Demystifying Blockchain Performance: An In-Depth Guide

Lately, there has been intense competition among blockchains to prove which one performs best, each claiming impressive Transactions Per Second (TPS) data. Aptos is one of the big names in this list as they made a big deal about the promise of 160,000 TPS. However, the blockchain only achieved a peak of 2,107 TPS in November 2022, which is not terrible as it still demonstrates the blockchain's ability to process transactions efficiently, but it falls far short of their pre-launch promises.

However,?measuring blockchain performance goes beyond just looking at who has the highest TPS. In this article, we will explore the concept of blockchain performance in detail. But to do that, we need to first go back to basics and clarify what a blockchain really is, how it works, and how blockchains can vary greatly from one another by core architecture, making their potential TPS just one piece of the puzzle.

The Anatomy of a Blockchain: Exploring Its Essential Elements

Picture a world where you can perform transactions without relying on intermediaries such as banks or governments. This is the power of blockchain technology - a distributed ledger technology that removes the need for trust in transactions. So, why is it called blockchain? It is simple - a blockchain functions as a sequence of blocks, with each block carrying a collection of verified transactions. What is even more intriguing is that it is not owned by a single entity but instead maintained by a network of nodes that work together to validate and secure transactions.

To fully grasp the nature of blockchain technology and its unique offering, it's crucial to understand some key concepts that form its foundation.

Decentralization

A blockchain is a peer-to-peer network that operates without a central authority, such as a government or bank, controlling it. Instead, the network is made up of nodes, or computers, that are spread out geographically and are connected to each other. Each node has a copy of the blockchain, and they all work together to maintain and validate the transactions on the blockchain. The decentralized nature of blockchain ensures that no single entity has complete control over the network, making it more secure and transparent.

Immutability

Once a transaction is added to a block and that block is added to the blockchain, it cannot be altered or deleted. This makes the blockchain an immutable record of all transactions, providing a high level of trust and transparency. It's like a digital diary that records every transaction and event that takes place, which can be verified by anyone at any time.

Cryptography

Cryptography is an essential component of blockchain technology, as it provides the necessary security and protection to the data being transferred within the network. In a blockchain, cryptographic methods are used to keep the data confidential, authenticate transactions, and maintain the integrity of the system. For instance, public-key cryptography creates a digital signature that ensures the authenticity of a transaction and ensure that no one can tamper the transaction once it has been approved by the network.

Consensus

In the world of blockchain, consensus is the holy grail that ensures transactions are verified and validated by a network of participants, creating a system of trust and transparency that is immune to corruption or tampering. This means that every transaction on a blockchain must be agreed upon by a majority of nodes in the network. Imagine you are in a room full of people who all need to agree on a decision before it can be made. Each person in the room is a node in the blockchain, and the decision they need to agree on is whether a transaction is valid or not. There are many ways to achieve consensus (which we will cover later in this piece), and the method used can have a significant impact on the performance, security, and scalability of the blockchain.

Smart contracts

Smart contracts are programmable contracts that execute automatically when specific conditions are met. They enable users to set up trustless agreements that are enforced by code instead of relying on intermediaries. A smart contract can be used to automate a wide range of transactions, from sending cryptocurrency to a family member when a specific event occurs to enabling decentralized crowdfunding campaigns. The possibilities are endless, and smart contracts have the potential to transform the way we interact with each other and conduct business. It is worth noting that newer blockchains typically offer the ability to deploy smart contracts by default, unlike older, established OG blockchains like Bitcoin.

These elements work together to create a secure and transparent system for recording transactions and storing data. By removing the need for a central authority and using cryptography and consensus mechanisms to ensure the integrity of the system, blockchain technology provides a new way of handling transactions and interacting with each other in a trustless and decentralized way.

From Creation to Confirmation: How a Blockchain Transaction Works

Let’s say a user performs a transaction on a blockchain. What really happens on the chain? What are the steps that are involved from the creation of the transaction to its final confirmation? Here is what the process you don’t really see looks like:

