Blockchain Scalability: Exploring Solutions in Blockchain Space

Blockchain technology has gained immense popularity in recent years, offering decentralized and transparent solutions across various industries. However, one of the major challenges that blockchain faces is scalability. As the number of users and transactions grows, the limitations of the underlying technology become apparent. In this blog, we will delve into the concept of blockchain scalability and explore the role of layer two solutions in addressing this crucial issue.

Why is Scalability Important for Blockchain??

Scalability is an important requirement in blockchain networks as it refers to the network’s ability for supporting higher transaction throughput. Therefore, scalability is highly essential for the future growth of blockchain. The growing number of use cases alongside the adoption of blockchain technology could not affect the performance of a perfectly scalable blockchain. Blockchains with reduced performance due to growing adoption could showcase the lack of scalability.

In addition, the problem of blockchain trilemma also indicates that achieving improved scalability would come at a cost of reduced security and decentralization. At the same time, it is also important to note that only scalability can help blockchain networks compete effectively with conventional, centralized platforms. So, is it possible to find solutions to scalability of blockchain which do not affect security and decentralization?

# Layer One

The foremost answer for ‘how do you fix a scalability problem in the blockchain’ would take you to layer-1 solutions. The first layer or layer 1 solutions require changes in the codebase of the main blockchain network. Therefore, layer 1 solutions are also referred to as on-chain scaling solutions. Layer 1 solutions focus on improving the core features and traits of the blockchain network such as increasing block size limit or reducing the block verification time. The popular layer 1 blockchain scalability solutions include sharding, segregated witness (SEGWIT), and hard forking.??

1). Sharding

Sharding is one of the notable on-chain scaling solutions. It focuses on dividing the blockchain network into smaller and easily manageable parts, known as shards. Then, the network would run the shards in parallel to each other. With each shard taking card of transaction processing in the group, the processing output would increase substantially across the network. Breaking down the network into smaller parts enables the network to function as the sum of its parts. Sharding basically removes the concerns of depending on the speed of individual nodes for faster and improved transaction throughput.

2). Segregated Witness

Segregated Witness or SEGWIT is also another notable addition among solutions to scalability of blockchain among first-layer solutions. SEGWIT is basically a protocol improvement in the Bitcoin blockchain network, focused on modifying the manner and structure of data storage. It helps in the removal of signature data associated with each transaction, thereby opening up more capacity and space for storing transactions. It is important to note that the digital signature for verifying ownership and availability of the funds of the sender, takes around 70% of the whole space in a transaction. Removal of the digital signature could clear up more space for adding more transactions

3). Hard Forks

Hard forking is a process that focuses on making structural or fundamental changes in the property of a blockchain network.? For example, hard forking can involve increasing the block size or reducing the time required for creating a block. While hard forking is a basic requirement in the case of layer 1 blockchain scalability solutions, the most productive alternative is a contentious hard fork. The contentious hard fork basically implies a split in the broader blockchain community with a specific section of the community defying the core community on particular issues. In such cases, the specific section of a blockchain community can choose to implement structural changes in the underlying codebase.?

# Layer Two

To overcome these scalability limitations, layer two solutions have emerged as a promising approach. These solutions operate on top of existing blockchains, introducing new protocols and mechanisms that alleviate the burden on the main chain. Let's explore some popular layer two solutions.

1). State Channels

State channels allow participants to conduct off-chain transactions without the need for every transaction to be recorded on the main chain. By keeping most interactions off-chain, state channels significantly reduce transaction fees and increase transaction throughput. Examples of state channel implementations include the Lightning Network for Bitcoin and Raiden Network for Ethereum.

2). Sidechains

Sidechains are separate chains connected to the main blockchain, enabling users to conduct transactions on the sidechain without affecting the main chain's performance. These sidechains can have their consensus mechanisms and scalability solutions tailored to specific use cases. Liquid for Bitcoin and Polygon (formerly Matic) for Ethereum are examples of successful sidechain implementations.

3). Plasma

Plasma is a framework that enables the creation of child chains, also known as "plasma chains," connected to the main blockchain. Plasma chains inherit the security and decentralization of the main chain while offering faster transaction processing and increased scalability. Plasma solutions like OmiseGO have the potential to transform blockchain scalability for a wide range of applications.

4). Rollups

Rollups combine the security of the main chain with the scalability benefits of off-chain processing. They batch multiple transactions into a single transaction that is verified on the main chain, reducing costs and increasing throughput. Rollup solutions include Optimistic Rollups and ZK-Rollups, both aiming to enhance Ethereum's scalability.

5). ZK-Rollups

A zero-knowledge rollup (zk-rollup) is a layer-2 scaling solution that moves computation and state off-chain into off-chain networks while storing transaction data on-chain on a layer-1 network (for example, Ethereum). State changes are computed off-chain and are then proven as valid on-chain using zero-knowledge proofs.?

Zk-rollups significantly increase transaction throughput and help reduce transaction costs while inheriting the security of the base-layer (layer-1) network they are connected with for settlement. Instead of posting every single transaction on-chain, zk-rollups only have to periodically post valid batches of transactions from the layer-2 network bundled up to layer 1, effectively only leveraging the censorship resistance and security of the base layer for transaction settlement. Rollups also commonly use data compression mechanisms to reduce the amount of data posted on layer 1.

Conclusion:

Blockchain scalability is a critical factor for achieving mass adoption of decentralized applications and improving user experience. Layer two solutions play a vital role in addressing scalability challenges, offering increased transaction throughput, reduced fees, and improved overall performance. As the blockchain industry continues to evolve, these layer two solutions hold great promise for scaling blockchain networks to meet the demands of a global user base.

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Author: Reetesh (Software developer at ICS)