There
still needs to be a lot of development and scaling work done in order
for Ethereum and other cryptocurrencies such as Bitcoin to overtake
existing financial systems, explained Ethereum co-founder Vitalik
Buterin in an interview with prominent venture capital investor Naval Ravikant at the Disrupt SF 2017 conference hosted by TechCrunch.
Before delving into the scalability issues of Bitcoin and
Ethereum, it is important to acknowledge that scaling decentralized
Blockchain networks is far more difficult than expanding centralized
systems. With permissioned or closed networks like Visa and PayPal, it
is relatively easy and less expensive to become more flexible and serve
billions of users.
But, Bitcoin and Ethereum focus on security and prioritize
decentralization by operating on top of the Blockchain, a transparent
ledger which processes and facilitates the transfer of data.
Scaling solutions that have been integrated into Bitcoin
and Ethereum and alternative technologies which are currently being
developed by the open-source development communities of the two
Blockchain networks are unprecedented. With the development of
on-chain, off-chain and two-layer solutions, developers are attempting
to optimize the way the Blockchain networks process transactions and
smart contracts.
The development of scaling solutions itself is already
difficult but reaching consensus amongst developers, miners, users,
businesses and node operators is also a real challenge. For instance, it
took the Bitcoin community and industry over a year to implement the
Bitcoin Core development team’s Segregated Witness (SegWit), which so
far has demonstrated successful scaling of the Bitcoin network.
As Buterin explained:
“Bitcoin is currently processing a bit less than three transactions per second and if it goes close to four, it is already at peak capacity. Ethereum has been doing five per second and if it goes above six, then it is also at peak capacity. On the other hand, Uber on average does 12 rides per second, PayPal several hundred, Visa several thousand, major stock exchanges tens of thousands, and in IoT, you’re talking hundreds of thousands per second.”
For Bitcoin and Ethereum to surpass Visa, PayPal and stock
exchanges in terms of processing volume and scalability, developers must
come up with innovative, efficient and robust scaling solutions. If
Ethereum and Bitcoin evolve into multi-trillion dollar financial and
Blockchain networks, the current framework and scaling solutions will
not be sufficient.
Both Bitcoin and Ethereum are targeting the development of on-chain and off-chain solutions. Famously, Coinbase co-founder Fred Ehrsam noted
in an analytical blog post that the Ethereum network must improve by a
factor of 100-fold in regards to scalability just to serve decentralized
applications with millions of users.
“There already is really a lot of institutional hype in the
space and just public hype. So when you have Vladimir Putin having
known what Blockchains and Ethereum are and Paris Hilton going out
promoting ICOs on Twitter, that’s peak hype. But the reason why a lot of
this hasn’t materialized into action yet is precisely because of some
of these technical obstacles that make Blockchains work okay for niche
use cases but not really for work well for mainstream use,” explained
Buterin.
He further emphasized that the Ethereum Foundation and
developers in the open-source community are working very hard to
introduce scalability solutions. Plasma, sharding and Metropolis are
only a few of scaling solutions that Ethereum developers are actively
testing and trying to implement.
