To understand various scaling solutions for blockchain technology, we first need to delve into the need for scaling. The need for scaling solutions for any technology emerges as the network grows rapidly with the influx of millions of new users. We’ve witnessed the scaling of our mobile networks with the rising demands through the generation of wireless telephone technology from 1G to 5G.
Similarly, the blockchain technology that emerged from a single cryptocurrency network (Bitcoin) has grown exponentially throughout the last decade, with thousands of blockchain networks and trillions of market cap. Can this technology be scaled to support a global user base without compromising network security or decentralization?
Well, that’s where the trilemma of blockchain technology comes into the picture. Coined by Vitalik Butterin and Trent McConaghy, the scalability trilemma essentially refers to the current reality of blockchain networks that fail to possess all three properties:
Hence, the biggest blockchain networks now suffer from the lack of either of these properties. For example, Ethereum and Bitcoin network lacks scalability, whereas the Binance Smart Chain lacks true decentralization.
However, regardless of this trilemma, various blockchain projects and think tanks behind them have proposed and deployed various scalability solutions. Let’s discuss these different blockchain scaling solutions.
In this article, we’ll be introducing types of scaling solutions, and in further articles, we’ll delve deeper into specific solutions. All the scalability solutions can be categorized into two distinct categories that are:
- Layer 1
- Layer 2
Now, let’s have a look at 1st layer and 2nd layer solutions and how they are inherently different from each other to tackle scalability.
Layer 1 Scalability Solutions
Layer 1 scalability solutions refer to making changes at the base layer of a blockchain network to improve scalability. It essentially means changing the rules of the protocol itself by tweaking its block size or the pace at which new blocks are confirmed or validated on a network.
Layer 1 scaling solutions remind us of block size limit arguments that started with Bitcoin in 2014-2015 when it was proposed to increase the block size of the Bitcoin blockchain from 1MB to 20MB. Famously known as block size wars, the whole blockchain ecosystem was divided into small and big blockers. This block size war finally resulted in the forking of the Bitcoin blockchain and the creation of Bitcoin Cash, Gold, and Bitcoin SV.
Back to the point, the layer one solutions can be further divided into two ways to deal with scalability solutions – consensus mechanism improvements and sharding technique. Let’s have a look at both of these solutions.
Consensus Mechanism Improvements
It was proposed that some consensus mechanisms can be more efficient than others. That’s where the concept of PoS (Proof of Staking) emerged. The first blockchain network, Bitcoin, uses a consensus mechanism called PoW (Proof of Work) that is less efficient and slower than the newer PoS consensus method.
Even though the PoS mechanism is more efficient and faster than PoW, the security of this new mechanism is arguably less robust, reminding us of the scalability trilemma. Regardless of the compromises of this new mechanism, Ethereum has already started working on the transition from a PoW to a PoS mechanism with the proposed Ethereum 2.0.
Learn more about all the new changes in Ethereum 2.0 in our explainer here.
Another way to achieve scalability with a layer one solution is through the sharding technique. This technique achieves scalability by partitioning the entire blockchain network into distinct states known as ‘shards.’ Thus enabling the blockchain network to process multiple processes through these parallel networks simultaneously.
The sharding technique allows the participating nodes to maintain only a particular shard’s state of the ledger rather than managing the entire copy. These shards can also interact to maintain wallet balances, share addresses, general state of particular shards through cross-shard communication.
One of the major blockchain networks to adopt sharding is the upcoming Ethereum 2.0 network. Besides the upcoming network, blockchain networks such as Zilliqa and Tezos have already deployed the sharding technique in their network.
Now, let’s head to 2nd layer solutions to improve blockchain scalability.
Layer 2 Scalability Solutions
Rather than tweaking the base layer of a blockchain network, 2nd layer scalability solutions refer to building another layer on top of the base layer. Thus suggesting the name of 2nd layer solutions.
2nd Layer solutions include state channels, sidechains, rollups, and blockchain interoperability. State channels can be defined as a type of 2nd layer solution that involves creating off-chain payment channels to enable users to make micro-transactions without worrying about high-transaction costs and network congestion.
It’s also worth mentioning that payment channels, regardless of the number of transactions between two parties, only settle opening and closing transactions on the base layer, thus reducing the transaction cost and avoiding network congestion. One of the prominent scaling solutions applying state channels is the Bitcoin Lightning Network.
On the other hand, sidechains take a completely different approach to creating two or more interconnected blockchain networks while maintaining an independent consensus state on separate blockchain networks. Some well-known sidechains include Liquid for Blockchain, Plasma, and Polygon for Ethereum.
Few other notable approaches of 2nd layer solutions include zero-knowledge rollups, Plasma, and more.
In the next article on our blockchain scalability solutions, we’ll delve deeper into sidechains and zk rollups to understand the working and concept of such solutions. Meanwhile, you can read about other explainer articles by heading to HyperTrader Blog.