The Future Of Blockchain Scalability: Breaking Down The Sharding And Layer 2 Solutions

Blockchain technology has undoubtedly created quite the stir worldwide, capturing the interest of various sectors due to its promise. Renowned for offering exceptional benefits like autonomy, transparency, auditing of data, tokenization of assets, immutability, and above all, decentralization, blockchain has indeed been a game-changer in software development.

Yet, while it’s packed with impressive features, there’s one significant stumbling block it has yet to overcome: scalability. The issue here is that it’s proving tough to effectively increase the size of blockchain systems, creating roadblocks for companies and new ventures keen to leverage this game-changing tech.

Blockchain essentially functions as a decentralized and distributed ledger, forming the core infrastructure for decentralized transaction processing. It’s a unique system that lets any network node kickstart transactions on its own, complying with preestablished conditions from smart contracts, all without any interference from a third party.

To address these pesky scalability problems plaguing blockchain, several innovative solutions are coming to light. These approaches aim to do away with delays and bring a radical transformation to the world of blockchain.

In this piece, we’re going to delve deep into the subject of blockchain scalability, unpacking its main challenges and highlighting the key solutions that are poised to unlock its real power. Stay tuned!

What is Blockchain Scalability?

What is Blockchain Scalability

When we’re talking about any computer system, scalability is all about the system’s ability to handle an increasing amount of work. This could be anything from a basic search engine to a complex database.

When this concept is applied to blockchain technology, we’re specifically looking at how well it manages growth, whether that’s an influx of data or increased resources, like computing power or bandwidth.

However, it’s important to note that blockchain isn’t well-known for its scalability. In many cases, it struggles to adapt to these growing demands, which can lead to inefficiencies in the system.

Within the realm of blockchain, the term “scalability” takes on a slightly different meaning. In fact, there isn’t a widely accepted academic definition of the term in this context.

A widely-read paper on the topic chose to define any improvements to Bitcoin in terms of its throughput, latency, bootstrap time, or the cost per transaction as “scaling.” Consequently, any blockchain system that underwent these types of improvements was deemed “scalable.”

Not all blockchain systems are created equal, especially when it comes to their scalability. Throughput can differ significantly across systems. What’s key to remember here is that scalability is a relative term in blockchain.

When one blockchain system is more scalable than another, it means that it has a higher transaction per second (TPS) rate. This is typically achieved by modifying the consensus method and adjusting certain system characteristics.

What is the Issue of Blockchain Scalability on Enterprises?

Public blockchains’ struggle to scale effectively is a significant hurdle for businesses and industries seeking optimal solutions. Most online transactions involving individuals or companies are underpinned by a centrally managed system, often overseen by a third party.

Consider digital payments or money transfers, for instance, where a bank or a credit card provider typically acts as the third-party facilitator and charges a fee for each successful transaction.

This third-party entity has comprehensive control over the information of all the parties involved in the online transaction. This centralized approach mandates the third party’s involvement to ensure transaction security.

Blockchain: A Different Approach to Transactions

Unlike traditional online transactions, blockchain operates quite differently. It’s essentially an unalterable, decentralized ledger, housing cryptographically secured transactions and maintained by a network of peers.

Here, there’s no need for a third party to manage information, and establishing trust among network users isn’t an issue.

The Challenge of Scalability in Real-world Applications

Despite its benefits, blockchain’s scalability has proven to be a substantial roadblock when attempting to implement public blockchains in numerous real-world commercial scenarios. The blockchain scalability problem generally arises when there’s an uptick in the number of nodes and transactions. This is an issue seen in prominent public blockchain systems like Bitcoin and Ethereum, where every node has to carry out a computational task to verify each transaction.

This means that public blockchains continually require extensive computational power, swift internet connectivity, and significant storage space. Two key performance measures often discussed in the context of blockchain are transaction throughput and latency.

However, many prominent recent public blockchains still fall short of providing a satisfactory Quality-of-Service (QoS) level in these areas.

Why is Scalability in Blockchain Important?

When we talk about scalability, we’re essentially discussing a network’s ability to manage an increasing volume of transactions. It’s an absolutely crucial aspect of blockchain networks. Thus, scalability is a big deal when considering the future expansion of blockchain.

A truly scalable blockchain should be able to keep its performance levels up, even with the growing applications and adoption of the technology. If the performance of a blockchain decreases as usage increases, it suggests there’s a scalability issue.

Moreover, there’s a notion known as the blockchain scalability trilemma, which implies that boosting scalability might lead to reduced security and decentralization. It’s important to keep in mind though that without scalability, blockchain networks wouldn’t stand a chance against their centralized counterparts.

The question is: can we develop scaling solutions for blockchain that don’t mean sacrificing security or decentralization?

