Exploring Solutions for Blockchain Scalability

Source: OpenArt

This article explores scalability challenges in blockchain technology, as well as an understanding and comparison of different scalability solutions. In particular, we’ll see how modular blockchains such as Klaytn are a promising paradigm for the future of blockchain scalability.

Ever since Satoshi Nakamoto’s original Bitcoin whitepaper, the promise of blockchain and crypto technology has been to replace the existing global financial system with a more open, secure, and permissionless system available to anyone in any part of the world. However, in order to fulfill this promise of a new, open financial system, blockchains need to scale.

Presently, when compared to traditional financial networks built with centralized database systems like Microsoft SQL, blockchains are slow and limited in their capacity to handle many transactions at once. The oft-referenced comparison between VISA and popular blockchains illustrates this gap — while the VISA card network is capable of 24,000 transactions per second (tps), Bitcoin, the most popular blockchain, is capable of only 7 tps, and Ethereum, the second most popular, can handle 20 tps.

Source: Crypto.com

Apart from powering global finance, scalable blockchains can also lead to the integration of blockchain technologies into other large-scale distributed systems, such as Internet of Things (IoT) networks, among others.

What is Scalability?

Scalability refers to the ability of a blockchain system to handle a growing number of transactions and users while maintaining its performance, speed, and security.

With the increasing popularity of blockchain technology, scalability has become a major challenge that needs to be addressed in order to allow the widespread adoption of blockchain-based systems.

Why do blockchains have a scalability problem?

In order to understand why blockchains are difficult to scale, let’s briefly explore the architecture of the second most popular blockchain by market capitalization: Ethereum.

Ethereum is made up of 3 parts:

• the Ethereum network: a network of nodes (physical computers) that collectively power the Ethereum ecosystem. Each node mainly runs two pieces of software — the Ethereum Virtual Machine (EVM) to process computations and update the blockchain’s state, and a consensus client to verify and validate the accuracy of transactions sent to the node.
• the EVM (Ethereum Virtual Machine): the software that processes transactions, executes code written in smart contracts, and updates the state of the blockchain whenever it completes these actions. Each and every EVM state update must be recorded to the public blockchain.
• the Ethereum blockchain itself — comprising blocks containing transaction data and smart contract code.

Source: Inevitable Ethereum

To ensure the security of the blockchain, each node runs computationally intensive processes — firstly, even though each node is independent, they each must retain a synced local copy of the EVM (with thousands/millions of other nodes). They must also verify the accuracy & correctness of every transaction and block added to the blockchain, as well as maintain the most up-to-date copy of the entire blockchain history from genesis.

Ultimately, these computations are limited by the capacity of the hardware in which they run. So if we want faster computations & better performance, why don’t we just use more powerful hardware to run nodes? While this seems like the “common-sense” solution, it weakens decentralization, as only a small number of individuals (or organizations) would be able to afford to run nodes. And decentralization is a “numbers game” — the more people participate in the network, the more transparent and resilient it becomes.

This above scenario makes up the Scalability Trilemma, a term coined by Vitalik Buterin. According to the trilemma, a blockchain can’t achieve scalability, decentralization, and security all at the same time — only two out of three are attainable at once. Therefore, popular blockchains make tradeoffs, sacrificing one attribute for the other two.

Source: ToshiTimes

For example, the BNB chain sacrifices decentralization for security & scalability. With only 21 validators, consensus (agreement on the state of the network among validator nodes) is faster on the BNB chain, thus resulting in faster transaction speeds.

Compare this to Ethereum, which has more than 50,000 validators, which makes the concept of a 51% attack or manipulation of the network much more difficult. However, the high number of validators and nodes also means consensus is much more computationally intensive on Ethereum, thus resulting in slower transaction speeds.

Klaytn, a highly optimized, BFT-based public blockchain suitable for personal and enterprise-grade use cases, also operates in the Scalability <> Security vertex, relying on 31 preapproved nodes to maintain consensus. However, I should note Klaytn is looking to transition to a wholly permissionless validator structure, which means the general public will be able to become validators, thus improving decentralization. It’ll be interesting to see how Klaytn retains scalability with this new approach.

