Blockchain network congestion is the traffic jam of crypto. Nobody likes it but it’s part of navigating these streets.
This article explains:
How blockchain network congestion arises.
Its causes and consequences.
Case studies on different blockchains.
Solutions to blockchain network congestion.
What is Blockchain Network Congestion?
Blockchain network congestion occurs when there are more transactions to be processed than a blockchain can handle. This results in a backlog of unconfirmed transactions in the network's memory pool or "mempool."
Imagine transactions as cars, blockchains as highways and the mempool as onramps to the highway. The more transactions on the blockchain highway, the more the mempool onramp fills up.
Factors like block size and block creation time determine how much space there is for transactions on the blockchain highway. Spikes in transaction volumes can cause the blockchain highway to get congested, such as in the case when a popular new token or NFT collection is launched.
For instance, in May 2022, Yuga Labs conducted its eagerly awaited digital land sale, marking the introduction of its "Otherside" metaverse initiative. Although the land sale raised approximately $285 million for the company, it concurrently led to some of the largest gas fees ever witnessed on the Ethereum network. Users trying to mint the NFT lands caused the Ethereum network to be congested, with transaction fees totalling more than $176 million.
Congestion can arise for several reasons. Increased transaction volume is the most common cause of congestion.
For example, as more users join a blockchain network and conduct transactions, the overall transactional load on the network rises. Sudden spikes in activity, especially during periods of market volatility, can overwhelm networks and lead to congestion.
Scalability limitations have plagued many blockchains. Constraints like block size and block creation time limit the transaction throughput the network can handle. Bitcoin's 1MB block size restricts transactions to a maximum of seven transactions per second. This has caused congestion on the network, such as when Bitcoin Ordinals were launched.
The network latency and bandwidth of a blockchain also influences how many transactions it can process. Delays in propagating transactions across nodes, as well as limited network bandwidth, leads to slower transaction validation. Congestion gets amplified when more transactions compete for the constrained resources.
As a rule of thumb, we can conclude that the more decentralized a blockchain, the harder it will find it to scale and the more prone it can be to network congestion.
The Effects of Blockchain Network Congestion
When blockchain networks become congested, it leads to several adverse effects.
The most direct impact is increased wait times for transactions to get picked up from the mempool and packaged into blocks. Severe congestion can cause hours or even days of delays.
As a result, users bid up transaction fees in order to incentivize miners to prioritize their transactions. This often leads to exponential fee hikes during congestion. For example, during the Ordinals hype in May, Bitcoin transaction fees spiked 560%.
Network congestion can impact the availability of a blockchain. Users may face downtimes and denial of service, which has happened numerous times to blockchains like Solana. There are also security risks – transactions waiting in mempools for long periods can increase vulnerability to double spending attacks.
Has Bitcoin Experienced Network Congestion?
Bitcoin has experienced network congestion several times when demand was high. In 2017, during the peak bull run hype, transaction volumes flooded the network, overwhelming capacity and causing fees to spike as high as $50 on average. At peak congestion, over 200,000 transactions were stuck, with some taking days to confirm. More recently, the rise of Bitcoin Ordinals and BRC-20 tokens caused transaction fees to spike and overloaded the network.
Has Ethereum Experienced Network Congestion?
Ethereum has also faced congestion problems. During the last bull run, congestion arose due to high volume for liquidity mining and yield farming apps on DeFi protocols like Uniswap. Highly anticipated NFT launches can also cause increased network activity, overloading the Ethereum blockchain.
Ethereum is working on solutions like sharding and has a comprehensive scaling roadmap to solve network congestion in the long run.
Solutions to Blockchain Network Congestion
Solving the blockchain scalability problem is the holy grail of crypto. Networks pursue several avenues to solve this problem.
Layer 2 protocols like the Lightning Network and blockchains like Arbitrum, Polygon, Optimism and Base allow transactions to be processed on another layer, while benefiting from the security of the main chain. Another solution is sharding, which splits the network into smaller partitions capable of processing transactions parallelly.
Another parameter that can be tweaked is an increase in block size and a reduction in the block creation time. However, there is a trade-off to be made between scalability and decentralization. Furthermore, improving network bandwidth, latency, propagation algorithms and node optimizations like Bitcoin's SegWit can boost efficiency and capacity.
Regardless, congestion directly translates into higher transaction fees and unpredictable delays. This impacts user experience and hinders everyday blockchain usage. Ultimately, solving the blockchain congestion problem is part of the goal of achieving mainstream adoption of blockchain and cryptocurrency.
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