In the following section, we’ll dive into various solutions to tackle the scalability problem in blockchain.

Strategies for Tackling Blockchain Scalability: The Possible Solutions

Given that scalability is a major hurdle in the global acceptance of blockchain technology, it’s essential to discover effective methods to address this problem. Currently, many different strategies are being explored to mitigate blockchain scalability issues.

Fortunately, organizations like Webisoft are at the forefront of this exploration, actively participating in the research and development of innovative solutions.

Interestingly, the existing solutions can be divided into four distinct categories, each offering a unique approach to deal with the scalability issues faced by blockchain.

As experts in the field, Webisoft not only understands these approaches but also is deeply involved in the implementation and optimization of these solutions, striving to take blockchain technology to its full potential.

Layer 1 Scalability Solutions

Layer 1 Scalability Solutions: On-Chain Scaling

The most common response when asked about tackling blockchain scalability issues is to mention layer 1 solutions. These solutions require modifications to the basic software of the core blockchain network, hence they’re often called on-chain scaling solutions.

Layer 1 solutions enhance the fundamental characteristics of the blockchain network. For instance, they may involve increasing the block size limit or reducing the time taken to verify blocks. Sharding, Segregated Witness (SEGWIT), and hard forking are three popular on-chain scaling methods.

Sharding

Sharding is a popular on-chain scalability solution. It involves breaking the blockchain network into smaller, more manageable segments known as shards.

These shards can then be processed in parallel, increasing the network’s overall processing output. By breaking the network into smaller pieces, each capable of processing a part of the total transactions, the network can function more efficiently as a whole.

Segregated Witness

Segregated Witness, often shortened to SEGWIT, is another key layer 1 solution. SEGWIT is a protocol upgrade in the Bitcoin blockchain network that changes the way data is stored.

It helps remove signature data associated with each transaction, freeing up space for more transactions. Considering that digital signatures take up about 70% of a transaction’s total space, this technique can significantly increase storage capacity.

Hard Forks

Hard forks involve making substantial changes to the properties of the blockchain network. They may involve increasing the block size or reducing the block creation time.

A particular type of hard fork, known as a contentious hard fork, is most effective in terms of layer 1 scalability solutions. This involves a split in the blockchain network, where a subset of the community decides to make fundamental changes to the underlying code.

Layer 2 Scalability Solutions: Off-Chain Scaling

While layer 1 solutions require changes to the main blockchain network, there are also off-chain scaling solutions. These are known as layer 2 scalability solutions and involve building additional protocols on top of the primary blockchain.

These secondary protocols are used to offload transactions from the main blockchain, helping address issues of space and network congestion. State channels and sidechains are popular examples of layer 2 solutions.

State Channels

State channels facilitate two-way communication between off-chain transaction channels and the blockchain network. They have the potential to significantly improve transaction speed and capacity.

Importantly, state channels do not require immediate miner involvement to validate transactions. Instead, they function as resources closely integrated with the network through smart contracts or multi-signature methods.

Sidechains

Sidechains function as transaction chains alongside the primary chain for large batch transactions. They utilize different consensus methods compared to the primary chain.

Plasma

Plasma is another notable layer 2 scalability solution. It focuses on using child chains that branch off the parent blockchain. Each child chain operates as a separate blockchain, allowing Plasma to be tailored for specific transaction types while maintaining security in a similar environment.

Lightning Network

The Lightning Network is a well-known off-chain blockchain scalability solution. It uses smart contract functionality in private, off-chain channels over the main blockchain network. This results in faster transactions with lower costs and reduces the load on the main blockchain.

Scalable Consensus Mechanisms

Scalable consensus mechanisms are designed to simplify the consensus process, resulting in improved scalability and transaction throughput. Here are a few significant examples:

Delegated Proof-of-Stake

Delegated Proof-of-Stake, or DPOS, is a consensus method that resembles the democratic process of governing a country. Token holders vote for transaction validators. The number of delegated validators can vary, ranging from 10 to 100, and changes regularly.

Proof-of-Authority

Proof-of-Authority is a scalable consensus method based on reputation. Selected nodes are responsible for validating transactions on the network.

Byzantine Fault Tolerance

Byzantine Fault Tolerance (BFT) consensus mechanisms are effective tools for dealing with the Byzantine Generals Problem. They ensure continuous consensus, even with several malicious participants in the network.

Scalable Distributed Ledgers

Blockchain technology is a subset of the broader distributed ledger technology (DLT) ecosystem. Apart from blockchain, there are other types of distributed ledgers that do not use the same data structure as blockchain to organize information into a series of chains.

What is the Current and Future Solutions to Blockchain Scalability?

