What is Blockchain Network Congestion? A Beginner’s Guide

Blockchain network congestion: Imagine rush hour on the digital highway!

20 Sep 2023 | 7 min read

Table of Contents

Key takeaways

Blockchain network congestion occurs when there are more transactions waiting for approvals than the network is capable of.
A rise in activities and small block sizes result in network congestion.
The. most prominent examples of network congestion have been within the BTC and the ETH networks.

Introduction

In the buzzing world of Web3 that we are walking towards, crypto and the concept of blockchain technology have taken center stage. While diving into this space, one common term often heard is ‘blockchain network congestion’. If you are new to the space, this term might seem a little too difficult to understand. We have created this article to simplify the term, how it happens, and what causes the same. Read on to decode another crypto phenomenon.

How does the Blockchain network work?

In short, a blockchain consists of blocks that are filled with transaction data that the users create. All of the blocks that are added to the chain are permanent and cannot to edited. All of these blocks are evaluated and confirmed by ‘nodes’.

Nodes are nothing but computers participating in the blockchain network to validate and keep a record of the transactions taking place. When a transaction takes place, they are informed about to all the nodes. They then group them into blocks and add them to the blockchain.

But, before that happens, the blocks go through a verification process by the nodes via a consensus mechanism – that is democratic process to ensure only valid transactions go through and are added to the blockchain.

What is Blockchain Network Congestion?

To put it simply, blockchain network congestion takes place when there are more number of transactions that the network has to process than it is capable of. This overload results in a backlog of unconfirmed transactions in the memory pool of the network, often referred to as the ‘mempool‘.

A few factors that help determine how much space there is for transactions on the blockchain highway are the block size and the block creation time. The rise in the volume of transactions can be a cause for the blockchain highway to get overloaded. One of the examples of this is maybe seen when a popular new token or NFT collection is launched.

An example of the same is maybe when Yuga Labs did an introduction of its ‘Otherside’ metaverse initiative. That project witnessed some of the highest gas fees ever experienced by the ethereum network.

What causes congestion in Blockchain Network?

Some of the most common reasons that lead to congestion in a blockchain network are as mentioned below:

Increase in the number of transactions: When there is an increase in the number of transactions taking place, the unconfirmed transactions in the mempool that need to be put into a block increases. This can happen when there is mass adoption cycle going on or there is sudden price volatility.
Small block size: Scalability issues that come with small block size have plagued a lot of blockchains. The size of the block determines how many transactions a block can accommodate. This, in turn, affects the transaction throughput.
Delayed block times: Block time refers to how frequently a new block is added to the blockchain. For example, BTC adds a new block in about every 10 minutes. If transactions are being created faster and more quickly, there will be a backlog of transactions, thus congestion in the blockchain network.

What Are the Consequences of Network Congestion?

Congestion in a blockchain network can affect the way a blockchain works. It can result in various negative consequences that end up hindering a network’s ability to work smoothly. Some of them are as mentioned below:

Increase in transaction fees: Miners in a crypto space are paid to validate transactions which comes with higher fees. With network congestion, the fees keep getting higher and everyone asks the miners to verify their transactions first. This makes the fees way to high, even for smaller transactions.
Delayed transaction confirmation: As evident from the increase in the fees, more transactions in the mempool means longer waits for the transactions to get their approvals.
Market volatility: The rise in fees and the higher number of transactions in the mempool also often result in market volatility.

How can it be solved?

The efforts to resolve the blockchain scalability issues stand as a major objective in the world of crypto. Diverse strategies are always being explored to find ways to overcome this challenge.

One avenue of solving this crisis revolves around Layer 2 protocols, like Lightning Network, and other blockchain variants like Arbitrum, Polygon, Optimism, and Base. These innovative solutions enable transaction processing to occur on a secondary layer while leveraging the security safeguards of the primary blockchain. Additionally, sharding is a solution that involves segmenting the network into smaller, independently functioning partitions, allowing transactions to be processed side by side.

Another parameter that can be explored is adjusting block size and reducing the block creation time. Nonetheless, this endeavor involves a crucial trade-off between scalability and the maintenance of decentralization principles. Along with that, enhancing network bandwidth, minimizing latency, optimizing propagation algorithms, and implementing node enhancements similar to that of Bitcoin’s Segregated Witness (SegWit) can significantly enhance the overall network efficiency and capacity.

However, it’s imperative to recognize that congestion within the blockchain ecosystem invariably translates into increased transaction fees and uncertain delays. This results in a notable influence on the user experience and serves as a blockage to the seamless use of blockchain technology in everyday applications. As a result, the resolution of the blockchain congestion predicament plays an integral role in the broader mission of fostering mainstream adoption of blockchain and crypto.

Examples of Blockchain network congestion

Some of the significant examples of blockchain network congestion are as mentioned below:

Bitcoin network congestion: Between the years 2017 and 2018, the infamous crypto asset, Bitcoin, witnessed a remarkable surge in its price, contributing to one of the most significant instances of network congestion on record. The massive popularity of Bitcoin led to an unexpected surge in demand and transaction volume, resulting in delays and high transaction fees. At a certain point, the average transaction cost crossed $50.Fast forward to the spring of 2023, the Bitcoin network encountered another congestion, primarily because of the rise in transaction activities associated with BRC-20 tokens. This surge led to a rise in pending transactions and a notable surge in transaction fees. It reached a point when the network was standing with nearly 400,000 unconfirmed transactions, resulting in a bottleneck within the mempool. Transaction fees surged by more than 300% within a mere couple of weeks.
Ethereum network congestion: Another example would be that of the Ethereum network congestion that took place in 2017 with the surge in popularity of the “CryptoKitties” project. This unexpected increase in interest substantially reduced the network’s speed. Additionally, episodes of network congestion have happened with the rise in the DeFi (Decentralized Finance) adoption, leading to a rise in gas fees. It’s important to acknowledge that any blockchain network can encounter congestion. Nevertheless, instances of network congestion on the Bitcoin and Ethereum networks have garnered greater scrutiny compared to other blockchains. This attention is attributable to their extensive user base, massive popularity, and central roles within the blockchain ecosystem. Consequently, disruptions on these networks have more far-reaching implications due to their popularity and significance.

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Conclusion

To conclude, blockchain network congestion is a significant concern that can affect the transaction durations and expenses, potentially causing disruptions in user experiences and even causing market fluctuation. This challenge primarily arises from increased demand, limited block sizes, and protracted block processing times. Instances of network congestion have manifested in widely adopted blockchains such as Bitcoin and Ethereum. Despite the present solutions, the potential of blockchain technology remains undeniable, and the journey toward achieving an optimized, efficient blockchain network remains continues.