Energi: Built to Scale for a Decentralized Future

During the recent bull market, the scalability of blockchains came into harsh focus. As the demand for transactions on the Ethereum network grew, so did the transaction fees, with single swaps on Uniswap costing more than $400 at their peak.

Throttled by a maximum throughput of 15 transactions per second (TPS), the Ethereum blockchain was incapable of handling the surge in demand, forcing people to bid higher and higher amounts for their transactions to be processed.

This led to the crypto community beginning to talk seriously about the need for scalability that can support decentralized finance (DeFi) as it continues to grow. So, what is scalability, and is TPS really the most important part of it?

Why Does Scalability Matter?

Scalability is something of a complex concept when it comes to blockchain technology. Fundamentally, it refers to a blockchain’s ability to process increased demand for transactions without running into bottlenecks or sacrificing network stability and decentralization.

In the early days of cryptocurrency, when demand and adoption were low, scalability was a non-issue. However, as interest and investment in crypto have grown, so has the demand for transactions and data storage. Much of this has been driven by the explosive growth of DeFi, which demands much greater numbers of transactions for its decentralized apps.

DeFi has largely been facilitated up to this point by the Ethereum Network. As the first blockchain to introduce smart contracts, Ethereum became the default home of DeFi. However, Ethereum’s 15 TPS is woefully inadequate to handle even today’s DeFi demand, which represents less than 1% of the global financial market. This has driven transaction fees way up, pushing out the vast majority of users.

But TPS is not the only issue. As more and more transactions are processed on-chain, the size of the chain data grows exponentially. This has resulted in a reduction in full nodes running the Ethereum network. In fact, since the peak of the recent bull run, Ethereum has seen a ~60% reduction in nodes. This is because nodes are increasingly difficult and expensive to run. As this problem gets worse, the decentralization and security of the network will diminish over time, putting the entire ecosystem at risk.

If DeFi is ever to serve the financial needs of billions of people, the platform that it is built on will need to be able to scale to meet incredible demand both in terms of transaction throughput and data management, not just now but into the foreseeable future. This is why scalability matters. Because without it, it will be impossible for DeFi to become the global standard, eliminating the need for centralized banks and lenders in the process.

Many Approaches

There are almost as many approaches to solving the issue of blockchain scalability as there are blockchains. The most popular approaches have all made good headway in expanding the throughput capabilities of existing blockchains or building faster new ones. However, they all involve some kind of tradeoff.

Sharding

Sharding is an increasingly popular approach to solving the scalability problem, particularly among newer blockchains like Polkadot and Cosmos. Ethereum 2.0 is also set to move the Ethereum network onto a sharded ledger.

Sharding works by dividing the nodes of the network into groups and having each group process and store a separate ledger. The shards then communicate between each other to come to consensus and ensure that the entire ledger is accurate.

This approach can dramatically increase the throughput capacity of the network by parallelizing the transaction processing. However, it comes with significant downsides:

• Sharding breaks composability.
• Sharding introduces significant security risks.
• Huge throughput will result in limited validator nodes that can handle the scale of the chain data, resulting in centralization.

Rollups

Rollups are Layer 2 solutions, meaning that they can be applied to existing blockchains like Ethereum to increase their throughput. Many dApps on Ethereum use some form of rollups to meet demand on the slow network.

Rollups function by bundling transactions, executing them off-chain, and then posting data to the Layer 1 blockchain using some kind of proof to confirm accuracy. By doing this, they can speed up processing time while still relying on the consensus mechanism of the underlying blockchain for validation and security.

There are two primary approaches to rollups. Optimistic Rollups and Zero-Knowledge (ZK) Rollups. Both succeed at improving the throughput of existing Layer 1 blockchains, but neither truly offers a long-term solution that can scale with DeFi as it grows. This is because:

• Optimistic Rollup suffers from long withdrawal/dispute periods.
• Optimistic Rollup introduces a security risk whereby miners or validators can be bribed to censor withdrawals.
• Most implementations of Zero-Knowledge Rollup have only been used to process token transfers or swaps because it cannot handle complex smart contract functionality yet.

Layer 1 Scaling

Finally, there are some blockchains such as Solana which conduct all activity on a single layer network. This approach consists of having extremely powerful servers communicating to achieve a very high level of transactions per second.