Solving blockchain scalability isn’t as straightforward as you might think. When hunting for answers, we need to ascertain if the solution applies across the board or only to a particular blockchain.

In case it’s the latter, our efforts might be wasted unless we’re certain that specific blockchain will require scaling down the line. And remember, every solution comes with its set of compromises – there’s no such thing as a flawless solution.

What is the Current and Future Solutions to Blockchain Scalability

Consolidating Payments: A Strategy to Boost Transactions per Second

One tactic to increase the transactions per second (TPS) capacity is by clubbing multiple transactions into one. This can decrease the data footprint of a transaction, allowing more transactions to fit into each block.

Bitcoin, for example, has been using this method via the RPC send many option. It brings down transaction fees and removes the need to record complete transaction details. But it’s worth noting that this approach comes with limitations, such as the inability to merge transactions from different wallets.

Bitcoin Cash Approach: A Temporary Speed Booster

Bitcoin Cash emerged as a Bitcoin variant intending to accelerate transactions by fitting more transactions into every block, thereby ramping up its maximum TPS.

Nevertheless, it’s a short-term solution as its TPS capacity still doesn’t measure up to Visa’s daily TPS volume. Plus, this strategy is exclusive to Bitcoin Cash and doesn’t extend to other blockchains.

The Promise of Lightning Network

The Lightning Network provides an off-chain method for handling transactions. Available for Bitcoin and its forked blockchains like Digibyte and Litecoin, it allows users to process private transactions off the blockchain.

It’s advantageous for instant, fee-less transactions, making it an ideal solution for small, fast purchases. But bear in mind, using the Lightning Network requires users to have lightning nodes.

High-Speed Blockchains like EOS: The Centralization Dilemma

High-speed blockchain solutions like EOS utilize various consensus methods, which promise high theoretical scalability at the cost of centralization. For example, in June 2018, EOS’s Block Producers, limited to just 21 nodes, put a freeze on seven EOS accounts.

Although there were reasons behind the move, it underscored the enormous control a single entity can have over the entire blockchain, thereby posing the risk of censorship and control, a not-so-pleasant compromise for scalability.

The Ambition of BloXroute

BloXroute aspires to offer a scalability solution that isn’t restricted to a specific blockchain. By creating a blockchain version of a content delivery network (CDN), it hopes to tackle scalability challenges on a broader scale.

Nonetheless, creating and managing a global CDN is a complicated and pricey endeavor that’s still under development in the blockchain sector.

A Peek into Blockchain Consensus Protocols

As broad as Bitcoin’s popularity might be, it does encounter hiccups when trying to process a large volume of transactions. This is where alternative consensus mechanisms step in:

First on the list, we have the brainchild of Satoshi Nakamoto – the proof-of-work consensus mechanism. It provides a unique solution to the Byzantine Generals Problem, a longstanding puzzle in a permissionless setting.

Secondly, we have traditional consensus mechanisms. These were introduced before the advent of Bitcoin and are centered around stable peer groups. These groups utilize several voting cycles to achieve an agreement.

And finally, we have consensus without a leader. In this setting, every participant in the network can suggest new transactions. These proposed transactions then disperse across the network, which empowers the entire community to decide which transactions to incorporate and which ones to discard.

What Kinds of Blockchains Are Scalable?

As blockchain technology gains traction, the need for scalable solutions intensifies. Various blockchain systems, through innovative consensus algorithms, architectures, or transaction processes, have adapted to accommodate growing transaction volumes.

What Kinds of Blockchains Are Scalable

Let’s delve into these scalable blockchains and how they’re reshaping the future of this technology.

1. Scaling Bitcoin

When it comes to Bitcoin, scaling isn’t easy because of its Proof of Work (POW) design, which validates the next authentic block. All nodes must engage in a POW session for a specific duration to pick out the victor.

Then, the new blocks sync up across the entire network. This is a time-consuming process, and if we were to amplify the block size or lessen the block interval, it might result in numerous forks in the network, thereby diminishing its security.

Factors like throughput, latency, network design, and the level of decentralization all impact the time taken for synchronization.

2. Scaling POW

In order to tackle scalability issues in POW-based systems, fresh POW models have been suggested that do not hinge on block synchronization. These allow the consensus duration to be on par with or similar to the synchronization time, eliminating the substantial extension in time.

Bitcoin-NG is a classic example of this, where consensus is used only to identify the round leader and not the entire batch of transactions. This makes transaction synchronization parallel and allows for the usage of larger block sizes.

Other projects with similar approaches include Byzcoin, Hybrid Consensus, and GHOST.

3. Scaling Byzantine Fault Tolerance (BFT) Algorithms

BFT algorithms are consensus algorithms that can tolerate faulty nodes, enabling honest nodes to reach consensus, even in untrustworthy networks. Practical Byzantine Fault Tolerance (PBFT) is one such example.

