The Struggle Between Scaling and Decentralization for Cryptocurrencies

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There is no doubting that cryptocurrencies have made some monumental steps forward in the past twelve months. Not only have most skyrocketed in value, but new applications for these currencies (and the blockchains they exist on) have been coming out very frequently.

So while the market and industry is definitely growing and getting bigger all the time, a problem is starting to arise that could create some huge issues going forward. This is none other than the constant struggle between keeping everything decentralized, and being able to scale it too. As more people decide to become involved with blockchain technology and cryptocurrency, the struggle has become more noticeable.

Before diving into the power struggle between decentralization and scaling, it is important to have a good understanding about what each of these mean. Decentralization essentially means that no one entity or person controls the system, which prevents certain people manipulating it for their own goals or personal gain. Scaling, on the other hand, means that the system can support a large number of different users. If a business cannot scale, it will never become massive as it simply will not function correctly.

Now that you know that, let’s look at why this struggle exists and how to potentially fix it. The struggle exists because as more users flock to use the blockchain and crypto, those blockchains begin to experience issues. High fees and a backlog of transactions are two very real issues being caused by so many people using these systems. While it is still semi-manageable now, as more and more continue to become interested in the technology, it will get worse and worse.

One of the biggest things bringing people to blockchain is the fact that it is decentralized and not controlled by one person or entity. But as more people come to the technology, it becomes way harder to handle, control and manage, so you can see where the tension exists between this love for the decentralized nature of blockchain, but also the need for scaling when dealing with a large number of users.

In simpler terms, think of this problem as a triangle (an idea published in a paper by Greg Slepak). Basically, each point on the triangle represents one of the three properties that blockchain needs in order to become a viable technology.

One is scale, another is decentralization and the third is consensus (the ability for each node on the blockchain to ensure each transaction is valid. On a triangle, each line can only touch two of the three points, which is quite similar to blockchain, as in the current landscape, only two of those three can ever be fully satisfied. For example, they could have a scalable system that can reach a consensus, but it wouldn’t be 100% decentralized.

Scaling in itself isn’t hard, and many companies, systems and services have done it, but it often goes hand in hand with decentralization. So it appears that a compromise will need to take place in some form.

So what is the solution going to be for this problem? As of right now, there is no concrete answer and many people have their own thoughts and ideas as to what is the best way to go about dealing with this issue. One possible solution is the Lightning network by Bitcoin. This network aims to provide not only cheap and fast transactions, but also transactions that are fully scalable.

A few experts have also given their own potential solutions for how to deal with this predicament. These range from on-chain scaling to changes at the consensus protocol level. Only time will tell which solution (if any) becomes the best and most effective.

In conclusion, it will be interesting to see how cryptocurrencies and the blockchain as a whole attempt to solve this issue of decentralization and scalability. If they don’t it could very well hinder the growth and development of this potentially great and valuable industry.