Challenges and Solutions for Public Chain

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Coinmonks

6 min readJun 14, 2022

What are some problems encountered by the public chain market featured by Ethereum?
Are there any effective solutions?
Does privacy matter? How to protect it?

Ethereum represents a typical public chain, indulged in the heat of the spotlight. One trivial change might cause a butterfly effect in the whole industry. Congestion, cross-chain communication, privacy threats, etc., however, stand out as prominent setbacks for Ethereum. Just like antivirus software updates and iterates as viruses grow stronger, ETH rivals have risen to the surface. While many woes have been gradually relieved through classic projects, a unified perfect solution has not yet been reached. But I believe the answer is lying ahead for us to find out.

Multichain is sure to arrive as ETH competitors eat away its market share. As the competitors wax and wane, Ethereum is somehow upgraded and core rules are established for smart contracts.

Fast but Cheap Transactions

Ethereum always shuts new users out of the door for its high gas fees. Vitalik Buterin, the founder of Ethereum, once said that the “internet of money should not cost more than 5 cents”. Thus, only superior but cost-effective projects (even their clones) can take off. Avalanche(AVAX) can be regarded as the spiritual successor of the Ethereum. Binance Smart Chain(BSC) is an EVM-compatible blockchain, with its products boasting both low cost and high quality. Solana(Sol) is another unique blockchain. In terms of performance, it can exclude everything else it’s very cheap and very fast. It relies on Moore’s Law for scaling (as the computer gets faster, Sol gets faster).

These projects all show bountiful merits while unclogging Ethereum. They enjoy great popularity among new users but are challenged for lack of stability. Some worry if they will face the same dilemma when they reach a similar scale and volume as Ethereum. Meanwhile, Ethereum is trying to work out its own salvation as the future remains vague.

Now, Ethereum is plagued by its low scalability. The most rigorous and effective way out lies in Ethereum 2.0 (ETH2.0). ETH 2.0 update entails the shift from Proof of Work(PoW) to Proof of Stake(PoS), enabling nodes to hold stakes and promoting faster transactions. Such that, average users can experience Ethereum they want with many other features improved. Transactions spike, traffic eases, and cost drops. There is, however, still a long, arduous way for ETH2.0 to go live. According to the official prediction, ETH2.0 will be rolled out in several phases over the next 3 to 5 years. One major obstacle unveils itself as unsolved core issues on the original chains, such as chain storage, block size, transaction throughput, state size, and network performance. Smooth and successful transition requires upgrades of both chains.

Anyway, ETH2.0 is a completely different system from Ethereum, and they will run in parallel for many years. But the uncertainty of this journey may make it hard for ETH2.0 to regain popularity among its users.

Fast and Stable Cross-chain Interaction

As stated above, the future may be multichain. To transfer assets from one chain to another, we need cross-chain bridges to link the chains. But what’s more thrilled is the concept of the Inter‐Blockchain Communication Protocol (IBC). One design flaw is that all applications use a mainframe approach but run on a shared state machine. We want different blockchains to work independently yet can communicate and collaborate. IBC makes that happen.

IBC and bridges differ. Bridges act as direct routes between blockchains, while IBC functions more like a highway open to all blockchains. Distinct bridges consume time and resources. IBC allows connection to Layer 1 blockchains with the absence of bridges. Which carries more merits? It depends on your needs. IBC brings general solutions, while bridges create a fast track.

In the Messari’s Crypto Theses 2022 Report, the prediction goes like the most popular L1 <> L2 / L1 <> L1 / L2 <> L2 bridge protocols will have higher daily volumes than the most popular centralized exchange within five years. Each ecosystem will eventually develop and grow its own strengths, including higher security, faster throughput, cheaper transactions, better privacy, unique resource allocation (e.g. storage, computing, bandwidth), and regional developers and user communities. A bridge is important as it creates accessibility to new platforms and protocols, interoperability for users, as well as availability to work out new products through joint efforts by developers. To be specific, they make existing crypto assets productive and practical, tap out new features for existing protocols, unlock new functions and test cases for users and developers, etc.

While an ideal state would have been one homogeneous bridge for everything, it is likely that there is no single “best” bridge design and that different types of bridges will be the best fit for specific applications (e.g. asset transfer, contract calls, minting tokens).

Furthermore, the best bridges will be the most secure, interconnected, fast, capital-efficient, cost-effective, and censorship-resistant. These are the properties that need to be maximized if we want to realize the vision of an “internet of blockchains”. Bridge-building faces a similar Trilemma (scalability, decentralization, security) to the blockchain. You cannot always balance the trade-offs. One realization might be at the cost of another’s sacrifice.

Secure and Transparent Privacy Network

In the era of Web 3.0, users own the data on the chain, and the data is open, transparent, and traceable. We seem to have found the utopia of freedom and equality, on the other side, how to protect privacy will be another holy grail. The privacy design of the blockchain evolved from banks to the Bitcoin network. We assume that the underlying network of Web 3.0 will be a blockchain network like Bitcoin. Then the privacy we are discussing will be based on the premise that transactions are open, data is open source, and decentralized.

In the Blockchain Trilemma of performance, usability, and privacy, privacy protection needs to be integrated into the global underlying logic. Vitalik said, “Only global anonymity sets are truly robustly secure.” This means that perhaps only global privacy protection on a blockchain network would be the most effective. In practice, both Bitcoin and Ethereum compromise some privacy protection to achieve decentralization and computational costs. In this Trilemma, the first thing that ordinary users and developers want to solve is performance, followed by usability, and finally privacy. In the age of Web3.0, perhaps the last darkness before the dawn will be the privacy issue.

One of the most complete but also most bloated solutions is to make a dedicated privacy chain (e.g. Monero) and then adapt it with various cross-chain tools and various wallets. But this is a very bad user experience. It’s like if you want to post a picture of your tattoo on social media, and you don’t want your elders to see it, then you need to block them one by one, or even go to a new social media and only add your peers as friends. This is a pain in the ass in both Web 2.0 and Web 3.0 scenarios.

No one knows what will happen with Web 3.0, and most Web 3.0 users have no idea what they want, just as it took Web 2.0 users a long time to realize that their privacy was being violated with such recklessly. The recent flood of funding for privacy projects has actually brought the need for privacy to the forefront and made more people aware that in the Web 3.0 era, we need data autonomy, data privacy, data computation privacy, and real-world identity privacy.

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