Journey to Blockchain Scalability:A Close Look at Complete Scaling Solutions

1. Journey to Blockchain Scalability A Close Look at Complete Scaling Solutions for L1 & L2 Chains

2. The Idea of Scalability For most computer systems (e.g., a database or search engine), "scalability" refers to the system's capability to handle a growing amount of work or to scale. Scalability is typically achieved by allocating more resources (e.g., computing power, servers, or bandwidth) to the system without requiring significant modifications to cope with increased workload. However, in the context of blockchain, scalability has a broader range of meanings and implications. A blockchain network is considered scalable when it can achieve higher throughput, low latency, short bootstrap time, or less cost per transaction. Scalability is crucial for the future growth of blockchain, ensuring that the increasing number of use cases and adoption of blockchain do not compromise its performance. However, achieving scalability in blockchain involves addressing the challenges posed by the Scalability Trilemma.

3. The Scalability Trilemma The Scalability Trilemma states that it is difficult to achieve high scalability, strong decentralization, and security simultaneously in a blockchain system. Scalability According to the trilemma, when designing a blockchain, developers have to make trade-offs among these three essential aspects. Higher scalability often requires sacrificing either decentralization or security, while maintaining all three at high levels becomes challenging. A B All emerging blockchain solutions attempt to address this trilemma in their own way. Pick one side of the triangle Some solutions focus on on-chain scalability by modifying the Layer 1 (L1) blockchains. Others explore off-chain solutions such as Rollups, Lightning Networks, and other L2 scaling techniques. C Decentralization Security These approaches aim to improve scalability while maintaining an acceptable level of security and decentralization.

4. Solutions for Blockchain Scalability An Overview

5. First Layer Scalability Solutions The first layer, or layer 1 solution, requires changes in the codebase of the main blockchain network. Therefore, layer 1 solutions are also referred to as on-chain scaling solutions. The popular layer 1 blockchain scalability solutions include hard forking, segregated witness (SEGWIT), and sharding. Layer 1 solutions focus on improving the core features and traits of the blockchain network, such as increasing the block size limit or reducing the block verification time.

6. Hard Forking • Hard forking is a process that focuses on making structural or fundamental changes in the property of a blockchain network. • Two Types: Planned Hard Fork, Contentious Hard Fork • A Planned Hard Fork provides an update to the network, and every node agrees to it. Hence, the old chain ceases to exist. • A contentious hard fork occurs when there is a disagreement within a community. • The two disagreeing factions will fork the chain and implement the changes they desire on their respective chains. • Both Chains exist. Example: Bitcoin → Bitcoin Cash, Ethereum → Ethereum Classic • Contentious hard forks are not used much these days.

7. Segregated Witness SEGWIT is a protocol enhancement in the Bitcoin blockchain network that focuses on changing the way and structure of data storage. It aids in eliminating signature data linked with each transaction, resulting in increased capacity and storage space for transactions. It is vital to note that the digital signature for validating the sender’s ownership and availability of cash takes up around 70% of the total space in a transaction. The removal of the digital signature may free up additional space for the addition of new transactions.

8. Sharding Sharding focuses on breaking down the blockchain network into smaller, more manageable chunks known as shards. • The network would then execute the shards in parallel with one another. • The network’s processing output would increase with each shard handling a portion of the group’s transaction processing. Ethereum 2.0 is following this approach. • In Dynamic Sharding, more nodes are added to the network to process transactions without increasing the Gas as the demand grows. Shardeum uses this technique. •

9. Second Layer Scalability Solutions With Layer-2, the underlying network (mainnet) does not need to process large amounts of data It offloads transactions from the primary chain to different processing channels, recording only the final result on the Layer-1 blockchain. Transactions are consolidated into one package before recording onto the mainnet, reducing gas fees, maintaining the security of the mainchain, and increasing TPS State Channels, Plasma, and Roll-ups are all second-layer scaling solutions.

