BTC is considered by many to be the first blockchain project ever created. It historically has always been the largest crypto project by market cap. BTC uses the Proof of Work (PoW) mechanism, which is energy costly. The PoW mechanism highlights one of BTC’s scalability issues: it cannot increase transaction output without more energy inputs. This is bad, as Bitcoin’s total yearly electric consumption is higher than the entire country of Argentina. As more people use BTC, more energy will be consumed.
BTC’s architecture has focus on security, therefore is slow. BTC can handle up to 7 transactions per second(TPS), a lot lower compared to Visa which handles usually around 1,400 TPS on average (and claims that it can go up to 24,000 TPS if needed). Bitcoin has built the lightning network to help it with scalability, but the core L1 structure does present some scalability issues. BTC’s scalability issue is one of the reasons why some investors see it as a storage of value and nothing more.
Could Bitcoin ever lose its status as the king of crypto? Read On.
ETH is the second-largest crypto by market cap. It might have more utility than BTC because it can host smart contracts, meaning that essentially people can program their own money with its own set of rules and host all of the transactions and records on the Ethereum blockchain.
However, ETH also suffers from scalability issues. Although ETH is not as old as BTC, it is 7 years old which is regarded as a long time in the crypto industry.
Just like BTC, ETH uses PoW to validate transactions, which is slow and inefficient. However, ETH produces more blocks compared to BTC, meaning it can handle a bit more than double the TPS bandwidth that BTC can handle, at 15 transactions per second.
Since ETH is not only used as a storage of value and hosts Dapps (Decentralized applications), it will need more TPS compared to BTC in general. The ETH founders are claiming that ETH will solve many of its scalability issues with ETH 2.0, which will transition the ETH network from PoW to PoS (Proof of Stake).
So far, such an upgrade seems likely to not happen for at least a couple more years, and while waiting ETH may very well continue to have a large scalability problem on its hands. Many Layer 2 protocols exist on top of Ethereum to help decongest the network, but it may not be enough as many users still prefer settling transactions on ETH’s base layer.
Zcash started as a fork of the Bitcoin blockchain in 2016, and prided itself as being the true anonymous cryptocurrency. Although BTC is decentralized, Zcash takes privacy up a notch by hiding the identities of the recipient and the sender. It manages this innovation by using the zk-Snark system.
Since Zcash is a Bitcoin fork, it also uses PoW in order to validate transactions. It can handle slightly more TPS than ETH, at 27 TPS. However, Zcash transaction times can sometimes take up to one hour, meaning that Zcash is technically slower than ETH.
The Bottom Line
As blockchain projects gather more attention and volume, they are bound to run into some scalability issues. Even the most robust blockchains that can boast transaction speeds are still subject to scalability issues as long as there is a large enough activity on the network.
Looking at the blockchain trilemma, scalability will most likely remain an issue for blockchain technology for many years to come. Luckily, many solutions exist to resolve scalability issues, mainly through Layer 2 solutions.
As the blockchain industry grows, more innovation will come and (hopefully) fix the scalability issues present on these blockchains. Layer 2 solutions are a great start, and perhaps we will experience more solutions that will help with our current scalability issues even more in the future.