The popularity of blockchain technology has been on a steady rise lately. With the recent increase in blockchain popularity, it should be no surprise that such popularity will also affect the functioning of blockchain technology. One such problem is the issue of scalability. Therefore, having a good understanding of this concept will give you insight as to why most discussions and research in the crypto space center around scalability.
WHAT IS SCALABILITY?
Scalability is not solely a blockchain concept. Instead, it is a broad phrase that refers to the ability of a system or organization to perform as well as it did or better than it did when there is an increase in workload.
Scalability in blockchain technology refers to a network’s capacity to handle a large number of transactions in a short amount of time. Scalability is simply a fancy word for speed. Because of the crucial role it plays in whether or not blockchains can be widely adopted, the issue of blockchain scalability is deemed essential
Most businesses today make use of credit cards to carry out transactions. The reason for this is that most credit cards have a higher throughput than Bitcoin.
Visa, a credit card company, claims to have a throughput of 2400 TPS. Even though most people deem the possibility of 24000 TPS a myth and instead insist on a lesser figure, one can agree that Visa is faster than Bitcoin. With a transaction throughput of about 7TPS, bitcoin still has a lesser throughput rate than Visa.
Businesses will find it challenging to use Bitcoins for transactions with a throughput of only 7 TPS. If a company decides to use Bitcoin for transactions and then has a large number of clients, the transaction speed of Bitcoin will prevent customers from having a seamless and quick transaction experience. These companies will inevitably lose money if there are delays in transactions. To minimize problems caused by network congestion, many businesses would instead choose Visa.
When Satoshi Nakamoto released the white paper on Bitcoin, he proposed a decentralized blockchain anchored on the peer-to-peer system. Apart from its decentralization, the blockchain was also designed to be highly secure. Bitcoin uses the proof-of-work algorithm to reach consensus, and the proof-of-work consensus prioritizes decentralization and security over speed. With increased use, people realized that apart from decentralization and security, blockchain technology would also need speed to thrive.
Every Bitcoin block has a size of 1MB, meaning that only a limited amount of transactions can go on at once. With a small block size, Bitcoin can only handle about 7 transactions per second. This means that Bitcoin chooses path C, therefore, it prioritizes security and Decentralization over scalability.
The ideal attributes of a blockchain are Decentralization, security, and scalability. The problem with blockchain technology is that although all three characteristics are essential, no blockchain can have all these features at the time. This phenomenon is known as the blockchain trilemma.
The scalability trilemma is such that for a blockchain to become scalable, it would have to sacrifice one of the essential features in the trilemma triangle. Therefore, a blockchain can either be scalable and secure or scalable and decentralized.
Problems exist to be solved. So in an attempt to find a lasting solution to the blockchain scalability problem and outperform Bitcoin, most blockchains prioritized scalability over decentralization which most people view as the heartbeat of blockchain technology.
Although most blockchains can choose to become scalable and decentralized, this is a combination that is not often seen. The absence of adequate security spells doom for a blockchain and removes the essential element of trust.
CURRENT SCALABILITY SOLUTIONS
Blockchain scalability solutions are of mainly two layers which are
LAYER ONE SOLUTIONS
A layer one scalability solutions refer to changes made directly to the blockchain architecture. Some of these solutions include
In sharding, the database partitioning technique is used to split large databases into smaller parts, and these smaller shards of databases are referred to as logical shards. These logical shards are stored in separate servers, and in this way, transaction pressure is lifted off of the blockchain.
With sharding technology, a network can process thousands of transactions within a short time. Sharding ensures that by dividing the main network into smaller peer-to-peer networks, various transactions are performed simultaneously. The peer-to-peer approach of sharding ensures that each node in the network does not process the entire bulk of transactions. Rather, each smaller node will process a part of the transaction. Sharding ensures that decentralization and security of the network are maintained while simultaneously achieving scalability.
Ethereum 2.0 is projected to use sharding technology and will use the proof of stake rather than the proof of work consensus. Zilliqa is another layer one blockchain that uses sharding technology. Zilliqa claims that with this technology, the network can process over 2600 TPS. Elastico is yet another blockchain that uses sharding technology. It is the very first blockchain to utilize this technology.
2. Bigger blocks
The size of a block plays a significant role in the number of transactions that can be performed. With a block size of just 1MB, Bitcoin was bound to have limitations. Therefore to increase throughput, a network would have to increase the blockchain size. Two major implementations of this phenomenon are;
In 2017, the Bitcoin community split in two after some disagreement on the issue of Bitcoin block size, scalability, and also the cost of transaction fees. Some developers felt that the problem with Bitcoin scalability could be handled better by increasing the block size and therefore forked out of Bitcoin to form Bitcoin cash with a block size of about 8MB. Subsequently, the block size was increased to 32MB.
Segregated witness (SegWit)
Segregated witness was an upgrade to the Bitcoin protocol in 2017. Segregated witness is a soft fork which was a product of the Bitcoin scalability debate of 2017.
Segregated witness works by reducing the transaction weight of a block by segregating a transaction into two sections. This will increase the volume of transactions one can perform on a block of the same size.
