Outline
Introduction
The Blockchain Trilemma
Decentralization and Scalability
Decentralization and Security
How Scalability threatens Security
- Layer 1 vs. Layer 2
Scalability Solutions
Sharding
Cross Chains
Side Chains
Off chains or State channels
Conclusion
Introduction
Three things must be considered to create an effective blockchain: Decentralization, Scalability, and Security. These pillars struggle to co-exist and live in harmony; this is called the blockchain trilemma, coined by Vitalik Buterin, "which states that a simple blockchain can only achieve two out of three pillars. To have a secure and decentralized blockchain, Scalability would be sacrificed."
In this article, you will be introduced to the
concept of blockchain scalability.
If you decide to scale your blockchain or want to learn how it is done, you will learn about the possible scalability solutions available.
You will also see examples of blockchain networks that adopted these solutions.
The Blockchain Trilemma
Decentralization is the core concept of blockchain, which gives power to the people to control their nodes and eliminates the need for a middleman like the traditional system.
Security: The blockchain is fundamentally designed to be secure, but that doesn't mean it is immune to hacking. For a blockchain to be successfully hacked, the hacker needs to get 51% of the nodes to agree to his copy of the chain; this would be very expensive. In the blockchain, the more nodes, the more security.
Scalability refers to how much the network would grow without compromising decentralization and security in the future.
In the next section, let's look at the possible combinations of these features.
Decentralization and Scalability
Having Decentralization and Scalability together tends to compromise Security, while Security restricts changes that allow a blockchain network to scale. This is because decentralization takes a bit of work to operate, making scaling difficult.
A highly decentralized network may be secure and resistant to censorship. Still, it is less efficient and has lower transaction throughput. In contrast, a highly scalable network can process many transactions quickly but are less decentralized and more vulnerable to attacks.
Decentralization and Security
These two work together efficiently and support each other's functionalities. Decentralization, the backbone and primary purpose of blockchain technology, eliminates a central power managing data or an intermediary to access your money (i.e., banks). This is possible by using community control and relying on blockchain technology as its data source.
Blockchain offers security in exchange for eliminating the middleman because more than half of the network's nodes need to validate each transaction. The more nodes that are part of the network, the more the blockchain becomes decentralized and enhances security. This is great for the network, but there are drawbacks due to the weight of information processed to maintain the shared system; transaction times can be slow, and the system is harder to scale.
How Scalability threatens Security
Each transaction data has its weight; as more information is added to the chain, the heavier the data becomes and the slower it moves around. Data must be kept up to date, and therefore, we must limit how widely the blockchain is distributed.
Limiting the network makes it an easy target for attackers to take over the network. Attackers would find it easier to manipulate the blockchain, which is not ideal.
But we need blockchain to scale. If we intend for blockchain technology to be massively adopted, we need to solve the scalability problem.
Layer 1 vs. Layer
In the blockchain, Layer 1 refers to the underlying base layer of the network and is often referred to as a "pure" blockchain network, as they operate on the core principle of the technology, which is decentralized, trustless, and secure. They do not rely on centralized entities to operate. For example, Ethereum's Layer I is the Ethereum network, and Bitcoin's Layer-1 is the Bitcoin Network.
Layer 2 refers to additional layers built on the layer one blockchain network, and it adds extra functionality and features to the network, such as Scalability and faster transaction speed. For example, The Lightning Network is the Layer 2 solution for Bitcoin, and Polygon and Plasma are a few Layer 2 networks built on Ethereum.
Scalability Solutions
For blockchain to be massively adopted, blockchain technology needs to solve for Scalability and improve interoperability amongst various blockchain networks.
The demand to solve this scalability problem has brought about innovative solutions adopted by different blockchains present today. The ideas depend on what the project is built on and if it relies on another project to operate.
Layer 2 protocols that are adopted by popular blockchains to achieve Scalability include:
Sharding
Cross-chain
Sidechain
State Channels
Let's look at these solutions more closely, with examples of projects adopting them.
Sharding
This technique is used to improve the Scalability of the blockchain network; it involves dividing the data and workload across multiple "shards "or partitions and transactions processed in parallel. This enables the network to support more users and handle more complex decentralized applications (apps) without sacrificing decentralization or security.
Ethereum 2.0 and Chainspace are implementing sharing as part of their long-term scalability solution.
Cross Chains
This refers to the ability of different blockchain networks to interact. This can include transferring assets or data between various blockchain networks, allowing for greater interoperability and potential use cases for blockchain technology. An example of a Cross Chain is Polkadot, which offers collaboration with other blockchains and is designed with a "relay chain" as its backbone and "parachains" as independent blockchains that connect to the main relay chain.
Side Chains
This technique allows for the transfer of digital assets or data from one blockchain to another; this enables interoperability and exchange of information across different blockchains. They are independent chains that work adjacent to a parent blockchain and rely on independent security and consensus protocols like Proof-of-Stake; this empowers them to provide more functionalities.
An example of a Sidechain is Liquid Network, a side chain-based layer two solutions for the Bitcoin blockchain. It is a federated blockchain, which means it is managed by a group of trusted participants known as Federates, and they can validate transactions on the network.
A vital feature of the Liquid Network is that it allows users to transfer Bitcoin and other assets like Litecoin and QTUM between the Liquid Network and the main Bitcoin blockchain using Atomic Swaps.
It enables fast transaction time and lowers fees on the Liquid Network while still retaining the security and decentralization of the Bitcoin blockchain.
It adds a layer of privacy for users to hide the details of their transactions from public view.
Offchains or State Channels
It is a layer two solution adopted by Ethereum, EOS, and Interledger. This technique allows for the execution of transactions and smart contracts outside the main blockchain.
State channels are often used with smart contracts. This allows for transactions to be executed automatically and securely without needing a third party to verify the terms of the agreement.
The Raiden Network of Ethereum and the Lightening Network of Bitcoin are both networks of state channels that allows for fast and scalable off-chain transactions.
Plasma connects sub-chains to the main chain through Fraud proof consensus mechanism.
This solution improves the Scalability of the blockchain by allowing many transactions to be executed off-chain without the need to record each transaction.
Conclusion
In this article, you have learned the Blockchain trilemma, scalability solutions, and projects implementing them. These protocols can improve the adoption of blockchain technology across industries with continuous focus and improvements on these protocols.
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