Ethereum Scalability Limitations and Comparison to Other Blockchains

cryptocurrency-to-invest-in="">-to-invest-in/">Ethereum is currently the second largest blockchain network behind Bitcoin in terms of market capitalization and activity. However, as Ethereum has grown in popularity over the years, it has run into limitations in its ability to scale. In this article, we will examine Ethereum's scalability issues, why they exist, and how Ethereum compares to other blockchains on scalability.

Why Scalability is a Concern for Ethereum

Scalability refers to a system's ability to grow its capacity and maintain performance as usage increases. For blockchains like Ethereum that are used to power decentralized apps (dApps) and financial transactions, scalability is crucial for adoption and usability.

Ethereum in its current form relies on a Proof of Work (PoW) consensus mechanism that requires every node on the network to process every transaction. This creates bottlenecks as transaction volume increases, resulting in slower processing times and higher fees.

During periods of peak usage in 2021, average Ethereum transaction fees reached highs of $60, pricing out smaller value transactions. Without improvements to scalability, Ethereum risks remaining a network predominantly accessible only to wealthy users and organizations.

Ethereum's Built-In Scalability Challenges

There are a few key factors that make scalability more difficult for Ethereum compared to other blockchain networks:

Account-Based Model

Ethereum uses an account-based model where user balances and smart contract data are tracked on a per-account basis. This requires substantial storage andcomputation compared to UTXO-based models like Bitcoin.

No Block Size Limit

Bitcoin maintains a small 1MB block size limit to control the amount of data processed per block. Ethereum does not have a block size limit, leading to larger blocks that take longer to propagate across the network.

Smart Contracts

Ethereum allows developers to deploy complex smart contracts. While powerful, smart contract execution is resource-intensive and adds substantial load to the network.

"Ethereum reminds me of the early days of the internet. Exciting new apps are being built, but the infrastructure still has limitations to overcome before mass adoption is possible."

Approaches to Improving Ethereum's Scalability

There are two primary paths being pursued to improve Ethereum's scalability:

Layer 2 Scaling

Layer 2 solutions handle transactions off the main Ethereum chain, but leverage the Ethereum mainnet for security. Popular Layer 2 approaches include:

• Rollups - Bundle transactions off-chain and submit an aggregated proof to Ethereum
• Sidechains - Separate chains that are interoperable with Ethereum
• State channels - Transactions occur between users directly and are later settled on-chain

Sharding

Sharding aims to scale Ethereum itself by splitting the network into multiple portions each handling a subset of transactions in parallel. This will require a major technical overhaul of Ethereum known as Ethereum 2.0.

How Ethereum Compares to Other Major Blockchains

Below we compare Ethereum's scalability to other major blockchain networks:

• Bitcoin - Has a more limited transaction throughput of 3-7 transactions per second (TPS), but does not aim to be a multi-purpose blockchain platform like Ethereum.
• Solana - A new layer 1 blockchain that uses an innovative proof-of-history consensus to reach 50,000+ TPS. However, still lacks maturity and decentralized adoption.
• Cardano - Claims it can eventually scale to over 250 TPS. Currently handles 1-2 TPS. Adoption not yet widespread.
• NEAR Protocol - NEAR uses sharding to achieve 100,000+ TPS. However, the network is still in early stages.
• Polkadot - Uses a "relay chain" model to connect specialized parallel chains. Early estimates show possible 1,000,000+ TPS after full rollout.

Should Ethereum Focus on Scaling or Network Effects?

While Ethereum faces scalability challenges today, it maintains the largest developer community building on its network. Through ongoing upgrades and layer 2 solutions, can Ethereum scale enough to support mass adoption? Or will alternative networks beat Ethereum in attracting developers?

What Role Will Ethereum Play in the Future of Blockchain?

Even if Ethereum does not become the dominant global settlement layer, its prominence as the early smart contract platform paved the way for a new generation of programmable blockchains. Will Ethereum remain the primary hub for decentralized finance (DeFi)? Or give way to faster and cheaper alternatives?

In conclusion, Ethereum faces scaling limitations due to its account-based model, unbounded blocks, and smart contract capabilities. Initiatives like layer 2 and sharding aim to dramatically improve Ethereum's scalability to tens of thousands of transactions per second or more. However, alternative blockchains are racing to solve scalability in different ways and attract developer communities. While Ethereum retains the lead for now, its long-term role will depend on how successfully it overcomes current scalability hurdles relative to other networks. Exciting times lie ahead in the blockchain scalability race.