However, its scalability isn’t up to the mark due to its O(N²) message complexity, where N represents the count of validating or mining nodes.

As the number of validating nodes increases, it causes a quadratic rise in the messages exchanged between nodes per transaction, thereby reducing the throughput as the network expands.

To counter this, several strategies have been put forth to amplify classical BFT algorithms like PBFT. First, there’s speculative BFT where nodes initially assume favorable network conditions and utilize simpler, more efficient models to reach consensus.

If they fail, they revert to the costlier PBFT. Second, redundancy in the BFT process is done away with by employing erasure coding, thereby improving bandwidth usage efficiency, as evidenced in Honeybadger-BFT.

Lastly, randomness is introduced in node communications where each node takes a decision based on a random selection of nodes, as demonstrated in Avalanche.

4. Scale-out Blockchains

Scale-out blockchains serve as a solution to the blockchain scalability issue. They aim to boost the throughput of a growing blockchain network by breaking the network into smaller subgroups or “shards”, or by forming off-chain networks for quicker transactions.

But, these solutions have their own set of trade-offs, such as an increase in security risks in sharding and the requirement for deposits in the blockchain for off-chain transactions.

The crucial challenge lies in designing and implementing these solutions in a way that achieves a balance between scalability, security, and decentralization.

There are various proposals in this area, like Omniledger, Chainspace, Rchain, Ethereum’s Sharding, and off-chain methods like the Lightning Network.

Key Challenges Hindering Blockchain Scalability

When it comes to blockchain technology, scalability has always been a significant hurdle. Let’s delve deeper into this issue by exploring the main factors that contribute to this challenge: restrictions, transaction costs, block dimensions, and waiting periods.

Key Challenges Hindering Blockchain Scalability

The Constraint Dilemma

First and foremost, the constraints imposed on blockchain systems are a primary contributor to the scalability issue. Each transaction needs to be recorded by every node in the ledger, and with a growing history of transactions, this can place tremendous strain on the system.

For blockchain networks to maintain trust, they must preserve all data with utmost accuracy. Hardware is another area where limitations can arise. As a blockchain network expands, setting up and sustaining the necessary hardware for operating nodes becomes increasingly challenging.

High Cost of Transactions

The second important issue stems from the escalating transaction costs. The surge in blockchain’s popularity has complicated the transaction validation process due to the increased computational power required for mining.

To have their transactions verified, users must pay a fee. With blockchain networks expanding continuously, users are often willing to pay higher transaction fees for swift verification.

Yet, it’s worth mentioning that numerous transactions remain unprocessed in the queue for extended periods.

The Issue with Block Capacity

The block size also plays a crucial role in blockchain’s scalability predicament. With more transactions taking place in the network, execution becomes time-consuming.

For instance, the initial blocks of the Bitcoin network could hold nearly 2,020 transactions within their 1Mb capacity.

However, as the number of transactions escalates, the block size needs to increase correspondingly, affecting scalability.

Delays in Transaction Validation

Every transaction in a blockchain network must undergo a verification process, which often implies lengthy waiting periods. For instance, creating a new block in the Bitcoin network usually takes around ten minutes.

During peak times, the waiting period for transaction validation can significantly increase. This delay correlates with the higher transaction fees and is a pivotal factor contributing to the scalability problem.

From this analysis, it’s evident that the increasing user base and volume of transactions pose significant issues for blockchain networks. If these networks fail to extend their capacity to handle new transactions and users, they risk impeding widespread adoption.

Thus, finding scalable solutions for blockchain technology is becoming a pressing need. But what are the feasible solutions? The answer to this question is eagerly awaited.

Conclusion

As blockchain’s popularity skyrockets, the issue of scalability comes into sharp focus. An ever-growing number of users and transactions can cause bottlenecks in blockchain networks, hindering their capacity to swiftly manage a high quantity of transactions.

However, there’s a silver lining thanks to the wide range of potential solutions that address blockchain scalability. These remedies, which involve Layer 1 and Layer 2 strategies, scalable consensus protocols, and Directed Acyclic Graphs (DAGs), can tackle the scalability obstacles effectively.

Ultimately, the evolution and deployment of scalable distributed ledger technology can unlock the true potential of blockchain technology. Such advancements will allow blockchain applications to flourish across a myriad of industries, instigating industry transformation and opening up a world of opportunities in the digital realm.For more insights into blockchain scalability or any other blockchain-related concerns, feel free to reach out to our experts at Webisoft. Let us guide you on your blockchain journey and help you navigate the challenges that come along. We’re here to turn the complexities into opportunities!

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