The recent upgrade in Ethereum underlined the importance of scalability in crypto-asset markets. While they reach another peak every week, the capacity of the network is still a crucial indicator and should be continuously improved.
For crypto assets, scalability refers to financial institutions' ability to handle increased market demands. A scalable company can maintain or improve profit margins while sales volume increases. It is a key characteristic of an organization, system, model, or function that describes its capability to cope and perform well under an increased or expanding workload or scope. Scalability also brings the ability for adapting over time to changes. The modifications usually require growth and big connotations that need expansion or upgrade. As an indicator, it defines timing, latency, and security of transactions.
When transactions are verified in a cryptocurrency network, in theory each node in the decentralised system has to verify every transaction. The network can only process a certain number of transactions in a set time frame, such as per block. So the capability of the network, scalability, brings the transaction capacity along with it. In cryptocurrency markets, miners collect transactions that have been already dispatched into blocks. A block is only accepted into the Blockchain if all transactions in this block are valid and have not already been spent. These blocks are generated just about every ten minutes, which is called “block time”. It is the estimated length of time for mining a 1 MB size block. If it takes longer to mine a block in the network, the difficulty level will be reduced; if it takes less time, the difficulty is increased.
For the crypto-assets market ‘scaling up a network, as we observed during the Ethereum versioning, means increasing in size, capacity, and consequently in security. On the other hand, network speed and security are the two dominating factors that determine also the reputation of payment networks. These networks need to provide sufficient incentives to miners in terms of transaction fees to keep them engaged and competitive. Compared to traditional payment providers such as VISA or PayPal, the transaction capacities of cryptocurrencies such as Bitcoin and Ethereum are extremely low. VISA can be able to handle more than 65,000 transaction messages a second and actually handles an average of 150 million transactions every day meanwhile PayPal and Bitcoin can manage 193 only 7! (tps – transaction per second)
Currently, two scaling solutions are available in crypto-asset markets; vertical and horizontal scaling. Vertical scaling aims to improve the efficiency of individual transactions by adding processing power and memory to each node. On the other hand, horizontal scaling’s objective is adding more machines to a system and improving overall throughput capacity. Both have similar effects on the payment network.
We will touch on more points about performance indicators of crypto-assets in the following articles. For any further questions, please reach us via firstname.lastname@example.org or visit our CryptoIndexSeriesTM Platform for better analysis of the crypto market space.
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