Apart from the scalability trilemma, other factors influencing blockchain performance include Network Latency, smart contract complexity, the size of each transaction payload, etc.

Solutions for Blockchain Scalability

Developers and researchers in the crypto space have built and proposed several scaling solutions, which we can broadly classify into 2 categories:

1. On-chain (or Layer-1) scaling solutions, which require modification to the blockchain itself.
2. Off-chain (or Layer-2) scaling solutions built on a second layer optimized for high transaction-per-second. This second layer does most of the heavy lifting, relying on the main chain only for transaction settlement and finality.

Source: Hacken

Layer-1 Solutions

On-chain scaling solutions refer to solutions that require modification to the blockchain itself. This includes modifying its protocol design and architecture, consensus mechanisms, and codebase. These upgrades are usually slow and subject to long release cycles, partly due to their sheer complexity, and partly due to a lack of consensus from most projects’ stakeholders on what constitutes scalability, as well as tradeoffs to make. For example, Ethereum 2.0, which should include major scalability upgrades to the protocol, has a release cycle from Jan. 2010 — January 2024

Examples of on-chain scaling solutions include sharding, adoption of more compact data structures such as Merkle trees, as well as alternative consensus strategies such as Proof-of-Stake, Delegated Proof-of-Stake, and PBFT (Practical Byzantine Fault Tolerance).

For scalability on a Layer-1 level, the aforementioned Klaytn blockchain uses Istanbul BFT, an optimized PBFT algorithm that ensures quicker finality of transactions, compared to Proof-of-Stake and Proof-of-Work, two of the most popular consensus mechanisms used by Ethereum and Bitcoin respectively. While the PBFT algorithm and its derivatives are beyond the scope of this article, this guide provides a pretty clear overview and comparison of PBFT to other consensus mechanisms.

Sharding, another scaling solution, enables a blockchain network to be divided into smaller, more manageable parts. This helps to distribute the computational effort required across a peer-to-peer network so that each node does not have to compute loads for the entire network. Each shard operates independently, processing transactions in parallel and reducing the load on the network as a whole. Sharding also enables each shard to process transactions more quickly, increasing the overall TPS of the network.

Source: Web3 University

Another aspect of Layer-1 scalability is the size of the blockchain, which can become unwieldy over time as more transactions are added. This can lead to slower synchronization times for new nodes and increased storage requirements. One solution to this problem is pruning, which involves removing old and unnecessary data from the blockchain to reduce its size.

Another solution is the use of compact data structures, such as Merkle trees, which allow for more efficient storage of transaction data. An example of a blockchain platform that uses compact data structures is the IOTA Tangle.

Layer-2 Solutions

Layer-2 blockchain scalability solutions refer to methods that aim to address the issue of scalability by taking some of the load off the underlying layer-1 blockchain and processing transactions off-chain.

Off-chain transactions refer to transactions that are processed outside of the main blockchain network. These transactions can be processed more quickly and at a lower cost than on-chain transactions, as they do not require consensus from the entire network. Off-chain transactions can be used to increase the TPS of a blockchain network and to reduce the amount of data that needs to be recorded on the blockchain.

Side-chains

Side chains are a layer-2 scalability solution that enables the creation of additional blockchain networks that run in parallel to the main blockchain. Transactions can be processed on these side chains, reducing the load on the main blockchain and increasing the overall TPS of the network. Side chains can be used to increase the scalability of a blockchain network, as well as to add new functionality to the network.

Each sidechain could have its own execution, security, and data availability architecture. Multiple sidechains can be connected to the main chain to create a network of blockchains. In this case, the main blockchain serves as a relay chain, ensuring they share common properties that make them interoperable.

Other examples of side-chains:

• Polygon (for Ethereum)
• Plasma
• Polkadot
• Klaytn

Klaytn implements side-chains for scalability through its Service Chains, which are auxiliary blockchains that operate independently from the main Klaytn blockchain, while still connecting to the main chain periodically for data anchoring.

Like other modular blockchains, Klaytn’s service chains are highly customizable and can have their custom security and node setup framework. Compared to the main Klaytn chain, they provide benefits of high TPS, minimal transaction fees, and data privacy.

