What does scalability mean?
Scalability is an often-mentioned issue of Bitcoin and other Cryptocurrencies. It describes the ability of a network or system to process an increasing demand for data. In financial markets, scalability points out how well a financial institution is capable of handling growing demand.
Regarding companies, people refer to scalability as the potential for increasing profits and revenues.
In the Crypto world, this usually refers to the issue of whether the coin is capable of being used as everyday currency. That means if a Cryptocurrency has no problem with an increasing number of transactions or even becomes better, it can be considered scalable. On the other hand, if a Cryptocurrency slows down with higher demand, it is not scalable and therefore has a scalability problem.
(Bitcoin has this scalability problem and is trying to solve it with a “lighting network”, which we will discuss at a later stage. Most currencies that are based on a Proof of Work system appear to have scalability issues.)
Now you have a broad idea of what blockchain technology is, but how do the validations work? In the next paragraph, we will take a look at how it works, meaning the differentiation between “proof of work”, “proof of stake” and others.
How does the blockchain work?
As we know already, the blockchain is based on several blocks which are connected to each other, containing different information. To add a block to the chain, the validator needs to fulfill specific tasks, depending on the algorithm which is used within the blockchain. In this chapter, we will take a look at how each block is validated and what different ways there are of running a blockchain.
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