Waterfall: A Scalable Smart Contract Platform that Offers New Opportunities
The allure of Distributed Ledger Technology (DLT) has always been its potential to optimize security, increase traceability, enable transparency, and expedite transaction settlement speed by cutting out the middleman. But limited scalability has been a sticking point of distributed systems, forcing adopters to compromise on total decentralization.
Waterfall is a distributed ledger smart contract platform based on Directed Acyclic Graph (DAG) technology. It provides a high-performance ecosystem for developing decentralized applications (DApps).
Waterfall challenges the trilemma of scalability, security, and decentralization by dramatically increasing scalability, rivaling and exceeding the scalability of conventional centralized platforms like VISA.
Learn about the Waterfall Project, its unique DAG technology, and its potential to solve the blockchain trilemma, making decentralized DLT accessible for a plethora of current and future use cases.
Key Takeaways
- The well-known trilemma of scalability, security, and decentralization in distributed systems essentially boils down to a simple tradeoff between scalability and decentralization.
- Scalability and decentralization are necessary conditions for numerous use cases in various fields (DeFI, DePIN, IoT, Enterprise, etc). The mass adoption of DLT is only hindered by their inherent trade-off.
- The Waterfall distributed protocol is based on Directed Acyclic Graph (DAG) technology with PoS consensus, and solves the blockchain trilemma.
- The prime goal of the Waterfall smart contact platform is to provide an efficient and favorable ecosystem for the development of various decentralized applications (DApps). Its many advantages include high performance, low transaction fees, a low entry threshold, minimal hardware requirements, perseverance of standards, embedded tokens, subnetworks, and dynamic adjustment.
- At present, virtually unlimited sharding is under development. The fractal network structure will provide the capacity for an unlimited number of heterogeneous shards.
Real-world Challenges
Distributed ledger technology (DLT) enables secure and transparent transactions without the need for intermediaries such as banks or government entities. Despite its potential, DLT is still an innovative technology, and some challenges need to be addressed. One of the main obstacles is scalability, as the current generation of DLTs can only handle a limited number of transactions per second without compromising on security and/or increased overall network centralization — the so-called trilemma of scalability, security, and decentralization.
Vitalik Buterin, creator of Ethereum, the currently most decentralized smart contract platform, formulated the blockchain trilemma: of the three chief characteristics of DLT — decentralization, security, and scalability — a distributed system can only have two. In many cases, this trilemma boils down to a simple tradeoff between scalability and decentralization, since security in fintech is non-negotiable. Vitalik Buterin clearly highlighted all the advantages and disadvantages in his article “Endgame,” which can be summarized as
“distributed systems cannot be scalable and decentralized at the same time, and that is fine.”
A well-known problem that concerns both users and developers of Ethereum is that its current maximum throughput does not exceed a few dozen transactions per second (TPS). At the same time, centralized payment systems measure this value in the thousands. For example, VISA processed almost 7,000 TPS on average in 2023, and if the demand should arise, this value can be increased by several times.
So how do we overcome these limitations? There are multiple approaches, among the most popular being sharding and Layer 2s (L2s). Sharding splits a distributed system into smaller, more agile systems so it can handle more transactions. Layer 2 refers to a network or technology that operates on top of an underlying protocol to improve its scalability and efficiency. As a result, the entire system becomes decentralized and scalable. But when we split the whole into parts, its components suffer from the same decentralization and scalability tradeoff. Shard chains are essentially distributed systems. L2s are also mostly distributed systems, achieving scalability by sacrificing decentralization.
As DLT continues to gain popularity and widespread adoption, it is essential to explore new solutions and refine existing ones to address the scalability challenge. Nowadays, increasing scalability, security, and decentralization remain a primary concern for the mass adoption of decentralized services, especially at the enterprise level.
Waterfall Platform Overview
Waterfall is a highly scalable smart contract platform for the development of various decentralized applications (DApps). The distributed protocol is based on DAG (Directed Acyclic Graph) technology, with fast finality Proof-of-Stake (PoS) consensus involving the participation of millions of nodes. The implementation of the platform provides for the possibility of deploying several autonomous Workers on each Node (see Figure 1), with a common ledger and a pool of transactions.