Source: Klaytn

In order to optimize for better usability, instant finality, high performance, and high availability, Service Chains trade off some attributes of the main Klaytn blockchain, including decentralization. This is a common characteristic of side-chains — for example, Polygon sacrifices decentralization for speed. Side-chains make up for this trade-off by settling transactions on the main chain and relying on its security — the Public Main Chain in Klaytn’s case, and Ethereum in the case of Polygon.

Apart from the potential to increase transactions per second, some of the other benefits of Klaytn’s service chains include:

• Immediate finality.
• Cross-chain token transfer.
• Data anchoring to the main chain.
• Multi-sig bridge contract to meet enterprise security requirements.

State, Payment Channels & Plasma

State channels are a layer-2 scalability solution that enables parties to transact with each other without having to broadcast every transaction to the entire network. Instead, the transactions are recorded in a mutually agreed-upon state, which is periodically updated on the blockchain. This reduces the amount of data that needs to be recorded on the blockchain and increases the TPS of the network.

Plasma is a layer-2 scalability solution that enables child blockchains to be created on top of a main blockchain. Transactions can be processed on these child blockchains, reducing the load on the main blockchain and increasing the overall TPS of the network. Child blockchains can be created and destroyed as needed, and all changes to their state are periodically recorded on the main blockchain.

The Lightning Network is a layer-2 scalability solution for blockchain networks that uses payment channels to enable off-chain transactions. This solution allows parties to transact with each other without having to broadcast every transaction to the entire network, increasing the TPS and reducing the amount of data that needs to be recorded on the blockchain. The Lightning Network is most commonly associated with the Bitcoin blockchain, but it can be used with any blockchain that supports smart contracts.

Examples of State Channels:

• Trinity.
• Raiden Network.
• Liquidity.
• Celer Network.

Rollups

Rollups are a layer-2 scalability solution that enables transactions to be processed off-chain, while still being recorded on the main blockchain. Hundreds or thousands of transactions are batched together and processed as a single transaction, reducing the amount of data that needs to be recorded on the blockchain and increasing the TPS of the network.

Beyond improving scalability, rollups offer levels of security similar to Ethereum because transactions in rollups are anchored to the L1 chain, which guarantees transaction finality.

There are two main types of rollups: optimistic rollups and zero-knowledge rollups. Each type differs based on how transactions are computed and posted to the main chain:

Optimistic rollups “optimistically” assume transactions are valid by default and don’t generate validity proofs for every bundled set of transactions. However, the validity of transactions can be challenged by those on the network within a certain amount of time, via a fraud proof mechanism. The main benefit of optimistic rollup is its speed since it doesn’t spend time confirming transaction validity. However, to officially withdraw funds from popular rollup networks like Optimism or Arbitrum can take up to a week.

Zero-knowledge rollups or ZK-rollups perform computation off-chain and generate cryptographic proofs. These “validity proofs” assure nodes on the main chain of the validity of transaction batches. While ZK-rollups are much more complex to implement compared to optimistic rollups, withdrawals from ZK-rollup networks are much faster, as there is no need to contest transaction validity. Research shows that a smart contract on ZKRollups is capable of up to 100,000 transactions per second.

The Polygon team recently released zkEVM, a zero-knowledge solution equivalent to the Ethereum Virtual Machine.

Rollups are one of the most promising scalability solutions in blockchain currently, and you can learn more about them here.

Some popular Layer-2 chains using rollups include:

• Optimism
• Arbitrum
• Polygon

It’ll be interesting to see Klaytn adopt rollups, especially with its recent adoption of a permissionless validator structure. These innovations would dramatically increase its transaction capacity further while ensuring the decentralization of the network.

In conclusion, blockchain scalability is a complex issue that requires a combination of on-chain and off-chain solutions in order to be effectively addressed. The use of sharding, off-chain transactions, side-chains, rollups, compact data structures, alternative consensus algorithms, and improved infrastructure can all help to improve the scalability of a blockchain platform.

Paul Oladimeji is a Product Manager at Nestcoin, building crypto-powered financial products for Africa. He is also a certified Defi Talent of the Frankfurt School of Blockchain, a Klaytn ambassador, and co-founder of KlayOracle, a decentralized oracle network.