Hard forks, the Lighting Network, and Plasma Cash

Solutions for Scalability

Cryptocurrency is now the most efficient means of financial exchange for paying bills and acquiring goods and services. It is a very easy way to make payments because it allows you to avoid bank fees and third-party payment processing. However, as blockchain technology advances, new issues about its application have arisen. They must be resolved in order to provide a quick and easy environment for processing payments and developing decentralised apps.


Let's take a look at some of the most common blockchain issues:


  • vulnerabilities

  • Usability

  • programming ecosystem is limited.

  • The government's antagonistic approach

  • the blockchain scalability issue


Despite the fact that the Ethereum platform provides a pleasant programming environment, developing applications is a complex task. Hackers can gain access to the blockchain network. Let's not forget about the DAO assault and the Parity multi-sig wallet issue. Usability is also one of the major issues with blockchain.


When faced with hacking, the development of decentralised apps necessitates the use of a wide range of additional technologies. This has a negative influence on the security of the system. Negative government regulations influencing the decentralised payment system and cryptocurrencies are another issue. The challenge of scalability is currently in its advanced stages.

Every day, the BTC network expands. This graph depicts the average number of confirmed transactions per day, which has skyrocketed since the inception of the Bitcoin network. The greater the number of transactions executed in the network, the more scalability issues arise.


What dangers can these issues pose, and how can you avoid them all? Let's see what we can find out right now.


The Most Important Scalability Issues in Blockchain


There are a number of major issues that plague blockchain operations, including:


  • block size

  • response time

  • costs

  • Limitations


Limitations

The first issue with Bitcoin's scalability is its restrictions. Every node contributes information to the ledger when a new transaction is completed. As a result, there is a risk of the total system buckling as payment history grows. All data must be entered accurately; else, the level of trustworthiness will be lowered. On the hardware side, there are a few constraints. It's impossible to run a node for both blockchains when they grow to this size.


Take a look at the global distribution of Bitcoin nodes.


Block Size

Another significant scalability issue in bitcoin is block size. Each block on the Bitcoin blockchain had a size of 1 Mb at first, and each block could hold roughly 2,020 transactions. However, as the network's transaction volume has grown, another blockchain scalability issue has emerged: the time-consuming process of transaction execution.

Let's look at how the average number of transactions per block has risen since the Bitcoin network's inception.


Take a look at how the average block size has grown since the Bitcoin network's inception.


Response Time

Every transaction in the network must go through a validation process. When it comes to the number of transactions in the queue, they typically have to wait a long time to be validated. A new block in the BTC network, for example, takes about 10 minutes to create. The longer a transaction is in the queue, the longer it takes to process it. During busy hours, this rises.


So, let's see how the validation procedure works. If a payment is added to a block in the chain, it is considered valid. Miners do this by creating new blocks and inserting data into them. When one participant delivers cryptocurrency to another, the node receives notification of the new payment, which creates a new block and adds data to it. Following this, the payment is considered processed, and the sender sends money to the beneficiary.


Fees

Because mining requires greater computational power, the process of confirming transactions becomes more sophisticated as the popularity of bitcoin develops. Every transaction necessitates the payment of transaction fees. You might pay a greater price if you want your payment to be verified more quickly. As the network grows, a large number of new users expect their transactions to be completed. As a result, a large number of unprocessed transactions are stuck in the queue, waiting to be validated.


What Happens When Everything Happens in a Blockchain Network?


Blockchain was created to create a network with no central authority and equal rights for all nodes. Is there, nevertheless, a central government? What exactly happens in this network?

Each node verifies the payment and records the information in its own distributed log. However, as the number of nodes grows, the validation procedure becomes more sophisticated and time-consuming.

Various people believe that the scalability concerns with blockchain should be resolved because the decentralised society is continually evolving and is now capable of serving many fields by replacing the fiat payment system. A blockchain-based payment system saves users money and time while also giving them peace of mind.

This is a difficult problem to solve. Every choice made by the crypto community, including developers, miners, stakeholders, and others, should be backed by a large number of individuals. Changing the entire system will take a lot of time and work. This is why a plethora of alternate solutions appear to be addressing this complex issue.


How Can the Blockchain Scalability Issue Be Solved?

A slew of new alternatives are popping up, and Cryptoauxiliary has compiled a list of the most popular:


  • Hard Forks (Bitcoin Cash)

  • Soft Forks with a soft texture (SegWit)

  • Lightning Network

  • Hard Fork

  • Plasma Cash


A chain split is referred to as a hard fork. The protocol has been totally altered, allowing previously invalid transactions to be completed. To use this feature, all users must download the most recent version of the protocol. There is no connection between the two chains after this point. The new version has the whole history of earlier transactions, but it has its own history that is distinct from the other chain as of the split.


Scalability of Bitcoin Cash

Bitcoin Cash is one of the most well-known hard forks in cryptocurrency history. The network successfully expanded the block size to 32 MB in May 2018. This invention will, ideally, open up new possibilities for the blockchain network.


Furthermore, experts claim that this raises the value of complete nodes while also making the network less decentralised. Because of its increased scalability, supporters of this cryptocurrency believe that a hard fork of Bitcoin that happened in August 2017 was more successful than its major competitor.


What Is SegWit and How Does It Work?

SegWit is a feature of the Bitcoin sidechain that can help with scalability issues like block capacity and transaction malleability. Its block capacity has been increased to 4 Mb, allowing it to store more than 8,000 transactions.

This permits the side chain to store all data. The block becomes free when the signature data is moved from the main chain to the side chain, and it can provide a lot of vacant space for additional transactions. Let's look at the benefits and drawbacks of Segwit.


