Amid a seemingly constant stream of new concepts claiming to be key to crypto to breaking through to the financial mainstream, one immovable issue remains ever-present: scalability. The crypto community is abuzz with new projects relating to the issue, from the Bitcoin (BTC) Lightning Network to a brand new cryptocurrency designed by some of the top names in crypto and American academia. Cointelegraph takes a look at the latest scalability developments and what they can bring to blockchain and crypto.
Some of the United States’ finest academic and technological have come together in a new project aiming to launch a globally scalable decentralized payment network, according to a press release published on Jan.17.
The brainchild of this group of tech professionals and leading American academics is called “Unit-e,” a new cryptocurrency that aims to end the scalability issues plaguing both blockchain and cryptocurrencies alike. Unit-e is receiving funding from Distributed Technologies Research (DTR), a nonprofit organization based in Zug, the central nexus of Switzerland’s so-called Crypto Valley. In addition to the newly launched DTR, Unit-e has also received an injection of funds from San Francisco-based Pantera Capital.
As per the press release, the core members of the team involved in developing Unit-e are based in Berlin, with the team largely consisting of “open-source and distributed systems engineers.”
DTR Foundation Council Member and Co-Chief Investment Officer at Pantera Capital Joey Krug acknowledged that, although the current technology represents a stumbling block for the adoption of cryptocurrencies on a wider scale, Unit-e is aware of this and is incorporating that knowledge into its research:
“A lack of scalability is holding back cryptocurrency adoption. The Unit-e developers are turning this research into real scalable performance that will benefit a huge swath of decentralized financial applications.”
Giulia Fanti, one of DTR’s lead researchers and assistant professor of electrical and computer engineering at Carnegie Mellon University, explained to Cointelegraph why scalability is important and what this project is doing to tackle it:
“Scalability is difficult to tackle in part because there are so many moving parts in blockchain systems. The ideal design should have low storage, computation, and communication costs, all while guaranteeing security and decentralization. Any of these requirements alone can be challenging to optimize, and the combination of these requirements is legitimately a very difficult problem.
“I think two key factors make our project interesting: The first is that we are doing research at all levels of the stack, ranging from the network to consensus to economics, instead of focusing on just one area. This is important because the subsystems of blockchains are very interconnected. The second factor is that we didn't limit ourselves to people who already work on blockchains. Instead, we brought in experts from areas that are critical to blockchains – e.g., networking, economics, information theory, distributed systems – and asked them to approach these problems using the expertise of their respective fields."
Pramod Viswanath, a researcher for DTR and professor of electrical and computer engineering at the University of Illinois Urbana-Champaign also spoke to Cointelegraph about how scalability has been an issue in the early stages of any technology:
“Global scalability is usually quite hard for any technology. As an example, consider cellular wireless systems. Every man, woman and child on Earth has one now. But wireless technology itself is not new at all. Marconi demonstrated a wireless communication link across the Atlantic Ocean in 1901 and it took 100+ years for the technology to really scale globally. It took huge innovations beyond Marconi's technology for wireless to scale globally. A big part of this innovation was system or full stack design, redesigning all aspects of the radio stacks.
“Bitcoin is the equivalent of Marconi's historic wireless transmission: Bitcoin demonstrated that secure distributed trust is possible. But it came at the cost of poor performance (throughput, latency). We are redesigning the full stack of cryptocurrencies in our quest at the getting global scalability.”
During the interview, Viswanath said that he was aware of the tendency for projects that claim that they are a one-trick fix for the many issues bogging down the crypto and blockchain sectors. As a result, Viswanath stated that their project was kept quiet until solid research could be presented, in the hope that scientific output could form the basis of Unit-e as opposed to mere fantasy:
“We are aware of the noise in the crypto community. This is why we took a very conservative approach. We have been in stealth mode for over a year, coming out in the open only when we found that we have already demonstrated a large bit of the claims/promises that Unit-e is making. Indeed, the standard ‘white paper’ in crypto projects is replaced in our case by a ‘150+ page research manifesto,’ which itself is a succinct summary of 10+ research papers by us in the past year, each written for a scientific audience in the appropriate level of engineering and mathematical formalization. These scientific outputs are really the basis behind the claims of Unit-e, not so much as wishful thinking.“
In spite of the myriad challenges the hitherto insurmountable issue of scalability has presented, Fanti is optimistic about the progress being made and believes that developers shouldn’t shy away from experimentation in their research:
“I think scalability is a very important issue to solve if cryptocurrencies and blockchains more generally are going to gain (or even keep) traction. We're now at the point where there is demand for these technologies, but the growing pains are starting to be evident. So it's critical to explore scalability solutions. At the same time, it can be difficult to experiment with drastically new scalability solutions in already-existing systems due to technical and political inertia. Because of this, we felt there were some clear benefits to building a standalone system with the flexibility to try out different ideas. The hope is that these ideas can eventually benefit the whole community.”
