TL;DR- If we’re talking about a global payments solution, my front runners for most scalable blockchains are Ethereum, Cardano, and Avalanche. If we’re talking about the cryptocurrency that will last the longest and survive a nuclear holocaust, it’s [gasp] Bitcoin.
Set gambling and speculation aside
Regardless of what technology cryptocurrency can deliver, everyone is always looking to make a buck by investing in it. Crypto investing has outsized gains and outsized losses. This article isn’t going to talk about crypto investing. Let’s (please) put all the investing drama aside for now.
Why does crypto need to scale?
As we look to the future, we know that if crypto is to make it to mass adoption, it needs to scale. Scaling means that crypto must be fast and easy for billions of people to use. This certainly isn’t the case today. People don’t have to understand how crypto works; it just needs to work.
Keep in mind there are different types of cryptocurrencies. Some are meant to be credit card replacement and payment solutions (Ripple XRP, Stellar XLM). Some are intended to be a gold replacement to store value (Bitcoin). Some are designed to power smart contracts and their many uses (Ethereum, Cardano).
Cryptocurrency needs to scale so it can deliver on some of its promises, including:
- Becoming a global payment channel, like credit cards
- Acting as a reliable store of value (Bitcoin already does but at great environmental cost)
- Accurately referencing information in a decentralized manner, which oracle cryptos like Chainlink do
- Executing smart contracts quickly
These requirements mean being fast, reliable, secure, and decentralized. This article will look at the most promising cryptocurrencies that can deliver these capabilities.
Cryptocurrencies all operate on a blockchain network. Each of the crypto projects has its blockchain network.
It’s not just moving money around
An additional problem for scalability solutions is smart contracts, which require transaction information and run small computer programs. An example of a smart contract could (on the Ethereum blockchain, for example) be: ‘Send 0.1 ETH from user A to user B when the price of Ethereum falls below $x,000.’
In addition to the transaction above, there’s also a trigger condition that has to be met (the price of Ethereum falls below $x,000). Computers have to do this work.
Smart contracts require more computing power, which makes them harder to scale (but far from impossible). Remember that today we have billions of people streaming video on the internet every minute- a feat considered impossible 20 years ago.
How do you measure a cryptocurrency’s scalability?
Now let’s try and tackle the term ‘scalability.’ In the field I work in (I’m a product manager in tech), ‘scaling’ means taking whatever software you have now and deploying it to 10x, 100x, and 1,000x the number of users you have.
What failing to scale looks like
When you try to scale something up, shit starts to break. Whatever can fail will fail. What does that look like in the crypto world? Here are a few examples:
- The Ethereum network becoming “congested” and transactions (gas fees) costing users hundreds of dollars
- Coinbase suffering a major hack and losing hundreds of millions in its user’s crypto
- Members of the Bitcoin community complaining that Bitcoin transactions are taking hours to complete
Making sure something can scale is preventing all of those things that could go wrong!
Let’s say we want Ethereum to replace Visa credit cards as a global payment channel. We’ll need low transaction fees, a high transaction speed, institutional interest, and a high degree of security. But how would we measure transaction speed?
Transactions Per Second (TPS)
TPS will be the main criteria I use to evaluate crypto scalability problems, followed by fees and network security.
If Ethereum is intended to be a payment channel or payment solution, the Ethereum network will need to be able to handle high transaction volumes. How high?
Taking Visa’s capability as an example, it would be 65,000 transactions per second (TPS). Visa estimates it has 3.3 billion credit cards issued worldwide. We could presumably say then, that if one of the blockchain networks had 3.3 billion users, it would need to do at least 65,000 transactions per second on its network if people were using Ethereum as a payment channel solution- at their grocery stores, their gas stations, on Amazon.
How close has Ethereum gotten to accomplishing this feat?
No where close.
For cryptocurrency’s first decade(ish), transaction speeds were low. Bitcoin processes around seven transactions per second, Ethereum processes ten to fifteen transactions per second, and the Cardano blockchain network processes 250 transactions/second.
While 65,000 transactions per second aren’t the fastest (you know have you have to wait 2-3 seconds while having your credit card inserted into the machine for your payment to clear while buying groceries?) Visa still allows for faster transactions than any cryptocurrency around today.
Then to be seen as a payment channel, cryptocurrencies will need to have a very high transaction per second rate with meager fees on a secure network.
Cryptos that have or have the potential to get to Visa-like transaction speed
As I write this post (August 10th, 2022), Ethereum is introducing its ‘merge’ layer, which will transition Ethereum from a proof-of-work cryptocurrency to a proof-of-stake cryptocurrency. I won’t delve into the differences here, but all you need to know is that proof of stake is far less energy-intensive and can process mountains more transactions.
After the merge and a few other upgrades, Ethereum will supposedly be able to process 100,000 transactions per second. If true, this transaction rate would be ready to be a global payment solution like Visa, provided network security stays in tact.
Avalanche is a proof of stake pos cryptocurrency that can process transactions up to 4,500 TPS. Avalanche has a unique consensus mechanism that allows for faster transactions than nearly all cryptocurrencies available today.
A TPS of 4,500 wouldn’t be enough to replace credit cards, but its enough for fielding tons of smart contracts applications.
