According to Hokinson, scalability is separated into three parts:
1. Transactions per second/Throughput - Bitcoin can only manage 7 transactions per second and Ethereum can only handle 15-20 transactions per second. In order to be a global payment system, it is necessary for a blockchain to handle a lot of transactions.
Ouroboros Protocol is based on proof-of-stake that can easily increase its number of transactions per second compared to the proof-of-work.
Please read about what is Proof-of-Work vs. Proof-of-Stake here.
2. Network Bandwidth - If transaction scales to millions and billions of users, it will need hundreds of megabytes to terabytes per second of bandwidth in order to process it over the internet. It is impossible then to reach a homogenous network topology. Network topology means that every node in the network needs to relay every message. However, when transaction scales, not all of the nodes may have the resources required to relay all of the information to the network.
RINA (Recursive Inter-Network Architecture) is a new type of structural network created by John Day that aims to create a heterogeneous network. It is based on the principle that networking is Inter-Process Communication (IPC). Cardano hopes that it will seamlessly interoperate with TCP/IP protocols with the end goal of offering an alternative way to process data in the network.
3. Data Scaling - Blockchain records all the data - forever. All data, including those that are relevant or not, gets recorded. Blockchain functions because of nodes and each node need to store a copy of the blockchain in their system. When the system acquired more users, recording the data will demand more space and that will be problematic because not all nodes will be able to keep up with the demand.
Cardano has a simple philosophy to solve this problem: “Not everyone needs all the data.” Cardano is considering Pruning, Subscriptions, and Compression. If all these three concepts are combined, it is possible to reduce the amount of data that a user needs to record in their system. Another Cardano’s approach is called Partitioning. This means that instead of having the whole record of the blockchain, a user can have a part of the blockchain.