10. State Channels This process involves setting up a channel between two parties who want to transact with each other. • Transactions that take place within this channel are off-chain, meaning that they do not require global consensus and can be executed quickly using smart contracts, with lower fees and at a faster speed. • When the payment channel is closed, the final transaction is recorded on the main blockchain to verify the final state. • Lightning Network (Bitcoin) and the Raiden Network (Ethereum) are popular examples of State Channels. •

11. Plasma Permits chains within chains (Child Chains), allowing for an exponential increase in scalability. • Proof of the child chain’s validity is submitted and stored on the chain below, not the entire computation. • Significant interaction with the root chain is only necessary in the event of a dispute. • These child chains can produce their own independent blockchains, giving them a tree-like structure, and can have different consensus mechanisms. • Uses a fraud-proof mechanism to validate the plasma chain. • As it can’t run smart contracts, only basic operations like token transfer and swapping are possible. • The data availability is off-chain. Hence, they are less secure because the mainnet can not effectively verify transactions conducted on child chains. •

12. SideChains Sidechains are separate blockchains connected to the main blockchain via a two-way peg for assets transfer between the main chain and the sidechain using a bridge. • This increased processing speed has the potential to allow for thousands of transactions per second. • While on the sidechain, assets no longer rely on the consensus of the main chain, providing transactional independence. Hence sidechains require dedicated nodes for their own security. • Multiple sidechains can be connected to the mainchain, and inter-sidechain communication is possible using the mainnet as a relay network. • However, sidechains introduce considerations such as the risk of centralization, validator selection, consensus mechanisms, bridge security, and inter-sidechain communication. • Polygon PoS is a successful example of Ethereum side chains. •

13. Roll-Ups 1 2 3 4 5 6 Rollups work by batching many small transactions into a single compressed transaction, which is then submitted to the roll-up smart contract on the Layer1 chain. This can be considered similar to how zip files work, where multiple files are combined into a single file to save space. Rollups currently hold over 95% of the Ethereum Layer2 market share. Rollups use Merkle Roots to record transactions and ignore unnecessary data that occupies Blockspace. Rollups are of two types: Rollups are of two types: 1. Optimistic Rollups (Fraud Proofs) 1. Optimistic Rollups (Fraud Proofs) 2. ZK Rollups (Validity Proofs).   2. ZK Rollups (Validity Proofs).  

14. Optimistic Rollups This is the most used rollup at the moment comprising over 80% of total Rollup transactions. The reason being they are easy to deploy. As the name suggests, they assume all transactions are correct when submitted, and a window of 7 days is given for raising disputes. If no fraud proofs are published within that time, assets are released. In case of a successful dispute, the last correct state is restored. Fraudulent activities are rare because of economic incentives and disincentives for the bad actors. Transactions are processed very fast. However, to withdraw it back to L1, one must wait until the fraud-proof publishing window ends. Examples: Optimism, Arbitrum, Polygon Nightfall, Metis, Boba

15. Zero Knowledge Rollups ZK Rollups are a scalability solution that separates transaction execution from consensus and data availability. A ZK protocol provides cryptographic proofs for every batch of executions on the rollup, which are sent to the L1 Mainnet. On the L1 Mainnet, the input data (Call data- a ZK SNARK) of each transaction on the rollup is stored, allowing other nodes to verify transaction integrity. These cryptographic proofs, often referred to as 'Moon Math,' utilize complex mathematics to ensure security and trust. With transactions already verified on the rollup, asset withdrawals can be processed almost instantly, unlike optimistic rollups. ZK Rollups leverage on-chain data availability to maintain transparency and security. Examples: zkSync, Loopring, Polygon Hermez, Polygon Zero

16. App-Chains App-chains are specialized blockchains designed to address scalability needs for specific use cases or applications. • Illustration missing They provide focused solutions by tailoring the blockchain architecture to meet the requirements of a particular application or industry. • App-chains can have their consensus mechanisms, governance models, and network parameters customized for optimal performance. • By isolating specific use cases onto dedicated app-chains, scalability can be improved as resources are allocated efficiently. • Examples: Polygon Supernet, Avalanche Subnet, Substrate Parachains • Here’s a high level overview of Avalanche Subnets, showing how they work independently, while remaining interconnected with other Subnets and leverage the benefits of the primary Avalanche network. •

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