3. Alternative consensus mechanisms
The consensus mechanism of Bitcoin is proof of work. The proof-of-work consensus had a problem with high energy consumption, and it is said that a Bitcoin transaction can consume over 700kwh of energy, enough to power 4 US households. The proof of work consensus does not only consumes too much energy, but has a low throughput and expensive transaction fees. To improve speed, some blockchain protocols opted for alternative consensus, some of which include Proof of stake, Delegated proof of stake, Practical Byzantine Fault Tolerance, Proof of authority, etc.
DAG stands for directed acyclic graph and is a term used mainly in computer science. DAG refers to a graph with a defined direction which contains no directed circle.
When applied to Blockchain, a DAG structure is in the form of vertices and edges instead of a block. Several vertices in the graph are then connected to previous vertices. Instead of the structure appearing as a chain like in the traditional Blockchain model, they appear as trees with transactions branching out from one to another. Just like in traditional Blockchain model, transactions are also submitted to the DAG via nodes
The DAG technique makes it possible for data to be stored efficiently and ensures speed in the processing of transactions. The speed in DAG transactions is because more than one transaction can be carried out simultaneously since a transaction does not have to be completed before a new one commences.
LAYER TWO SOLUTIONS
Layer two blockchains are interoperable blockchains built on a layer one blockchain.
1. Side chains
A side chain is a separate Blockchain connected to the main Blockchain. Side chains are usually connected to the main Blockchain by a two-way peg. The connection between the main chain and the side chain makes them interoperable but side chains are responsible for their own security. Side chains allow the transfer of assets between the main chain and the side chain to allow for the decongestion of the main chain.
Examples of side chains existing today include
Liquid network : This is a side chain connected to Bitcoin blockchain. The liquid network was intended to address the issues of scalability and the high cost of transaction fees in Bitcoin blockchain. The Liquid side chain enables the addition of liquid blocks every minute, which is a significant improvement from the addition of one Bitcoin block every ten minutes. In this way, liquid networks handles the issue of congestion on the Bitcoin blockchain.
Plasma: Plasma is a side chain connected to the Ethereum blockchain. The plasma side chain can execute its own transaction and has its own block validation mechanism. The design of the plasma side chain allows for the creation of numerous “Child Chains” on top of the main chain through the use of smart contracts and Merkle tree.
Although the plasma network executes transactions off chains, these transactions are settled on the Ethereum execution layer. This ensures that the child chains can enjoy the security provided by the Ethereum Blockchain, although to a limited level. By doing this, the plasma chains can efficiently decrease the workload on the main chain, thus allowing for faster transactions.
2. Payment channels
Payment channels are similar to side chains in that transactions are carried out outside the main chain. The payment channel works by enabling the opening of a two-way channel for transactions between two transacting parties.
The payment channel works via a mechanism where only two transactions, the first and the last, take place on the main Blockchain. The creation of smart contracts and funding opens up the channel and this is the first transaction. Reclaiming the funds closes up the channel, and is the last transaction. All other transactions in between will take place off the main chain. In this way, fewer transactions are settled on the main chain, thus enabling scalability.
The payment channel allows for the transfer of funds between two transacting parties, but all transactions made must not exceed the initially deposited funds. The lighting network is an excellent example of a payment channel.
The crosschain technique involves the connection of different Blockchain. These blockchains, although independent, will be interoperable, thus creating an extensive network of blockchains. The connection and interoperability of these blockchains make it possible for them to achieve scalability.
Cosmos is an excellent example of a network that employs the crosschain technique. Cosmos, as a network, comprises various independent blockchains referred to as zones. The numerous interoperable zones on the Cosmos network make it highly scalable.
Rollups are the most anticipated Blockchain scaling solution. It is considered a very safe scaling option and is projected to improve transactions on the Ethereum network by up to 4800 TPS.
Rollups make use of third parties referred to as sequencers. Sequencers are responsible for calculating transactions on the layer two blockchain, after which the calculated transactions are compressed into batches and are then published back on the layer 1 blockchain.
Rollups leverage the security provided by the main Blockchain. With computation happening off the main chain, rollups ensure that the main chain is less congested, thereby ensuring scalability. There are two types of rollups
Optimistic rollups: Optimistic rollups works on the logic of the assumption that all transactions sent back to the main Blockchain from layer 2 are valid. It is a situation where innocence is assumed until proven guilty.
In the case of an invalid transaction, then the concept of dispute resolution is employed. If the transaction turns out to be fraudulent, then a validator can offer fraud-proof against that transaction, after which the transaction is re-executed, but this time on the main Blockchain.
ZK rollups: ZK stands for zero knowledge and works opposite to how optimistic rollups work. ZK rollups provide immediate proof that the transactions are valid and do this by using a validity proof.
In ZK rollups, the validity of a transaction is proven by the use of Zk-SNARK ( Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). Zk-SNARK is a cryptographic proof that mathematically proves that a transaction is valid.
The scalability trilemma is just an hypothesis. Recent scalability research and solutions have demonstrated that it can be feasible for a blockchain network to include all three characteristics of the ideal blockchain.
A lot of research is still being done and the blockchian industry is still evolving. It is therefore expected that better solutions that aim to address fundamental issues in the blockchian business, such scalability, will eventually emerge.