What Is a Major Bottleneck to Throughput on Public Blockchains like Ethereum?
The major bottleneck to throughput on public blockchains like the pre-Merge Ethereum was the Proof-of-Work (PoW) consensus mechanism, which limited block production speed. Additionally, the execution of all transactions on a single chain (monolithic architecture) and the need for every full node to validate every transaction created severe limitations.
This competition for limited block space leads to high gas fees and slow confirmation times during periods of high demand.
Glossar
Bottleneck
Constraint ⎊ A bottleneck in cryptocurrency, options trading, and financial derivatives represents a capacity limitation impeding optimal throughput, frequently manifesting as order execution delays or impaired price discovery, particularly during periods of heightened volatility or network congestion.
Blockchains
Architecture ⎊ A blockchain represents a distributed, immutable ledger structured as a chain of cryptographically linked data blocks, validated and maintained by a decentralized network of nodes.
High Gas Fees
Cost ⎊ High gas fees, predominantly encountered within Ethereum and other proof-of-work or proof-of-stake blockchain networks, represent the transaction fees required to execute smart contracts or transfer tokens.
Slow Confirmation Times
Latency ⎊ In cryptocurrency, options, and derivatives markets, latency refers to the delay between initiating a transaction and its final confirmation on the relevant ledger or exchange.
Public Blockchains
Transparency ⎊ The open and immutable nature of the ledger provides unparalleled visibility into transaction flows, which can support public verification of asset provenance or tokenized carbon credits.
Limited Block Space
Constraint ⎊ Limited block space within cryptocurrency networks represents a fundamental capacity limitation on transaction throughput, directly impacting scalability and network congestion.