1. Creation of a transaction:?A user initiates a transaction by creating a digital signature that verifies their identity and the details of the transaction, such as the sender, receiver, and amount.
2. Broadcasting the transaction:?The user broadcasts the transaction to the nodes on the blockchain network that verify the transaction and add it to a pool of unconfirmed transactions.
3. Verification of the transaction:?Nodes on the network compete to validate the transaction and add it to a new block. The process of validating the transaction involves checking the digital signature, verifying that the sender has sufficient funds, and ensuring that the transaction meets the consensus rules of the network.
4. Creation of a new block:?Once a node has validated the transaction, it creates a new block that includes the transaction and other unconfirmed transactions from the pool. The block also includes a timestamp, a unique hash, and a reference to the previous block in the chain.
5. Verification of the block:?Once a new block is created, it is broadcast to the nodes on the network. The nodes verify the block, checking that all the transactions in the block are valid and that the block meets the consensus rules of the network.
6. Adding the block to the blockchain: Once the block is verified, it is added to the blockchain, creating a permanent and immutable record of the transaction. The block is added to the end of the chain, and all nodes on the network update their copy of the blockchain to include the new block.
7. Confirmation of the transaction:?The transaction is considered confirmed once it is added to a block and added to the blockchain. The number of confirmations required before a transaction is considered final varies depending on the blockchain network, but generally, the more confirmations a transaction has, the more secure and final it is.

These are the basic steps that occur when a user performs a transaction on a blockchain. The process may vary slightly depending on the specific blockchain network and the consensus mechanism used, but the basic principles of validating transactions, creating new blocks, and adding them to the blockchain remain the same.

How Consensus Mechanisms Shape Blockchain Performance

As we said, consensus mechanisms are an essential component of a blockchain system and greatly affect its performance. They are used to achieve agreement among nodes on the validity of transactions and the addition of blocks to the blockchain. There are several consensus mechanisms in use in different blockchain networks, and here are some of the most common ones:

Proof of Work (PoW)

PoW is the original consensus mechanism used in the Bitcoin blockchain. In PoW, nodes on the network compete to solve a cryptographic puzzle to add new blocks to the blockchain, and the first node to solve the puzzle is rewarded with cryptocurrency and the new block is added to the chain. PoW is secure and decentralized, but it requires a lot of computational power and energy, making it slow and costly.

Proof of Stake (PoS)?

In PoS, nodes on the network are chosen to validate transactions and add new blocks to the blockchain based on the amount of cryptocurrency they hold or?stake. Nodes with more stake have a higher chance of being chosen to validate transactions and earn rewards. PoS is less computationally intensive and more energy-efficient than PoW, but it can be less decentralized and vulnerable to attacks by nodes with large stakes.

Delegated Proof of Stake (DPoS)

DPoS is similar to PoS, but instead of all nodes on the network being eligible to validate transactions and add new blocks, a smaller number of nodes are selected through a voting process to act as block producers. DPoS is faster and more energy-efficient than PoW and PoS, but it can be subject to vote-buying and centralization.

Proof of Authority (PoA)

In PoA, a set of trusted nodes are chosen to validate transactions and add new blocks to the blockchain. Nodes are chosen based on their reputation and their ability to provide consistent and reliable service. PoA is fast and energy-efficient, but it’s reliant on a small number of trusted nodes.

Proof of Elapsed Time (PoET)

PoET is a consensus mechanism used in some private blockchain networks. In PoET, nodes on the network compete to be chosen to validate transactions and add new blocks to the blockchain based on a random wait time. The node with the shortest wait time is chosen to add the block. PoET is energy-efficient and secure, but also more centralized and reliant on a trusted computing environment.

These are just a few of the most common consensus mechanisms used in blockchain networks. Each has its strengths and weaknesses and is suitable for different use cases and applications.

PoW vs. PoS: Who Wins The Duel?

The question of which consensus mechanism is better, Proof of Work (PoW) or Proof of Stake (PoS), is one of the main matters of debate. Ultimately, the choice of consensus mechanism depends on the specific needs and goals of the blockchain network, but we can try to break down some of the key differences between PoW and PoS.

From Monolithic to Modular: The Evolution of Blockchain Architecture and How It Affects Performance

Lately, the debate between monolithic and modular blockchains has fired up with modularity being proposed as one of the solutions to improve blockchain performance. To really understand the difference between these two different blockchain architecture, it’s paramount to mention that blockchains mainly deliver four functions:

• Execution?is a blockchain function that executes transactions to update the blockchain state
• Settlement?is responsible for resolving any disputes
• Consensus?is used to validate that all nodes on the blockchain have the same state and to define the state
• Data availability?ensures that block data has been distributed across the network and that all nodes have an up-to-date copy of the blockchain

Now,?in a monolithic blockchain all the four functions are handled at the same time, on a single layer.?In a modular architecture, the functions can be executed in different layers providing more scalability and flexibility. You can think of each layer as a different module, and each module can be combined in various ways to create more complex structures.

Here are some of the key differences between monolithic and modular blockchains.

In summary, monolithic blockchains offer limited customization options and can be difficult to scale, while modular blockchains offer more flexibility and scalability, and they are also designed to be interoperable and can be developed by smaller teams of developers.

