Multi-Layer Blockchain: Can IOTA and Hashgraph Help to Solve Scalability Issues for Blockchains Like Ethereum?

Can Scalability Issues Be Solved with Ethereum vs. IOTA or Hashgraph Multi-Layer Blockchain?

Scalability is one of the main issues discussed when it comes to DLT. We are pleased by the security, transparency, and privacy provided by blockchain, but we are not fond of the number of transactions processed per second.

If you need or want to use DLT in your business, scalability will be the only issue that prevents you from implementing blockchain in your business processes.

Due to the weight of transactions and the number of operations needed to be performed before the transaction is confirmed, blockchains like Ethereum cannot provide adequately high transaction speed. In the meantime, Ethereum cannot make it easier to confirm transactions, as this is likely to decrease the reliability of the network.

However, blockchain is not the only type of distributed ledger technology, though it is the most popular. Another DLT to consider is based on graphs. The two most popular projects using this technology are IOTA and Hashgraph.

IOTA and Hashgraph can be used to help solve scalability issues for Ethereum and similar blockchains, if used together. In order to do that, we need a multi-layer blockchain. We will disclose its working principles below.

How Ethereum and IOTA or Hashgraph Can Be Integrated in a Multi-Layer Blockchain

The Ethereum public blockchain can be used as a top layer, as here, we can store value with coins/tokens because of its high reliability.

A private blockchain developed on the basis of Ethereum (or any other platform) can be used as an environment for the execution of smart contracts. In this layer, solutions store business logic that is too inefficient to release in public blockchains.

The last layer is for communication between users and/or devices where we can use IOTA or Hashgraph ledgers due to the high speed of transaction confirmation. This solution is extremely important with any business solution in which the IoT and MESH networks are the core elements.

Here is an example of how it can work:

Using the advantages of each platform on the corresponding layer, we can solve all issues a business may face:

  • security
  • privacy
  • transparency
  • scalability

Why does this work? It is based on features possessed by Ethereum, IOTA, and Hashgraph, which will be disclosed below.

What Is IOTA?

IOTA is a new cryptocurrency developed for the Internet of Things (IoT) announced at the end of 2015. It is based on the new concept of the distributed-ledger technology Tangle. IOTA, according to the developers’ definition, has a specific set of advantages when it comes to micropayments.

Micropayments in classical cryptocurrencies face high commission fees and rather long wait times for transaction confirmation. In a blockchain, verification is completely separated from users; therefore, miners or holders pay a commission fee for transaction confirmation. In IOTA, there is no such division, as it is a completely self-sustaining network in which no miners or users are needed to confirm the transactions of other users.

Transaction commission fees in the network are absent, which allows users to carry out micropayments in real time. In addition, the system is infinitely scaled.

All IOTA tokens were generated at the same time, and about 2.78 quadrillion tokens have been issued. The quantity was decided upon because of the fact that the first tokens was used for carrying out microtransactions; additionally, this number was combined with the size MAX_SAFE_INTEGER in Javascript.

How It Works

Instead of a traditional blockchain, IOTA uses a DAG (Directed acyclic graph) technology called Tangle.

The DAG network is made up of transactions. When there is a new transaction, it must approve two previous transactions, and these approvals are noted by the directed arrows. If, between transactions A and B, there is a path at least two arrows long, it is considered that A indirectly approves B.

As the transaction gets more and more direct and indirect approvals, its acceptance increases. In other words, at a large number of approvals, double expenditure becomes almost impossible. For this purpose, the concept of transaction weight is used: the amount of work that was enclosed in the transaction (in practice, it is 3^n where n is an integer), and the cumulative weight, which represents the sum of the weight of current and previous transactions that have directly or indirectly approved it.

What Is Hashgraph?

Hashgraph is a DLT based upon its own version of DAG. It is similar to IOTA, especially with the concept of the Internet of Things (IoT).

Hashgraph technology is secured by an aBFT consensus (asynchronous Byzantine Fault Tolerance) algorithm. There is no need for PoW through mining; therefore, the network can process hundreds of thousands of transactions per second.

How Does It Work?

Hashgraph works on similar principles to IOTA; however, there is an additional layer of logic. Hashgraph gains some computational power for a virtual machine, which allows execution of smart contracts with PoS consensus. For IOTA, it is enough for two users to confirm a transaction; here, a more complicated consensus type is used, which is described in detail here.

Advantages of IOTA and Hashgraph

With the technical characteristics of these DLTs, we can derive the following features to solve scalability issues:

  • Transaction speed — Hundreds of thousands of transactions can be processed per second — maybe even more than VISA/MasterCard.
  • Possibility to work with Mesh networks — Certain parts of transactions can be processed offline within devices, and can then be recorded in the ledger.
  • No proof of work needed — very low cost per transaction.

Therefore, these ledgers are ideal for the Internet of Things, as a large number of simple transactions needs to be processed as quickly as possible. In the meantime, IOTA and Hashgraph have some problems. They include:

  • not Turing-complete
  • do not need nodes to process transactions

As a result, you cannot develop and process smart contracts, and you cannot fully rely upon the technology to guarantee security.

What Is Ethereum?

Ethereum is a public blockchain and platform that allows smart-contract development and execution. It is reliable due to the fact that there are more than 50,000 independents nodes.

Ethereum Private Blockchains

Anyone can build Ethereum-based private blockchains for their own purposes. For business, it would be a good idea to use private blockchains as sidechains to the public Ethereum blockchain. Here, smart contracts can be executed promptly, and then the results can be recorded in the public blockchain.

Ethereum Advantages

Ethereum is one of the most popular blockchains for a good reason.

It features:

  • more than 50,000 nodes
  • the ability to develop and execute smart contracts
  • the ability to develop cryptocurrency, private blockchain, and decentralized apps
  • ideal value storage due to reliability

However, scalability issues due to the complexity of transaction confirmation still remain. This is a weak side of Ethereum that can be solved by Hashgraph and IOTA with no scalability issues.

In conclusion, it could be said that the current state of DLT advancement does not allow the creation of a fully compliant and efficient solution for business. To run a business based on DLT, it is better to look at these technologies like a toolbox in which each type of DLT is more efficient for solving a particular task. In this case, multilayer DLT solutions allow users to combine the pros of any of them to create a complete business model.

One issue that needs to be solved is the cost of privacy in these kinds of solutions. The public layer of blockchain could protect users’ privacy from the general community, guaranteeing that their valuable assets are controlled only by them and not by the platform owner. In order to use someone’s business model, however, it is a requirement to disclose the user’s personality if it falls outside the philosophy of public DLTs.

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