As the number of people using Ethereum increases, it can be seen that the blockchain has reached a certain capacity limit. For this reason, the cost of using the network increases and the need for scalability solutions arises.
There are many researched, tested and implemented solutions using different approaches to achieve similar goals. In this guide, we’ll look at what the Ethereum scalability problem is and the scalability solutions available.
Ethereum’s Biggest Challenge: The Scalability Problem
The scalability of blockchain networks, especially Ethereum; refers to the network’s ability to accommodate a large number of transactions without negatively impacting its operations.
Scalability; blockchain networks support high transaction volumes and the ability to process large numbers of transactions. Therefore, a blockchain network that can process many transactions per second (TPS) is considered scalable, while a blockchain network with low transaction volume is considered poorly scalable.
The main purpose of scalability is to increase transaction speed (faster precision) and throughput (higher transactions per second) without sacrificing decentralization or security.
Deep Dive into the Problem: A Scalability Trilogy
Before explaining the scalability triad, it is useful to first understand the blockchain triad. Scalability is the ability of a blockchain to handle higher transaction volumes. Security is the blockchain’s ability to protect data from various types of attacks and prevent double spending. Finally, decentralization is how decentralized the network is, ensuring that no central entity controls the network.
The scalability triad; it refers to the current limitations of blockchain networks, which until now have not been able to simultaneously provide high levels of scalability, security, and decentralization. Blockchain projects can only focus on one of three options:
1: Create a secure and scalable network with low decentralization cost.
2: Prioritize decentralization and scalability at the expense of low security.
3: Ensure high security and decent decentralization at the cost of low scalability.
Ethereum clearly chose option 3. But Ethereum’s core community is very aware of the need for scalability.
Ethereum’s Efforts to Improve Scalability
The proof-of-work (PoW) consensus algorithm previously used by Ethereum can only process 15 transactions per second (TPS). Ethereum is currently on schedule to implement necessary updates to increase TPS capacity.
For example; Merge, which moved Ethereum from a PoW consensus algorithm to a Proof-of-Stake (PoS) consensus algorithm, has been one of the updates focused on this purpose. Therefore, a relatively more efficient network can handle 40 transactions per second. Upcoming Ethereum rollups and shard rollups plan to increase this to 4,000 and 100,000 transactions.
Due to the time-consuming nature of Ethereum updates, many other independent projects have sprung up to address scalability issues. These items are also known as layer 2 solutions. These solutions are platforms or networks specifically designed to address Ethereum’s scalability limitations. Layer 2 solutions typically leverage Ethereum’s security mechanisms, with their own mechanisms for increasing throughput.
What are the popular layer 2 solutions?
Layer 2 solutions are also known as “off-chain scalability solutions” because they process transactions outside of the main network. There are four core solutions: nested blockchains, state channels, rollups, and sidechains. Let’s take a closer look at each of these scalability solutions.
Nested blockchain; it is a layer 2 blockchain architecture where one blockchain is inside another blockchain. This design is envisioned as a “parent-son” relationship, where the “parent” blockchain is the primary or external blockchain and the “child” blockchain is embedded as a secondary or internal blockchain.
In this scheme, an internal blockchain is responsible for processing certain transactions or data. The blocks of the related blockchain are linked to the blocks of the external blockchain. Thus, a hierarchy is created.
Nested blockchains; it can be useful when specific transactions or data types require more specific processing or security measures than the main blockchain can provide.
Layer 2 solutions address these specific needs by embedding one blockchain into another without compromising the security and efficiency of the main blockchain. Examples of nested blockchains are OMG Plasma and Gluon Network.
State channels are another type of Ethereum scalability solution. State channels enable two parties to process transactions without requiring the main blockchain (Ethereum) to verify each transaction. These channels act as multi-signature smart contracts that are only executed when authorized by the parties involved.
State channel; in simple terms, it is like a private, temporary communication channel established by two parties for a specific purpose. Recording every transaction on the main blockchain can be time-consuming and expensive. A state channel can perform multiple operations without this.
State channels for off-chain transactions enable faster, more efficient and cost-effective transactions while maintaining the security and trust-free nature of the underlying blockchain technology. Users can enjoy near-instant transactions and significantly lower transaction fees through state channels.
This makes blockchain technology more accessible and practical for a wider range of applications. Examples of state channels are Raiden Network, Connext Network, and Celer Network.
Rollups is an Ethereum scalability solution that processes transactions off-chain, providing faster and more cost-effective transactions. In aggregation, transaction data is aggregated into a block and sent to the Ethereum main chain.
Here, the smart contract executes and saves the stack as a single transaction. This process reduces the number of transactions that the Ethereum network must process, making the network faster and more efficient.
Rollups come in two flavors: optimistic rollups and zk-rollups. Optimistic rollups use fraud proofs to validate off-chain transactions, while zk-rollups use zero-knowledge proofs to provide an additional layer of privacy and security.
Rollups are very popular as they effectively solve the scalability problem of the Ethereum network, enabling faster and cheaper transactions while maintaining the security and trustless nature of the blockchain.
By employing aggregation, Ethereum can potentially process thousands of transactions per second. This opens up new possibilities for decentralized applications (Dapps), while making Ethereum more accessible and practical for a wider range of uses. Examples of Optimism rollups are Arbitrum, Boba Network, and ImmutableX; examples of zk-rollups are zkSYNC, Loopring, dYdX, and StarkNet.
As with all three approaches above, sidechains handle transactions outside of the main chain, providing faster and more efficient transactions. Sidechains are independent blockchains that are connected to the Ethereum main network but operate independently.
This; this means that transactions validated by the sidechain are handled by a separate consensus mechanism. For sidechains to make sense, the mechanism must be faster and cheaper than the mainnet. This also poses a potential security risk.
Users need to trust the consensus mechanism and the security of the sidechain. Therefore, transactions on sidechains may not be as secure or decentralized as transactions on the main Ethereum network.
In addition to being used to offload certain types of transactions from the Ethereum network, sidechains can also be used to develop new features or functionality not yet available on the mainnet. Thus, more experimentation and innovation in the blockchain space may become possible. Examples of sidechains are Polygon, Skale, xDAI, and Palm.
What is the village update?
Ethereum aims to address scalability issues through its future updates. One such update is Cancun-Deneb (Decun). Dengcun update; it promises to improve the scalability, security, and usability of the Ethereum network, making it both “more robust” and “capable of handling higher transaction volumes.”
Dencun represents an additional update to the Ethereum execution layer following the recent activation of Shanghai. At the heart of the update is EIP 4844, also known as “proto-danksharding”. Increasing the room for data “drops” is intended to scale the blockchain and reduce fees for Layer 2 rollups.
While Ethereum took a major step towards becoming a sustainable blockchain with its proof-of-stake consensus algorithm, it now aims to address scalability issues with a new update. With these updates, along with Layer-2 solutions, we can expect Ethereum’s potential to break free from its current limitations.
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