Not needed yet
Of course, larger blocks aren’t needed yet, as the currency does not process enough transactions to fill its current blocks. However, this blocksize increase follows the on-chain scaling plan announced by founder Evan Duffield earlier this year. Duffield announced that through the use of custom hardware, Dash will create a network that can scale to large numbers of transactions by using big blocks.
Many projects in the space believe that on-chain scaling is impossible. That’s simply because they haven’t explored alternative P2P architectures for higher performance. We intend to show just how far an incentivized second tier [masternode] architecture can take a project like Dash.
Bitcoin’s path…and Ethereum’s too
Bitcoin, of course, has chosen to follow a different path. With the planned SegWit2x upgrade officially dead, the currency is now firmly on the path of off-chain scaling through the lightning network or similar solutions. The lightning network is intended to work by moving transactions off-chain onto “payment channels” and then “settling” the result to the Bitcoin Blockchain periodically.
For instance, if Bob pays Alice one BTC, then he later pays her two BTC, and finally sends her 1.5 BTC, that’s three separate transactions that need to be recorded to the Blockchain. With lightning network, however, only the net transaction would need to be posted to the Blockchain once the payment channel was closed. In this case, only one transaction would be posted for a total of 4.5 BTC sent from Bob to Alice.
Critics have asked how often payment channels will really be used, but until the network is deployed, it’s impossible to say. Others suggest that moving transactions off-chain damages the decentralized and immutable nature of Bitcoin. Supporters point out that transactions happen off-chain all the time, for instance on exchanges. No Bitcoin exchange posts a separate transaction to the Blockchain every time funds are moved internally. Only the final result is posted, once a user withdraws funds.
Number two cryptocurrency Ethereum isn’t just sitting on the sidelines, either. The currency plans to implement the “Raiden Network” which will utilize payment channels similar to Bitcoin’s proposed lightning network.
While Bitcoin assiduously avoids hard forks whenever possible, Dash welcomes them. The key to Dash’s upgrade strategy is the “spork” a mechanism that allows portions of the upgrade to be “turned off” if there is a problem on the network. An example is something called “enforcement.” The Dash network normally requires miners to share the block reward with masternodes; miners who attempt to keep the entire reward to themselves will find their blocks rejected by the network.
However, during an upgrade, enforcement can (and usually is) be turned off. This allows both miners and masternodes a reasonable amount of time to upgrade their software while eliminating the risk of uncontrollable forking caused by one part of the network rejecting the other part.
Best path uncertain
It remains to be seen whether Bitcoin, Ethereum or Dash will be successful in solving the scalability problem. Both the “payment channels” and “really big blocks” scaling methods have their critics, and neither has been thoroughly vetted yet. It’s possible that another solution might emerge in the interim, or that both solutions could be workable.
The one thing that’s certain, however, is that for digital currency to become a real force in the world, tens of thousands of people will need to be able to transact all at the same time. A successful mainstream cryptocurrency must be able to scale to Visa’s level or beyond.