How Bitcoin and Ethereum can Scale

In this post we’ll look at the scaling solutions from the two most popular cryptocurrencies in the world: Bitcoin and Ethereum.

The Bitcoin Lightening Network is designed to make payments between people quick and easy. Basically, two parties can make instantly verifiable transactions off the main Bitcoin blockchain, which speeds things up considerably. For regular everyday small transactions the Lightening Network is perfect. For example, if a consumer buys coffee in their local shop, they can build up these transactions in a mini ledger off of the main Bitcoin blockchain which builds up over time, and then this batch of transactions are all brought onto the main chain at once sometime in the future. This eliminates the need for the blockchain to process ever y single mini transaction at an ongoing basis, because the two parties simply build up a trustless ledger of transactions between themselves without needing the main Bitcoin blockchain. The Lightening Network represents a huge development in the scalability of Bitcoin and the ability to use it for small, regular transactions with quick speed and in a trustless way.

Plasma is the scaling solution for Ethereum. Ethereum is built with programmability that facilitates smart contracts to be written. Plasma is basically a scalability solution that uses smart contracts to create a mini chain of the main “parent” Ethereum chain. Within this mini-chain two parties have their own mini ledger, allowing fast and quick transactions. Every now and again this mini-chain reports back to the main chain to ensure everything is validated and correct. These mini-chains have further ability to create sub-chains as further “children” to the main mini-chain. This is a solution for Ethereum to scale as these transactions take place on a side chain and not on the main Ethereum blockchain itself. The advantage of making payments on Ethereum as opposed to Bitcoin is the ability to write smart contracts that allow complex transfers of value, as opposed to a simple push and pull transfer of value that exists on the Bitcoin network. This makes Plasma a secure and scalable solution for anyone who requires specific smart contracts to execute their payments.

Another analogy for the Bitcoin and Ethereum networks is to think of them as a motorway. A motorway may have 6 lanes, but the more cars on the motorway the slower everyone moves. Unfortunately, the infrastructure of a motorway, just like a blockchain, cannot be updated in the blink of an eye. The Lightening Network and Plasma are solutions to this problem of congestion on the network. These two solutions offer distinct advantages for everyday transactions that require a trustless and instantly verifiable method of confirming payments between parties. As the Bitcoin and Ethereum networks scale going forward, this need for scale will become more and more important.

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