Understanding the Blockchain Trilemma: The Three Key Factors of Blockchain Performance

The blockchain performance topic is tightly correlated to the blockchain trilemma concept, which describes the trade-off between three key factors in blockchain technology: decentralization, security, and scalability.

Decentralization?refers to the distribution of power and control in a blockchain network. A decentralized network is one in which no single entity has too much control or influence. Decentralization is important in blockchain technology because it enables trust and transparency in a network without the need for a central authority.

Security?refers to the protection of the network from attacks or unauthorized access. Every blockchain is designed to be secure and resistant to attacks, but it is not immune to security threats as it is dependent on the consensus mechanism, cryptography, and other security measures implemented by the network.

Scalability?denotes the capacity of the network to manage a significant number of transactions or users. High traffic can cause blockchain networks to perform sluggishly or become clogged, causing disruptions to the efficiency of the network and the user experience.

The blockchain trilemma suggests that it is difficult to achieve high levels of decentralization, security, and scalability simultaneously since improvements in one area can come at the expense of the others. For example, increasing decentralization can reduce scalability and security, while increasing security can reduce scalability and decentralization.

Blockchain developers are constantly working to find solutions to the blockchain trilemma, such as new consensus mechanisms, sharding, layer 2 solutions, and other scaling techniques (which we will cover in a bit). These solutions aim to strike a balance between decentralization, security, and scalability to create a robust and efficient blockchain network.

Key Metrics for Measuring Blockchain Performance

So, we understood that?blockchain performance is a not just about TPS but it depends on a lot different decisions made by developers at its core like the consensus mechanisms used and the overall blockchain architecture.?Blockchain performance refers to the speed, efficiency, and reliability of a blockchain network in handling transactions and processing data. There are some key metrics used to measure blockchain performance, which include the following:

• Transactions Per Second (TPS): TPS measures the number of transactions that a blockchain network can process in a given amount of time. TPS is an important metric for blockchain performance, as it directly affects the speed and efficiency of the network.
• Time To Finality (TTF): TTF is a crucial metric for measuring blockchain performance as it gauges the time taken for a transaction to be confirmed and added to the blockchain. TTF is a vital factor that determines the reliability and security of the blockchain network. The faster the TTF, the shorter the waiting time for the transaction to be validated, resulting in a more secure and dependable network.
• Block size: The block size denotes the upper limit of the block that can be appended to the blockchain. While a larger block size could improve the network's performance by increasing the transactions per second, it can also lengthen the validation time of a block, which could negatively impact the time to finalize (TTF).

Let’s see these key metrics in action - here is a comparison table between Bitcoin, Ethereum and SKALE.

Scaling Solutions: How to Improve Blockchain Performance and Solve the Trilemma

It’s now clear that improving blockchain performance requires more than just increasing Transactions Per Second (TPS). It involves addressing the three essential elements that make a blockchain performant: decentralization, security, and scalability. Several potential solutions can address these issues. Here are some of the most promising ones:

Sharding

Sharding is a technique that involves partitioning the blockchain network into smaller, more manageable pieces or shards. Each shard can then process transactions independently, which can increase the scalability of the network. Sharding can also help to reduce the burden on the main chain and increase the Transactions Per Second. With?EIP-4844 (aka Proto-Danksharding)?which could ship in 2023, the Ethereum blockchain should allow Layer-2s to scale and provide lower transaction fees.

Layer 2 solutions

Layer 2 solutions are built on top of existing blockchain networks and are designed to increase the scalability and performance of the network. These solutions include optimistic rollups, Zero-Knowledge rollups, state channels, sidechains, validium, plasma and hybrid solutions. By enabling off-chain transactions, Layer-2 solutions reduce the load on the main chain, allowing it to be more scalable and faster.

Optimistic rollups

Optimistic rollups are a Layer 2 solution that enables off-chain computation and transactions. Designed for greater speed and scalability than the main chain, they have the capacity to process thousands of transactions per second. Optimistic rollups use fraud proofs to ensure the validity of transactions, making them secure and reliable. Optimism and Arbitrum currently dominate the Layer 2 market with a combined market share of 80%.

Zero-knowledge (ZK) rollups

ZK rollups are a Layer 2 solution that uses zero-knowledge proofs to enable off-chain computation and transactions allowing improved scalability and TPS. ZK rollups are also more private and secure than other Layer 2 solutions because they do not reveal transaction details to the public. ZK technology holds great promises but it’s still majorly under development as it’s a complex solutions to develop. Anyway, several projects, including ZKSync, Loopring, StarkNet, Polygon Hermez, and Scroll, are anticipated to release their solutions to the market later this year.

