The raging debate about cryptocurrencies going mainstream has now been settled. At the current exponential growth, analysts estimate the number of Bitcoin users to reach 200 million by 2024. With 200 million active users, Bitcoin and other cryptos are primed to penetrate the mainstream marketplace, as the vast majority of investors and consumers adopt them.

Consequently, more investors, users, tokens, exchanges and start-ups are getting involved than ever. Already, scalability is a major concern for most conventional cryptos like Bitcoin and Ethereum.

With transactions piling up, the conventional Blockchains are teetering towards failure. For instance, Ethereum — which was once regarded as a solution to Bitcoin’s low throughput — is already showing signs of massive failure. When Ethereum was unveiled, it promised to deliver a transaction speed of between 14 to 15 seconds compared to Bitcoin’s 10 minutes.

However, as more tokens, exchanges and users continue to adopt it, Ethereum is getting strained as illustrated by the graph below:

While the growth in transaction volume is impressive, there is one thing: the initial design of cryptos was not meant for widespread adoption and use. Blockchain was manageable when the volume of transactions was less. However, as the transactions pile up, the Platform’s scalability becomes a major issue.

Scalability issue in conventional Blockchains

For conventional Blockchains like Ethereum and Bitcoin to compete with mainstream platforms such as Visa and PayPal, they must scale up transaction speeds. While Visa handles 1667 transactions per second, PayPal 193 transactions per second, Ethereum can only manage 20 transactions per second.

Bitcoin is worse-off at 7 transactions per second, which is akin to rush-hour gridlocks trapping a Formula 1 racing car. Undoubtedly, these platforms can only compete with Visa and PayPal is they work on their scalability.

Scalability issues in the cryptos can be grouped into two:

The time taken to confirm and store a transaction on a block; and

The time taken to arrive at a consensus.

#1: The time taken to confirm and store a transaction on a block

In Bitcoin, a transaction is validated and stored on a Block when a miner places the transaction data in the blocks they have mined. For instance, if Alice wants to transfer 1 BTC to Bob, she must send this transaction to all the miners. The successful miner will then store it in the block, and the transaction will be considered complete.

However, as the Blockchain becomes more and more popular, the process becomes more tedious and time-consuming. Furthermore, there is the issue of transactions fees. When miners successfully mine a block, they often become temporary dictators of the block. If any user would want his/her transactions to go through, then he/she has to pay more to the miner in charge in the form of transaction fees. And the higher the transaction fees, the faster the miners will confirm and store them in their block.

What about Ethereum?

In theory, Ethereum was designed to handle 1000 transactions per second. However, in reality, Ethereum is restricted by the 6.7 million gas limit that is placed on each block. To contextualise what a “gas” means, imagine this situation:

Alice issues a smart contract to Bob. Bob sees that all the elements in the smart contract will cost him n amount of gas (the amount of computational effort required for Bob to transact the smart contract). Seeing that he is being charged higher, Bob decides to charge Alice for the amount of gas he has used up which in turn increase the gas fees.

Now because each block has a defined gas limit, miners will only add those transactions whose gas requirements add up to a value that is either equal to or less than the block’s gas limit. Consider the following Block:

If the block’s gas limit is 6,700,000, then miners will only confirm and store those transactions that add up to less than or equal to 6,700,000. This limits the number of transactions that go through the Blockchain, thus degrading the original 1000 transactions per second to nearly 20 transactions per second.

#2: The time taken to arrive at a consensus

All Blockchains are structured as P2P (peer-to-peer) networks. The participants (nodes) operate in a trustless mode where no node is given special privileges. The idea is to generate a democratic network where there is no centralised authority or any hierarchy. To achieve this, nodes must execute consensus algorithms to add transactions on the network.

Currently, Bitcoin is based on PoW which demands high computational power to execute while Ethereum is considering to migrate to PoS (Casper) as a result of scalability concerns.

What are the Nerves’ solutions to the Blockchain scalability issues?

Nerves’ Platform will be based on Delegated Proof of Stake (DPoS) consensus algorithm. Unlike the conventional PoS, where users place their cryptocurrencies (tokens) at stake to earn the right to confirm transactions, forge blocks, and reap the rewards, DPoS, attempts to arrive at consensus more efficiently.

In Nerves’ Platform, users “vote” to elect “witnesses” (other nodes that they trust to validate their transactions). The top-tier witnesses (who have obtained the most votes) are selected to confirm the transactions. Nodes can also delegate their voting power to another node, so long as they trust them to vote for witnesses on their behalf.

A voter’s stakes determine how votes are weighted. A node does not need to have a significant stake to enter the top-tier of witnesses. Instead, votes from nodes with large stakes often result in nodes with relatively small stakes that are elevated to the top-tier of the witnesses.

The Nerves’ DPoS offers the following advantages:

It is faster compared to the traditional PoW and PoS consensus algorithms

Its structures and incentives enhance the integrity and security of the Blockchain since each node is incentivised to perform its role diligently

There is no specialised hardware required for a node to become a witness or delegate. A standard PC is enough.

It is energy-efficient compared to power-hungry PoW hashing algorithms.

Conclusion

Cryptocurrencies and particularly, Ethereum and Bitcoin, are increasingly becoming more mainstream. To keep up with increased usage, these platforms must step it up their scalability. Unfortunately, solutions that have been offered so far are only piecemeal. Nerves’ Platform intends to solve this challenge through its DPoS consensus algorithm.