Babak Dastmaltschi, chairman of the DTR Foundation Council is bullish on blockchain and cryptocurrencies. Much like Viswanath, Dastmaltschi expressed his belief that this transitional era for cryptocurrency is not unlike the birth of the telecommunications industry and the dawn of the internet:
"The blockchain and digital currency markets are at an interesting crossroads, reminiscent of the inflection points reached when industries such as telecom and the internet were coming of age. These are transformative times. We are nearing the point where every person in the world is connected together. Advancements in distributed technologies will enable open networks, avoiding the need for centralized authorities. DTR was formed with the goal of enabling and supporting this revolution, and it is in this vein that we unveil Unit-e."
Fanti commented that one of the most encouraging things about the blockchain community is the readiness for cooperation among its members. In this way, those working on Unit-e have been able to learn from previous projects attempting to tackle scalability, such as the Bitcoin Lightning Network. Fanti outlined that, although both projects center around the same focal point, there are some key differences between the two:
“Like the Lightning network, we are very focused on scalability. I think one key difference is that because we are starting from scratch, we have the freedom to completely rethink other parts of the blockchain (e.g., consensus mechanisms) that are difficult to change in more established systems. That being said, some of our research is quite related to scalability of the Lightning network, and payment channel networks in general.
“Some scalability challenges in payment channel networks haven't really come to a head yet, in part because adoption is still growing. But once these technologies become more widely used, it will become increasingly important to understand how to route and schedule packets – much like the internet. We hope that some of the research going on for Unit-e can also benefit the Lightning Network and other projects in the payment channel network space, just as we are learning from their prior work.”
Lightning Network
On Dec. 23, BTC statistics website Bitcoinvisuals.com announced that the capacity of the Bitcoin Lightning Network surpassed $2 million. Born from a white paper first published in 2015 by Joseph Poon and Thaddeus Dryja, the BTC Lightning Network is a second-layer payment protocol that functions on top of the BTC blockchain.
Much like Unit-e, the network aims to tackle the scalability issues weighing down the crypto sector. However, as opposed to adapting the mechanics of the blockchain itself, the BTC Lightning Network seeks to increase transaction speed by using payment channels. The results of this approach help speed up transaction speeds between users because transactions are not recorded on the blockchain until the channel closes.
The news of the increase in the network’s capacity comes against the backdrop of a dismal period of decreasing crypto prices, famously dubbed the “crypto winter.” In spite of the vertiginous drops witnessed across the crypto sector throughout the 2018, the network managed to maintain strong growth.
In spite of being lauded for its efforts to reduce the transaction time between users, the network has attracted criticism for one major aspect: Although the transactions take place on top of the blockchain, they don’t enjoy the same level of security. As a result, it’s unlikely that the method will result in the transfer of large transactions, as these would need the backup of decentralized security that can be guaranteed only through the original blockchain layer.
As of Dec. 23, the capacity of node channels supporting the Lightning scaling protocol was 496.8 BTC, only just falling short of a landmark 500 BTC. December also witnessed an increase in channels connecting nodes, with 14,352 unique channels doing so by late December.
The Lightning Network also drew praise from crypto trailblazer Nick Szabo who said that the current state of technical development in the sector would lead to an uptick in second-layer solutions in 2019.
Major central bank institution casts doubt on potential of blockchain in current state
A new report published on Jan. 21 by the Bank for International Settlement (BIS) has found that Bitcoin’s problems are only solvable by moving on from a proof-of-work (PoW) system. BIS is a Swiss-based organization comprised of 60 central banks that reportedly account for 95 percent of global GDP.
According to the report, the nature of the blockchain infrastructure will result in a steady increase in transaction times as a result of only a limited number of new Bitcoin ever being created. This report also found that transaction fees would no longer be able to support mining expenses and that the transaction speeds would be so slow that the network could become virtually unusable:
“Simple calculations suggest that once block rewards are zero, it could take months before a Bitcoin payment is final, unless new technologies are deployed to speed up payment finality.”
The report comments favorably on solutions such as the BTC Lightning Network, stating that “The only fundamental remedy would be to depart from proof-of-work.” The report adds however, that a departure from the existing system would “probably require some form of social coordination or institutionalization, and concludes that “in the digital age too, good money is likely to remain a social construct rather than a purely technological one.”