Cardano currently only processes 250 transactions per second on its network, but the project has such solid technical footing and exemplary leadership that it will succeed no matter what. I’m listing Cardano here not because of what it is but for what it will be.
Cardano’s governing organization, Input Output Hong Kong, recently announced Cardano will be able to handle two million transactions per second as early as 2025 with its Hydra upgrade.
Two million transactions per second is over a 10x imporvement to what credit card companies can process today.
If a payment channel is overly expensive, it won’t get adopted no matter how good it is. The new payment channel that replaces Visa would need to be cheaper than the fees that credit cards charge merchants, which are around 2%-3% of the transaction price.
Note that I’m referring to network fees here, not exchange fees that exchanges like Coinbase or Binance charge. The network fees are the fees that get paid out to the miners or computer staking nodes that process your transactions and add them to the blockchain (the immutable ledger).
Crypto | Median Transaction Fee
Bitcoin | $1.31
Ethereum | $4.24 (+ much higher during network congestion)
Cardano | $0.40
Avalanche | $0.10
Ethereum 2.0 | ????
Number of Users
If cryptocurrency is to succeed as a payment or smart contract solution, it will need mass adoption and platform effects. Would Facebook be popular if it didn’t have very many users or none of your friends were on Facebook? No, it wouldn’t. There needs to be a lot of people adopting crypto.
Some cryptos have gained far more adoption than others, with Bitcoin holding a clear lead.
Which cryptocurrency currently has the most users? There’s no way to know the number of users because users can have multiple wallets. If you hold some crypto on an exchange like Binance and more of that crypto in a place like your hardware wallet, you have multiple wallets for that cryptocurrency.
The cryptocurrency with the highest number of wallets is still Bitcoin, with over 83 million wallets.
After Bitcoin, Ethereum Is the most used cryptocurrency network with 71 million wallets.
Solana (2.5M wallets), Cardano (3M wallets), and Avalanche (1M wallets) are all at least an order of magnitude less than the above figures for ETH and Bitcoin, so they’ve got a ways to go before they can catch up.
The most secure network out of all cryptocurrencies is and will always be Bitcoin. It would be so costly and difficult to hack the Bitcoin network that efforts would prove too risky and expensive. Bitcoin is slow and energy-intensive, but it’s the most decentralized cryptocurrency.
All the other cryptocurrencies- including Ethereum now- are proof of stake. The actual security of POS networks can be manipulated, and I don’t see any differentiating factors thus far concerning Cardano and Avalanche when it comes to network security.
Right, so that’s all and good. But will cryptocurrency actually scale?
Blockchain technology will scale
Any technology can scale as long as there’s an underlying use case and a technically sound idea. Scientist Stephen Hawking once quipped that “as long as there’s humanity, there’s hope” because he knew the power of the human race to solve problems if there’s an incentive.
Calling Bulls*** on the ‘Cryptocurrency Won’t Scale’ Arguments
Throughout the years, people have doubted Bitcoin and other crypto projects endlessly. There’s even an excellent site that tracks all the hate: BitcoinIsDead.org. To date, all of the haters have been wrong. It feels good to be right sometimes.
Below I’m going to list a few examples of ‘experts’ calling out technologies that the whole world uses today saying those technologies ‘won’t scale.’ There are several folks who wrote their Ph.D. theses on how things like email or Netflix would fail to scale.
Email Won’t Scale
At the dawn of mass adoption of email in the 1990s, the internet was still dial-up. Messages that used to take 24-48 hours to cross the network were now taking less than one hour. This decreased messaging time had a massive business use case.
Now that it only took two hours for a message to go over the internet instead of 24 hours, individuals could converse almost instantly. Email usage went utterly ape. So-called ‘experts’ were doubting that email could deliver at scale. Ph.D. theses were written regarding how email overload will cause the internet to collapse and never scale.
But guess what? We managed to fix the email issue. Then email was able to scale, so some smartass came up with multimedia internet messages so that you could attach files to emails.
People began sending more oversized items, such as drawings and images, and these attachments were ten times the text file size. Therefore, although email could be scaled, email attachments could not. Everyone was in a commotion: “We can’t scale for email attachments. The internet will undoubtedly crash!”
But guess what? We found a solution, and today you can take your bosses’ docs, convert them to PDFs, and send them away.
What about Bitcoin?
The Bitcoin network isn’t going away anytime soon. One of cryptocurrency’s important tenets is decentralized finance, and Bitcoin is the most decentralized of all the blockchain networks. Critics have pointed out that the Bitcoin blockchain has a slow transaction speed. While this is true, it matters less with Bitcoin because people treat Bitcoin as a store of value cryptocurrency.
People just aren’t using Bitcoin for regular payments- although some places like ‘Bitcoin Beach’ in El Salvador have infamously tried and failed.
My verdict is that Bitcoin stays around as an alternative investment class to gold or bonds.
It’s unlikely that any proof of work blockchain network (like Bitcoin) will ever be a global payment solution. Proof of work networks simply cannot process transactions quickly enough.
Blockchain technology, like everything else, will have growing pains trying to scale. But these growing pains happen with literally every technology that has grown. Blockchain networks will grow, increase their transactions per second, and become more secure and reliable.
Bitcoin and Ethereum have a significant head start on all competition- so they’re my front runners for scaling. BUT- several cryptocurrencies have failed in the past that were once promising. The future is wide open.