible for striking a fine balance between the degree of decentralization, scalability, and security. Another key factor is the network latency as the strength of the dedicated bandwidth will play a vital role in broadcasting the transaction to all the nodes and help collate their responses. Similarly, node infrastructure is also a deciding factor. It is important to allocate adequate input-output operations per second (IOPS). Also, the number of nodes, smart contracts, transaction payload size, transaction pooling, and local storage are vital factors influencing the performance. 

The key to improving the performance and scalability is in selecting the right platform for meeting our performance goals. There are many options available in the market. The industry is constantly exploring divergent solutions to improve scalability and performance. We have projects like Bitcoin’s lightning network and Ethereum 2.0. Proof-of-work-based permissionless networks can handle up to 10 transactions and with technical modifications, it can be increased to 100. Similarly, permissioned blockchain networks also provide some solutions to the twin problems of performance and scalability. The consensus mechanism in the permissioned network can improve the speed but may pose some hurdles in decentralization (as fewer nodes participate in the transaction orchestration).  

History shows us that platform-as-a-service models of distribution have helped accelerate the adoption of new technologies including cloud computing, internet of things (IoT), and artificial intelligence. Now the blockchain technology is also witnessing a similar trend with some companies launching innovative platforms with tools to leverage this technology so that the users of these do not have to make huge investments in infrastructure and skills. 

Cracking the scaling trilemma of decentralization, scalability, and security requires expertise or the support and guidance of experts who can select the right platform for the organizations. Whether it is picking up a better consensus mechanism or adopting sharing, opting for nested blockchains, or minimizing the implementation challenges, one needs to approach the right expert.

Raj Srinivasaraghavan

Raj Srinivasaraghavan


Raj Srinivasaraghavan is the chief technology officer (CTO) of SecureKloud Technologies Limited.