Intro Scaling Blockchain Currencies
Cryptocurrencies can’t trade thousands of transactions per second like the big names in the financial world, and they will need to scale to that level sooner than people think. Regardless of which cryptocurrencies you follow, there needs to be a plan to avoid bogged down transaction times. Both Bitcoin and Ethereum developers want a solution to allow these speeds, like Visa and other big financial wheelhouses that already handle these levels. Let’s go over the biggest currently proposed solutions.
Lightning is the concept of a sidechain for the flood of everyday transactions, so that the main blockchain becomes just a settlement layer, while the flurry of transactions are handled off-chain. SegWit is the implementation of this for Bitcoin that began in August, and Raiden is the planned implementation for Ethereum. According to Altcointoday, Bitcoin is trading at 3 to 4 transactions per second, while Ethereum is at 10-20 per second. Lightning could increase the transaction capabilities of both exponentially, though it has yet to have any real effect.
Plasma is similar to Lightning, but instead of being focused on monetary transactions, it helps increase the speed and capabilities of smart contracts across the network. The implementation of this on Ethereum is currently called Raidos.
The Lightning network’s aim is to make smart contract trading off the blockchain for lower cost, faster speed transactions. The way this works is by creating a payment channel that represents a smart contract. While the contract is reported to the blockchain, it doesn’t make every single transaction a part of the main ledger. This helps avoid jamming up the ledger with all the details of thousands of tiny trades.
SegWit is the implementation of Lightning on Bitcoin, Litecoin, and Vertcoin. Bitcoin‘s prominence in the market and it’s need to react first to new situations means it has less time to react with increasing demands as its popularity soars. While other cryptocurrencies have time to find solutions before their ledger fills with transactions, Bitcoin has to act first because problems have already arisen and the impact will be deeper if left unaddressed. The amount of trades waiting and the ballooning transaction fees gave urgency to find a solution.
SegWit is an attempt to alleviate some of the massive speed and cost bottlenecks on the Bitcoin blockchain. Since it’s taken effect, SegWit is supposed to allow for the equivalent of up to 4MB transactions on the sidechain in addition to the on-chain 1MB limit, helping to speed the transaction process and move a chunk of transactions off ledger. On the negative side, it also gives some control of Bitcoin transactions to a third party that can charge their own fees, something that a lot of people see as going against the fundamentals of Bitcoin. We’re all watching and waiting for SegWit to take off, but in the meantime, developing the Lightning Network is another step towards scaling the Bitcoin Ledger.
Raiden is the implementation of Lightning on the Ethereum platform. Raiden Network claims to make Ethereum scalable to 1,000,000+ transactions per second. As more and more people trade with Raiden rather than on the blockchain, transaction speeds can increase and costs can go down.
Raiden works with any ERC20-compliant token rather than just one currency, like Bitcoin’s Lightning. Both systems are pushing for agreements that take trades off the main ledger, which could improve the speed and overall cost of the entire cryptocurrency landscape. As of today, Raiden has revamped its website, allowing coders to start testing how it works. The site outlines uses such as sharing cash with friends, retail payments, micropayments, and instant token swaps.
Lightning Final Thoughts
Both SegWit and Raiden allow Bitcoin and Ethereum to step away from the main blockchain and do most of their work off-chain. Only a small amount of the overall trades need to be settled on the main blockchain, reducing size and increasing speed. At both network’s estimate of 1 million+ transactions per second, they both form a solution to the long lines of trades waiting to be verified on the blockchain.
Finally, Plasma’s been added to the mix as a collaboration between Ethereum founder Vitalik Buterin and Joseph Poon, founder of the Lightning Network. Plasma’s stated goal is the implementation of scalable smart contracts.
Plasma works similarly to Lightning, moving smart contract transactions off the main blockchain onto sidechains. This could allow for higher traffic because it removes traffic from the main ledger. Raidos was recently announced as the implementation of Plasma on Ethereum. Though Raidos is still in the planning phase, this points to Ethereum’s ability to scale to growing demands.
As someone wanting to buy and sell in Bitcoin and other cryptocurrencies, lower fees and shorter waits are crucial. Whatever cryptocurrencies you favor, these implementations are being applied across several high market cap blockchains and are quickly becoming a standard approach. Keep an eye on how Lightning and Plasma develop in order to understand how quickly cryptocurrencies will be able to scale to global adoption levels.