When referring to the capacity of a blockchain system to satisfy expanding demand, the term “scalability” is most commonly employed. Blockchains are advantageous in many respects because of their characteristics of decentralisation, immunity to control, and immutability. Having such powers does not, however, come without a cost.
When compared to a decentralised system, a centralised database is capable of working much more quickly and producing far more results. This makes perfect sense given that it is not essential for thousands of nodes located all over the world to synchronise themselves with the network each time the network’s contents are updated. Blockchains, on the other hand, are not like this at all. Because of this, blockchain developers have spent the better part of the past few years discussing scalability in great detail.
A number of different techniques have been presented or addressed some of the problems that arise as a result of the ineffective operation of blockchains. But at this point, there isn’t a crystal-clear ideal technique to carry out the tasks. Before the scalability problem can be solved in a manner that is easier to understand, it is conceivable that a large number of potential solutions will have to be evaluated and tested.
When looking at things on a bigger scale, there is a fundamental question regarding scalability: Should we enable transactions to take place while preventing the main blockchain from being bloated (off-chain scaling) or should we increase the performance of the blockchain itself (on-chain scaling)?
Both may offer a variety of advantages. Options for scaling on-chain could include making transactions smaller or even just altering the way data is stored in blocks. Both of these would fall under the category of on-chain scaling. On the other hand, off-chain approaches entail putting together transactions in a separate location from the primary blockchain and then integrating them at a later time. Two of the most well-known examples of off-chain possibilities are known as sidechains and payment channels.
If you are interested in learning more about this topic, I recommend reading Blockchain Scalability: Sidechains and Payment Channels.