The first time that the crypto community experienced issues with scalability was during the 2017 crypto boom. This was a time that Bitcoin saw the most active transaction frequency in the market due to the sudden uptick in both price and interest from the local community.
During these times everybody quickly realized that the block size was simply not enough for much wider adoption. Due to its restrictions, thousands of people lost the opportunity to make millions in the market, forgoing early sell-offs, and being forced to process their transactions during a time that was not necessarily advantageous for their investments. There were lots of miners, don't get me wrong, but the block size was restricting them from mining too much of the transactions coming through the system. They simply could not meet the demand with their supply at the time.
The moment this issue was identified by the customers themselves, dozens of ICOs, STOs, and IEOs as they're known nowadays quickly shifted the focus of their whitepapers on the advantages their coin would provide for large demands due to increased block sizes and the relatively lower complexity of mining for individuals. The keyword here is "individuals". You see, it's important for a crypto coin to thrive if the random Joe can still mine it from his or her gaming setup back home. But, that is quickly dying out due to the increased popularity of crypto mining farm investments.
However, no matter how much these new ICOs tried to stand out from the herd, it still quickly became apparent that a larger block size was not the ideal solution to the scalability problem. Should there be enough traction, there is only so much the block size can grow until mining it becomes unprofitable for both individual miners as well as the mining farms. If there is enough traction, there is simply not enough time to create a new block in the chain system. Furthermore, if mining is not necessarily affordable without millions of investments, there is little chance that many people will be willing to undertake that task, leaving the whole system with even fewer miners and more bottlenecks.
The only real issue that was solved with the introduction of larger block sizes was the frequency of these "traffic jams". They didn't really occur every single day, but they did occur every week or every month. Knowing the volatility of both large and small coins we can easily say that these traffic jams can be absolutely devastating for people betting their entire savings on a quick uptick or a downturn.
A more detailed perspective
So let's try and talk numbers here. Bitcoin has a block size of 4MB and the traffic jam occurs every single day. Another option of Bitcoin would have a block size of 120MB for example. This does guarantee that there are no more daily traffic jams, but it does guarantee a monthly traffic jam. Therefore, it's not necessarily a topic of if, but a topic of when. Because no matter how much the block size is increased, the demand is guaranteed to catch up to the supply within just a few months.
Furthermore, we need to consider the residue of popularity. As more and more people get involved with a specific coin, mining becomes more complex for the miners, consuming more power, needing more engineers to handle the database, and therefore costing millions more to the companies operating mining farms. This reduces the profit margin significantly, especially if the block size remains the same. Because let's think about it. The capacity of the company remains the same, but the costs increase due to more strain on the system. The mining farm would naturally want to either reduce the block size to a point where they have a healthy profit margin or just try to increase the fee on their service, thus reducing interest for millions of people.
Oh, and let's not forget the issue of halving that typically occurs every single year for almost every cryptocurrency. During these times, many miners have to re-evaluate their commitment to a particular system. Can they still remain profitable after cutting almost 50% of their income? Why are they cutting that income you ask? Because for the same about of power and resources they dedicate to mining one block.
Why scalability is absolutely essential
The general value of the blockchain is that it's fast, cheap, and anonymous. With the scalability issue, we are losing 2 of those core values. The speed is completely lost due to the bottlenecks that could occur at crucial moments of price movements for the coin. The price for the transaction could be lost due to miners or crypto exchanges requiring a lot more in fees for your particular transaction to be prioritized over everything else. In the end, we are left with just anonymity, and judging by the current regulatory trends in the market it's unlikely that anonymity will remain an advantage for much longer.
Because of all of these factors, Bitcoin and every other crypto loses all of its value as a means of exchange and simply becomes a trading asset with unreliable liquidity and massive technical issues.
Because of this, the only real winner that could potentially come out of this situation is a stablecoin developed by a corporation. Take Libra as an example of this. Sure it may have not gone as well as it should have, but there is a 100% possibility that some company will absolutely nail both the scalability and the added value of their own coin. In the end, we will get a coin that is called decentralized but is completely dependant on the success of just one company and not even an individual. So this puts the whole industry in a bit of a dilemma.
Crypto can't remain anonymous forever
A very compelling argument against crypto's anonymity is adoption. If BTC or any other cryptocurrency is to be accepted as a legitimate means of exchange, there needs to be at least some tracking associated with individual payments. Since most large cryptos can't guarantee that without forgoing the value of anonymity, it's unlikely that BTC will be something you can use directly in a grocery store.
Take the most crypto-friendly countries as an example. Both South Korea and Japan are already fed up with crypto-related financial crimes and are starting to really put the squeeze on unregistered companies. This mostly stems from issues with money laundering or just exit scams facilitated by "promising" new altcoins during an ICO.
But the crypto community has not left this argument unanswered. The most compelling answer is that by allowing crypto to continue its "lawless" existence, the criminals will be taking part in a self-fulfilling prophecy. They may indeed steal some money through cryptocurrencies, but the issues of cashing it out due to the problems they themselves have caused are going to dawn on them very quickly. And even if these money laundering issues continue, they're sure to be on a very small scale. When comparing this to the same issues seen in fiat money crimes it's just a small drop in a vast ocean.
In the end, it's assured that a crypto-dominated economy will materialize itself in the future. All we have to do is somehow find the equilibrium between supply and demand. As long as mining remains profitable, crypto will be allowed to develop further. But the moment companies see no financial gain in operating large electricity-consuming farms, we will see a completely different future for cryptos.