A ledger DAG structure allows us to preserve scalability and decentralization as a whole and in parts. We start by implementing DAG on the shard network to achieve scalability and decentralization on each shard of the network, ensuring these qualities exist across the entire system and within each of its individual components.
Parallel processing allows us to overcome the limitations of Ethereum Virtual Machine (EVM) and achieve much higher levels of scalability. While the importance of scalability is clear, some critics posit that “nobody cares about decentralization.” If we accept this statement as valid, then we can also ask ourselves, “Why do we care about Web 3.0? Web 2.0 is working just fine!”
Bitcoin could be presented as a decentralized accounting system brought to us by innovative distributed ledger technologies. Decentralization dramatically enhances security by eliminating third-party interventions or manipulations. If we compare a distributed system running on 20 servers versus a distributed system running on 20,000 servers, it is much harder for some centralized party or parties to manipulate the system in the latter case, assuming that every server is owned by a different entity.
Waterfall’s Advantages
Waterfall offers a few significant advantages due to its architecture and a new consensus protocol.
High performance — highly scalable DAG-based block structures enable the simultaneous publication of multiple blocks. This forms a DAG and achieves finality for all transactions, provided the blocks do not conflict with one another. For this reason, Waterfall has the potential to process Visa, MasterCard, and Union Pay simultaneously on the decentralized layer 1, even during peak times. According to the most recent intermediary lab tests, our protocol was able to process more than 10,000 TPS. This is a decisive feature that reveals a range of opportunities for DApps that are not possible in low-performance networks.
Low transaction fees — Waterfall’s system architecture is designed to keep fees at a minimum in various scenarios. The protocol scales dynamically with the growth of the network load. As long as the entire system’s performance is being expanded, more blocks are published in the same slot simultaneously, and transaction fees are reduced as the system scales. This keeps activity in the transaction pool low, even during peak times. In addition, low fees combined with high throughput propose extra advantages for Dapps developers.
Low entry threshold and hardware requirements — the minimum hardware requirements include a CPU with at least 2 cores and 4 GB of RAM. By contrast, certain other high-performance networks either impose significantly higher requirements on their validators or reduce the decentralization of their consensus protocols.
Perseverance of standards — Waterfall utilizes EVM, which allows for easy migration. Smart contracts for Ethereum could be literally copied and pasted, although porting more complex applications may require changes in their code. It took only a few days for our team to adapt a copy of the open-source Uniswap project. Reverse migration also works, which lowers risks for new applications.
Embedded tokens — release and maintenance of tokens (including NFTs) do not demand special smart contracts but are carried out with ordinary transactions that significantly reduce overhead charges while making their usage more accessible to a wide range of users.
Subnetworks — a specially developed subnetwork technology ensures scalability in terms of transaction processing capacity. With this technology, a transaction pool is split between network validators by applying a hierarchical and graph-based clustering algorithm. Although, so far, subnetworks parallelize the validation of transactions and their inclusion in blocks, further processing of blocks to include them in the ledger and change the current state is performed by the nodes of all subnetworks. This is a principally new approach to parallel processing on a single shard level.
Dynamic adjustment — there are mechanisms to dynamically adapt system parameters, depending on the changing situation (for example peak network usage demand). In particular, the slot time, the width of the spray, the optimal number of Workers, and a few other parameters are adjusted automatically. This approach allows network behavior to achieve self-sustainability throughout its entire lifecycle, forming an ecosystem with the prospect of synergistic interaction of all its elements.
Ongoing Work
Our R&D team is currently working on virtually unlimited sharding. Heterogeneous dedicated shards may be created for decentralized finance (DeFi), web3 games, e-voting services, electronic medical screening systems, etc. This not only reduces the overall load on network nodes, but opens up new opportunities for intrashard interactions.
By applying DAG on the coordinating network we aim to achieve a virtually unlimited number of shards, which can lead us to virtually unlimited scalability while preserving the decentralization of the entire system and each of its subsystems. Our network development assumes the transformation of the coordinating network into BlockDAG with parallel branches (see Figure 2). Сoordination shards will generate parallel branches that intersect during intershard interactions. This is our innovative approach to parallel processing on the multi-shard level.
The Waterfall platform ensures a favorable environment for the provision and consumption of a wide spectrum of enterprise-class services for business and social activities, in a convenient format within the framework of a public decentralized network.
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