MIT professor says blockchain must increase scalability
On Jan. 21, Massachusetts Institute of Technology (MIT) professor Silvio Micali became the latest U.S.-based academic to outline which major aspects of blockchain systems must be improved in order to maximize all the benefits that the technology entails.
In an interview with Bloomberg, Micali stated his view that security, decentralization and scalability are three core aspects of blockchain systems that must function simultaneously in order to deliver an inclusive and borderless economy. With regard to scalability, Micali emphasized that a decentralized system requires a higher level of technology in order to ensure the same degree of participation that centralized systems currently enjoy.
Micali outlined his optimism about future prospects for the technology once it is optimized to a degree to which the current issues regarding scalability and security can finally be dispelled:
“Only a true decentralized system, where the power is really so spread that is going to be essentially practically impossible to attack them all and when you don’t need to trust this or that particular node, is going to bring actually the security we really need and deserve.”
In January, MIT Technology Review furthered its bullish stance in claiming that 2019 would be the year that blockchain systems would finally enjoy normalization and wider adoption.
Liquid sidechain
In September, Blocksteam’s Liquid Network sidechain for the Bitcoin blockchain was publicly announced. First discussed in 2015, the project has now been launched with the view of improving liquidity between Bitcoin exchanges and brokers.
The blog post from Blockstream states that the Liquid sidechain would allow faster transactions between users as a result of a native Liquid Bitcoin (L-BTC) asset backed by a “two-way peg” to Bitcoin, Confidential Transaction Technology and Issued Assets that aim to bring “Bitcoin-like features to traditional assets.” The Liquid Network FAQ page explains that the Liquid Network differs from the Lightning Network in that its transactions are not “limited in amount of channel capacity.”
“Wall Street’s Bookkeeper” enters test phase of DLT replatforming
On Nov. 6, the Depository Trust & Clearing Corporation (DTCC) announced it had commenced the test phase of its attempt to replatform its Trade Information Warehouse (TIW) using distributed ledger technology (DLT). The project is the fruit of a collaboration between IBM, Axonia and R3. If successful, the project would represent a considerable leap forward in both scalability and the potential scope of major blockchain projects.
In light of the historic attempts to overcome scalability issues, the DTCC’s attempt to shift its TIW to the blockchain is especially ambitious due to the fact that it processes 98 percent of derivatives transactions worldwide. Furthermore, the statement adds that the DTCC’s subsidiaries “processed securities is valued at more the U.S. $1.61 quadrillion.” As per the release, the DTCC’s Global Trade Repository service processed around 40 million over the counter (OTC) positions weekly, along with 1 billion monthly communications via its licensed trade repositories group.
In a 19-week study headed by the DTCC in collaboration with both Accenture and R3, the trio found that DLT is scalable enough to support the high-trade volumes of the U.S. equities market. Findings in the report allegedly show that DLT is able to process an entire trading day’s volume at peak rates, amounting to 115,000,000 daily trades, which equates to roughly 6,300 trades per second for five hours on end.
In order to accurately recreate the chaotic environment of exchanges, brokers-dealers and market participants, Accenture worked on a network of more than 170 nodes. The model subsequently captured matched equities trades from exchange DLT nodes.
The DTCC also published information about the ongoing work to transform its TIW via DLT, such as blockchain:
“Currently, public blockchains supporting cryptocurrencies operate at single or double digit per second performance, which, until now, was the only indication of the potential volume that a private DLT might be able to support.
“To make sure that we really demonstrated robustness and completeness, we wanted a target high enough to measure the performance and allow it to maintain that for a continuous period of time.”
Jennifer Peve, managing director of business development and fintech strategy at DTCC, outlined that the scale of the project required an entirely new approach to scalability:
“The reality is that for the private distributed ledger, there wasn’t a known performance or scalability figure, all we had to go on was public blockchains for Bitcoin performance, and that is not an apple-to-apple comparison. Private blockchains are fit for purpose for our industry. They have a very different architecture, different privacy and sharing models, data storage, smart contract functionality and governance model. There are a number of factors that go into performance and scalability of a distributed ledger."
Head of Clearing Agency Services at DTCC Murray Pozmanter was also optimistic about the results of the ambitious efforts to create adequate scalability:
“We are excited to lead this important work to advance the performance capabilities of DLT and help create new possibilities for leveraging the technology more broadly across financial markets. As an early adopter of DLT, we are encouraged by the results of the study because they prove that the technology’s performance can scale to meet the needs of markets of different sizes and maturity.”
In spite of the successful testing so far, the group stresses that the study only tested basic functionality. The next phase of the replatforming is expected to take place in Q1 2019.