Energi has a similar approach of having a network of extremely powerful servers processing transactions. But, rather than functioning solely on Layer 1, Energi has a similar system within our Layer 2 (Masternodes). These will enable Energi to also achieve tens of thousands of transactions per second, but with several major benefits vs. a single-layer blockchain. Specifically:

• Dual-layer architecture allows our Layer 1 to remain highly decentralized with many more nodes (as the requirements for running a Layer 1 node are much lower than the Layer 2 “supercomputers”).
• Energi is able to keep our Masternodes lighter weight since they don’t have to contain all blockchain data (our Layer 1 is responsible for storing all the data, while Layer 2 enables the near-instant confirmations and capacity to handle high volume).
• Energi’s design is much better for archiving data. This will become a necessity for ALL blockchains which are truly handling tens of thousands of transactions per second as these blockchains will be growing by up to terabytes of data each day.
• A final critical point — Energi is EVM-compatible. While many once promising Layer 1 blockchains have sought to compete against Ethereum’s technical dominance (such as EOS, Tezos, Iota, etc), none have even come close to succeeding. Energi’s unique approach is that we are fully compatible with Ethereum-based technology, benefiting from nearly all improvements and applications built on Ethereum, while also enabling a very high level of scalability. This is a MAJOR factor for any blockchain to court high utility in the first place.

In the next section we will dive into Energi’s approach in greater depth.

Energi’s Solution

At Energi, we’ve taken a very different approach to address scalability and transaction throughput. We began by implementing a Layer 2 solution on top of our Ethereum-compatible codebase in our Gen 3 upgrade. This will allow for transactions to be processed almost instantly by our Layer 2 network of Masternodes. Energi Masternodes have spec requirements increase as network demand increases, ensuring near-instant transaction confirmation even with enormous network usage. At every block, the Masternodes will then dump the transactions to our Layer 1 network where they are ultimately stored.

This approach dramatically increases the throughput when compared to Ethereum, which is throttled by block propagation issues due to its ~15-second block time. Energi’s 1-minute block time allows us to process a greater number of transactions in our Layer 1 without giving an advantage to validators that would put the decentralization of the network at risk. We can also increase the block time as needed, allowing the Energi network to process tens of thousands of transactions per second while retaining an agile, fast-confirming, and highly decentralized network.

While Energi is prepared to meet the growing throughput requirements of DeFi, we also understand that throughput is not the most critical roadblock in the pursuit of scalability. Chain size is a looming issue that must be confronted if networks are to scale smoothly over the coming years.

Size Does Matter

As demand grows and more transactions are processed on-chain, the chain data grows with it. Ethereum’s archive chain data is now over 8 TB in size, making it incredibly cumbersome to sync and demanding vast storage capacity from its nodes.

While Ethereum’s chain size is not yet at a critical point, it will reach it soon. As adoption grows, on-chain data grows exponentially. Many projects are focused on delivering the throughput required to handle that growing demand, but none of them are discussing solutions for handling the massive amounts of archived data that will be necessary to maintain a complete record of on-chain transactions.

Large chain data makes it prohibitive for smaller nodes to run the network. This causes a trend away from decentralization, making the network less secure and more open to attack. This is why we are focused first on solving the issue of chain size. With a smaller active chain, more nodes can run it, resulting in greater throughput and a more robust and decentralized network.

A Blockchain of Blockchains

To solve this issue, we are implementing a unique approach to archiving which will allow our active chain to maintain a manageable size while ensuring that archived data is maintained properly and remains accessible. This approach is “snapshotting”, which is based on the process that we used to transition from Energi 2.0 to 3.0.

Each time our main chain reaches a maximum size of ~5-10TB, we will create a snapshot of the chain at that time. This snapshot will become a separate archive chain that is connected to the active chain via a running hashed record of snapshots. These archive chains will be maintained by smaller validator sets who are incentivized via staking rewards that make it worth their while to do so. Accessibility requirements will be lower for archive nodes, allowing them to make use of cheaper storage solutions like AWS’ Glacier offering.

As demand and throughput grow, the time that it takes for the chain to reach these limits will be reduced from years to months to days. Archived chains will be spun off regularly, ensuring that the active chain always remains at a manageable size. This will prevent the centralization of the chain to a few large validators that have disproportionate control over the network.

Summary

As the DeFi sector grows, so do the demands on the networks that run it. The recent bull market has highlighted the need for greater scalability, with the Ethereum network failing to meet demand and driving up fees to ridiculous levels in the process. There are many approaches to handling scalability, but almost none of them address the critical issue of chain size and the risk of centralization that comes with it.

Energi is taking a holistic approach to addressing the scalability issue. We have implemented a Layer 2 solution that allows us to process many times more transactions per second than Ethereum while retaining a high degree of decentralization that most layer 1 blockchains today lack.

As importantly, we have engineered a blueprint to solve the largely overlooked problem of chain size, and have designed a system that will allow Energi to handle as many transactions per second as is ever needed, with archive blockchains being spun off as frequently as daily. We are proud of our unique approach to archiving chain data that will keep Energi fast and scalable well into the future.