Business, Tech

Understanding the Scaling Problem of Cryptocurrencies

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Both cryptocurrencies and blockchain technology have become quite popular in the recent months. These two have been at the center of discussion in financial circles. The only downside to this is that the technology is not updated enough to meet the rising demands.

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Bitcoin and Ethereum are the two names that come first when there is a mention of cryptocurrency. These coins use blocks as their primary transaction process. However, it is the size of the blocks that have become the major issue now. Bitcoin is limited to just 1MB per block and that allows just three or four transactions every second. The Ethereum network too is only able to support 15 transactions every second. This is not enough to meet the demands of thousands of users from all over the world.

The contradicting opinions

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Blockchain Basics

Crypto experts have divided opinions on whether increasing the capacity of the block would help solve the scaling problem or not. Although this cannot be done overnight, the miners, stakeholders, and developers cannot decide what the ideal block size should be. There were suggestions to increase the block size to 2MB while many suggested that it should go up to 32MB so that the per second transactions could increase.

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Meanwhile, Bitcoin Cash emerged as the first contenders to increase it block size and take it to 32MB. This was done keeping in mind that Bitcoin Cash was fast becoming the preferred choice of investors because of the speed of transaction and low transaction fee. This is why it has become one of the most traded coins in cryptocurrency trading platforms such as Bitcoin Trader, proving its increasing popularity among investors and real-world users.

Alternate solutions

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A bunch of ideas has already been put forward to combat the scaling problems of Ethereum and Bitcoin. The Lightning Network is one solution that is being tried and tested. It can process unlimited transactions within a second. However, the transactions will not have any public record in the respective blockchain. They will be added to the ledger as the final balance. This could have been the solution that Bitcoin would have opted for, but the lack of security is what is holding it back.

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Plasma: Design Space for Custom Blockchains Extending Off the Ethereum Blockchain

Plasma Cash is another alternative that can be tried. In this process, the focus will only be on the block that the user wants to use. So, they can only use the block that has their coin and ignores the rest. This will not only optimize the data but will also prevent crypto investors from losing money if the respective exchange is hacked. Not only that, it will also stop fraudulent transactions that cryptocurrency is infamous for.

The final say

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There is no doubt that the scaling issues will be a big problem if they are not solved in time. The question is, what will the solutions be and what if any solution is not taken? The answer is simple. The transactions will take longer to get processed because the demands for Bitcoin and Ethereum are increasing. So, there will be several traders on the portal than before. Blockchain platforms must reach the stage where they can compete with fiat payments because people want transactions to take place instantly and not wait for minutes to get it processed.

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