Advantages:


The capacity of each block increases dramatically. As a result, each block might contain signature data from previous transactions.

Participants will not have to wait as long to confirm transactions as a result of this innovation, as the payment validation time has been reduced.

Segwit guards against transaction malleability on the network.

Because each block can contain more transactions, the miner's total fees can be increased.

Reduced fees

The number of transactions has reduced. This solves the quadratic hashing problem brought on by the block increase. As a result of the problem, the total number of transactions increases, as does the amount of signature data recorded in each transaction. Hackers can gain access to the network as a result of this.

SegWit can solve this problem by altering the signature hash calculation and increasing the efficiency of network members.


SegWit's disadvantages

Despite the fact that SegWit addresses the Bitcoin scalability issue, it also has a number of drawbacks, which include the following:


It is tough to put into practise. As a result, all wallets will have to adopt this technology on their own. There's a chance that this procedure will produce a slew of problems. A SegWit-compatible wallet (not to be confused with a SegWit2X fork) must support BIP16 and its address format (BIP13). This wallet also converts a specified P2SH address into a scriptPubKey and creates a transaction in order to process payments. It must also generate a P2SH address using a P2WPKH script and recognise payments made to these addresses in order to receive assets.

When Bitcoin Cash's hard fork occurred, it highlighted how a new chain might split the bitcoin community.

Miners' transaction costs have been reduced.

Segwit will boost resource usage by taking into account all of the blockchain's parameters, such as block capacity, overall number of transactions, and bandwidth growth.

The sidechain, unlike the main blockchain, does not offer miners financial incentives or rewards for network upkeep. As a result, a bonus plan for miners should be devised.


Lightning Network

The Lightning Network should be mentioned when it comes to Bitcoin scaling options. To better grasp what it is, consider how two network participants send money to each other multiple times, verifying transactions but not recording them on the core blockchain. This is the primary concept behind this cutting-edge technology.


It enables transactions to be confirmed without being recorded in the main ledger. You'll almost certainly agree that it's a highly convenient way to transfer and receive coins without clogging up the network. The Lightning Network was created specifically for this purpose.

This is a network that allows players to add another layer to the blockchain, allowing them to create payment channels between two separate parties. Transactions are instantaneous, and they might have very little fees or even be executed for nothing.


Transactions with two signatures

The Lightning Network uses double-signed transactions to solve the blockchain scalability problem. For this, both parties establish a conduit via which they can pay money to one another. That is, they construct a multisig wallet and use their private keys to access it. The two parties then deposit a specific sum of cryptocurrency.


They can manage transactions with each other and transmit money an endless number of times after the first equal deposit. When one of the parties gives money to the other, the other party receives ownership rights to the assets.

The distribution of assets is processed once the channel is closed. Money is dispersed based on the ledger's most recent signed balance. After the channel job is completed, the data from it is transferred to the main chain. This payment protocol enables the processing of micropayments and the creation of new blocks on the main blockchain without the use of miners.

There are a number of benefits to using this secondary layer:


It allows for the processing of billions of transactions per second, which solves the blockchain scalability problem. Without custodians, users can connect one payment per click.

Low fees and quick micropayments are guaranteed with off-chain transactions.

Instant payments are possible with this off-chain micropayment mechanism. Individual payments can be validated without producing on-chain transactions using smart-contract technology. This decreases payment processing time to milliseconds.

Atomic Swap allows users to do cross-chain transactions without the necessity for a third party to verify them.


Plasma Cash: A Novel Approach to the Scalability Issue

The main scalability issue with blockchain is that all blocks are linked together, and adding a transaction to a block necessitates downloading all prior transactions. You must agree that it is inconvenient for users. The most popular network for ICO launches, Ethereum, contains 400 GB of data and is constantly growing.

Let me introduce Plasma Cash, which was first shown in France this year. It's not surprising that this innovation resembles the Lightning Network, given that it was built by Vitalik Buterin and Joseph Poon, who was also a co-creator of the Lightning Network.

This is a new layer for the most popular platform for developing decentralised apps using smart contracts. It solves the bockchain scalability problem by processing billions of state updates per second, allowing for the global deployment of a large number of decentralised apps.

This on-chain layer allows data to be processed without overburdening the main network. The core network can be thought of as the root chain, with the on-chain layer as extra branches branching out of it. These branches provide reports to the root chain on a regular basis. All of the odd chains allow chain validators to create their own tokens in order to avoid errors.


Token ERC-721

Each branch has its own set of data, and when it's time to send any data to the root chain, it can skip sending the entire content and instead send the blog header hash.

A user can transmit digital assets from the main network to the sidechain by sending them to Plasma Cash. This generates an ERC-721 token with the same value as the assets given. Tokens in the sidechain are used to replace this quantity of tokens or Ethers. Plasma Cash adjusts the value of the ERC-721 token and creates a new grouping of digital assets after the transaction has been validated. Users, on the other hand, are limited to sending no more assets than the Plasma Cash smart contract allows.

The Plasma chain's primary benefit is that it provides for increased space in the main chain as well as significantly faster transaction confirmation speeds.


Summary

Limitations, block size, response time, and excessive fees are four key blockchain scaling challenges. All of these issues should be addressed as the network expands and the number of users grows. Bitcoin Cash, SegWit, the Lightning Network, and Plasma Cash are among the viable solutions offered by Cryptoauxiliary to address these difficulties. All of these bring benefits to network participants and allow them to use bitcoins with simplicity and comfort.


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