One of the strangest types of pain that both people and movements face in this world is growing pain. Nowhere is this more true than in the explosively fast-paced world of cryptocurrency. In 2009, when the genesis block of the Bitcoin blockchain was mined, no one really knew what to expect.
The first cryptocurrency, Bitcoin (Crypto: BTC), was introduced to the world with the goal of providing anyone with an internet connection access to a digital token that could be used as money. In the early days, it made good on the promise of being universally accessible. Although using it required a bit of technical skill, anyone could get on the internet and trade this new currency back and forth quickly and at a cost that was less than pennies.
The Beginnings of Blockchain
The backbone of this extremely unique technology was a clever invention called the blockchain. The blockchain was built to do three primary things. The first was to provide authentication, establishing a unique, identifiable identity. Secondly, the blockchain allowed for authorization, verifying that a particular identity had control over a particular digital token. The third aspect was verifying history. The blockchain, by using a mathematical algorithm that the industry calls solving the blocks, records each and every transaction in an immutable ledger and distributes that ledger among all of the users.
Because of their unique decentralized nature, blockchain-based cryptocurrencies are very durable. While wallets and exchanges that use these tokens have been hacked, the cryptocurrency tokens and coins themselves have proven very difficult to double spend or counterfeit.
Key Attributes of Blockchain Technology
- Able to Establish Unique Identities
- Guaranteed Authority over Tokens
- Immutable Historical Record
The decentralization of these cryptocurrency blockchains is not just a feature, it is a necessity. The only way for the system to be trustworthy is for every user to have a copy of each transaction and for the protocol to be constantly validating and updating the blockchain. In the Bitcoin blockchain, for instance, this process takes place about every ten minutes.
Strengths Becoming Challenges
Oddly enough this feature, decentralization, is now becoming the biggest challenge of every cryptocurrency. As the number of users and transactions for a particular cryptocurrency grows, its network gets slower. It becomes increasingly time consuming and expensive to update each user’s record with every single transaction.
Another cryptocurrency project that is, in terms of number of transactions, actually larger than Bitcoin is Ethereum. Ethereum has several significant differences with Bitcoin. A major one is the time that its protocol takes to process its blocks. This time is significantly less than Bitcoin, about fifteen seconds on average for the month of January 2018. This figure changes a bit over time, but the Ethereum network is still significantly faster than Bitcoin’s.
The speed is the second major difference with Bitcoin that has been causing Ethereum some trouble lately. Etherum (Crypto: ETH) as a protocol is Turing Complete. This is a technical term that means the Ethereum network is capable of processing much more than just simple currency transfer transactions. One way to look at it is that if other cryptocurrencies are like calculators, Ethereum is like a desktop computer. It has the ability to perform such tasks as managing customizable tokens, building a decentralized voting system, or making and enforcing smart contracts. Ethereum took a much bigger bite out of the blockchain applications cake, and regardless of its faster network speed, it is having a little trouble chewing it.
Tripping over the Cat
In the list of reasons for the slowdown, perhaps the most notorious is the Cryptokitties project. In early December of 2017 it was the largest non-currency application on the Ethereum network. Users could buy, trade and breed a virtual cat. Some have criticized the game, claiming it was wasting space that could better be spent for more legitimate business purposes. In spite of this, the founder of the Ethereum network, Vitalik Buterin, came out in support of the games as a demonstration of Ethereum’s opportunity for much wider creativity.
Nonetheless, scalability is a problem that nips at the heels of all blockchain-based cryptocurrencies. The Ethereum network has recovered fairly well, but the underlying issue of scalability has not gone away. The upper limit of the Ethereum network is difficult to pin down, but the consensus seems to be between 13 and 15 transactions per second. Comparing this to 24,000 transactions per second that Visa’s network boasts, there is certainly a need for improvement.
Thinking Beyond the Blockchain
There are a lot of minds working on solutions for the scalability problem. One of the more promising solutions that has been proposed by developers across numerous cryptocurrencies is the concept of off-chain swaps. In the Ethereum world, Vitalik Buterin has referred to these solutions as layer-2 systems. One of the more advanced projects in development is the Raiden Network (Crypto: RDN). The thumbnail sketch of Raiden’s idea would be a network of off-chain transactions, secured by a user’s deposit.
The 24-Hour Cryptocurrency Bar
Think of the Raiden Network as a bar in the world of Ethereum. Outside the door of the Raiden bar, each transaction has to go into the blockchain. Transaction fees, wait times, and network congestion can and will take their toll. Inside the Raiden bar however, it is a different story. Upon entering, each user will deposit some Ethereum with the Raiden Network’s “bartender”, thereby opening up a tab. The patrons of the bar can then trade back and forth with each other using their initial deposit as collateral. The Raiden Network manages and secures these transactions and whenever a customer wants to close his tab and head home, the network then writes one transaction to the Ethereum blockchain that returns the balance of the tab to the customer. The only thing that goes into the blockchain is the balance amount settled at the end.
Unlike a corner bar in the physical world, the Raiden bar lives on the world wide web and never has to close. Customers can stay in the bar as long as they like and even add to their tab if they wish to conduct larger scale business. One of the perks of this system is that there is no persistent record of the transactions that happen inside the Raiden bar. Even inside the Raiden bar, no customer ever knows the other customer’s tab or the amount of the transactions going to and fro. The Raiden “bartender” is famous for being discreet. What happens in the Raiden bar, stays in the Raiden bar and the Ethereum blockchain only sees the opening deposit and the exiting balance.
Raiden Network Off-chain Transactions
- Users open with a deposit
- Infinite number of trades within value of deposit
- Trades between multiple users through connected channels
- Channels settle with one transaction fee regardless of number of trades
Even after nearly ten years of operation, cryptocurrencies are still a fairly new field. Growing pains and naysayers abound with any new invention and this field is certainly no exception. However, the solutions do not have to be only understood by the super technical. If we begin to explore the more humorous and personal side of cryptocurrency, the whole system can come into focus. Sometimes the best solution to a complicated math-based cryptographic network congestion is as simple as trying not to trip over a cat as you step into your local bar.
To learn more about the Raiden Network’s technology and use cases, visit https://raiden.network/
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