Sidechains

Sidechains operate as separate chains that are attached to the main blockchain and can run their own consensus mechanisms and rules. By enabling transactions to take place on the sidechain, rather than the main chain, sidechains reduce its strain and improve scalability. Sidechains can also be customized to meet the specific needs of a particular use case, allowing for more flexibility in the system. Additionally, sidechains can improve security and privacy by enabling the implementation of specialized security protocols or privacy features that are not possible on the main chain. Overall, sidechains provide a promising solution to the blockchain trilemma by enabling increased scalability and performance while maintaining the security and decentralization of the network. Polygon and Gnosis are the biggest names in this category.

State channels

State channels enable off-chain transactions between two parties by creating a temporary state that is not recorded on the main chain. This allows for fast and cheap transactions without the need for confirmation by the entire network. State channels are particularly useful for high-frequency transactions, such as in payments, gaming and microtransactions, where the cost and time of on-chain transactions are prohibitive. Some projects to mention are Connext, Perun and Raiden.

While each solution has its strengths and weaknesses, they all offer promising ways to improve the performance and efficiency of blockchain technology.?As the blockchain ecosystem evolves, we can anticipate that these various scaling solutions will collaborate and exist together rather than resulting in a winner-takes-all scenario.

SKALE: A Unique Scaling Solution Unlocking High Blockchain Performance

SKALE is tackling the Ethereum scaling issue with a unique solution which does not really belong to any of the categories listed above since?SKALE is a multichain network of interoperable blockchains that inherit Ethereum's security while enhancing its performance. All SKALE chains are Ethereum-native, meaning they run the Ethereum Virtual Machine (EVM) client and allow developers to write smart contracts in Solidity building and deploying with the same tools and standards used on the Ethereum mainnet.

Additionally,?SKALE provides a gas-less experience for end-users, delivering a much-improved UX for Web3 users. This is achieved through a?blockchain on-demand subscription model: any entity, such as developers, protocols, or enterprises, can create a SKALE chain by paying a monthly flat fee to host and develop dApps on that chain. Developers have the flexibility to adjust compute resources for their SKALE chains based on their specific needs. They can also sign up for additional SKALE chains as they grow and scale their dApps. The subscription fee model per SKALE chain makes it easier for developers to bring their dApps to market, drive higher adoption rates, and offer free transactions for end-users. In summary, SKALE's flexible subscription model helps developers to quickly and easily scale their dApps while maintaining a cost-effective and user-friendly platform.

Regarding its blockchain performance, according to a recent study by Dartmouth Blockchain,?SKALE has emerged as the leader in terms of performance, with the highest scores for both Transactions Per Second (TPS) and Time To Finality (TTF).

The study tested Ethereum, Polygon, Solana, Fantom, Avalanche, NEAR, FLOW, and SKALE blockchains in real-world environments and measured their performance based on two crucial metrics: Transactions Per Second (TPS) and Time To Finality (TTF).?The findings of the study indicate that SKALE was the top-performing blockchain, with a TPS of 397.7 and a TTF of 1.46 seconds, among the eight blockchains tested.

As at the moment, SKALE powers 19 interoperable Ethereum Virtual Machine (EVM) blockchains, each with a capacity of 397.7 transactions per second (TPS), the entire SKALE network has the potential to process 7,556.3 TPS. It is worth noting that this capacity is a significant improvement compared to the performance of other blockchains tested in the study, making SKALE an attractive option for businesses and developers seeking scalable and efficient blockchain solutions.

Key Takeaways About Blockchain Performance

In conclusion, measuring blockchain performance is an activity involving several factors to consider like the type of consensus used by the chain, its design (monolithic or modular) and how it’s tackling the blockchain trilemma of decentralization, security and scalability. As the Ethereum blockchain has reached a widely-accepted degree security and decentralization, developers have proposed solutions to address its scalability, including sharding, optimistic and ZK rollups and sidechains.

However, SKALE offers a unique solution that doesn't fit into these categories providing a multichain network of interoperable EVM blockchains and a gas-less experience to end-users making a major step towards improved Web3 user experience. Furthermore, according to a recent study by Dartmouth Blockchain, SKALE is the top-performing blockchain in terms of Transactions Per Second (TPS) and Time To Finality (TTF), making it a highly attractive option for businesses and developers seeking scalable and efficient blockchain solutions.

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#SKALE ?is an?#Ethereum ?native, modular?#blockchain ?network composed of high-throughput, low-latency?#blockchains ?that are optimized for?#Web3 ?user experience. SKALE chains offer zero gas fees to end-users and have advanced features such as on-chain file storage, interchain messaging, zero-cost minting, ML/AI smart contracts, and enhanced security features.

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