Bitcoin and Ethereum have been said to face scalability problems since they can only handle about 3 to 7 and 7 to 15 transactions per second respectively, which would be insufficient to handle payments as adoption becomes more widespread globally. Blockchain sharding is a proposed protocol change that would increase cryptocurrency transactions per second to better compete with networks like Visa.
Visa handles over 1,000 transactions per second on average and could handle over 50,000 per second if it needed to, many orders of magnitude more than either Ethereum or Bitcoin.
Cryptocurrency is becoming more widespread by the day across the globe and, if left unchanged, the scalability issue would lead to much higher transaction fees and transactions waiting for confirmations for long periods of time. Transaction fees for Bitcoin reached as high as over USD 50 per transaction during the Bitcoin rally of December 2017, leading some to say this would make Bitcoin unusable as a currency, at least for micropayments.
Several protocol changes have been introduced to deal with the transaction scalability issue of cryptocurrencies including Segregated Witness, block size limit increases, and second-layer solutions like the Lightning Network, all of which come with benefits and caveats. Blockchain sharding is another protocol change that is being discussed to increase cryptocurrency transaction scalability, but like the other scalability solutions, it comes with its downsides.
Currently, each transaction is confirmed by every node on the Bitcoin and Ethereum networks. With blockchain sharding, nodes would be split up into distinct groups that separately process transactions, and these groups of nodes would work in parallel to process more transactions per second than if all the nodes had to confirm each transaction. This is analogous to running computer processors in parallel, whereby the processing power of the blockchain shards is additive. As transactions per second go up, the number of blockchain shards simply rises to produce enough total processing power to handle all transactions.
The caveat is that there must be a sufficient amount of nodes associated with each blockchain shard to ensure that transactions are secure. What would be sufficient would depend on the technique used to shard the blockchain. Theoretically, any manner of sharding would reduce security versus having every node on the network verify each transaction. If a blockchain is sharded, it might open up vulnerabilities that a skilled hacker could exploit to send fraudulent transactions.
It is unlikely that Bitcoin would implement sharding anytime soon. Instead, developers are focusing on improving the Lightning Network to solve Bitcoin’s scalability problems. However, Ethereum is seriously considering blockchain sharding, with Ethereum co-founder Vitalik Buterin declaring “sharding is coming”.
Due to the associated security risks, much time is being spent on developing Ethereum’s sharding code but it should finally be put into operational use during coming months.
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