Blockchain Scalability Solutions [An Overview]

Scalability has proven to be the single biggest roadblock to the mainstream adoption of blockchain technology today. While Bitcoin is impeccable as far as security and decentralization are concerned, it’s an entirely different story when it comes to scalability (measured in terms of TPS, or tranactions per second) – Bitcoin manages a measly 4 TPS when compared with Visa’s 1700 TPS.

Ethereum, the market leader for supporting smart contracts and decentralized applications (DApps), fares slightly better at ~10 TPS on an average day and 20 TPS at best.

As a report by Deloitte puts it, “Blockchain’s sluggish transaction speed is a major concern for enterprises that depend on high-performance legacy transaction processing systems.”

The year 2017 introduced the world to blockchain and its many possibilities, but it was soon followed by a grim reminder of how much we
lack on the technological front. The Cryptokitty carnage in the December of 2017 was a rude wake-up call as to the limitations of Ethereum’s PoW (Proof-of-Work) consensus algorithm. To add insult to injury, the FCoin listing shenanigans in the middle of 2018 once again put the question mark on the robustness of Ethereum’s performance.

Catastrophes such as these have forced blockchain developers to pay serious attention to solving the scalability problems that plague existing blockchain networks, and be better prepared for dealing with such issues in upcoming blockchain projects.

BTC's low TPS has been a matter of great concern over the years

Ethereum 2.0 – The Promised Saviour

Even though Bitcoin has established itself as the poster boy of blockchain technology, Ethereum has built its reputation as the world’s foremost decentralized supercomputer. DApp developers around the globe deploy new applications on Ethereum on a regular basis.

Ethereum has facilitated the field of DeFi (Decentralized Finance), where blockchain, digital assets and smart contracts are used to provide monetary services instead of conventional financial tools.

Recently, the total value locked up in crypto DeFi markets has breached the $1billion mark!

Needless to say, the entire crypto world has been following the updates from Ethereum’s development team religiously, which has been hard
at work implementing Ethereum’s next avatar. Christened Eth 2.0, the upgrade promises much higher transaction throughput and a new
security model, alongwith a shift to PoS (Proof-of-Stake) consensus mechanism.

A low-energy alternative to PoW, PoS is generally considered
to be much more scalabale, capable of supporting much higher throughput.  

Total value of assets locked up in DeFi markets has even touched the $1.2b mark

Sharding in Blockchain

Apart from making a shift to PoS, Eth 2.0’s developers are also integrating Sharding, a popular technique used in centralized databases where the entire dataset is fragmented into smaller shards.

In blockchain networks, sharding is used to break down transactions into shards and distribute them among the entire network, so that each and every network node does not have to download and save the entire blockchain state. Through parallelization, sharding achieves significantly higher transaction speeds.

Ethereum isn’t the first blockchain project which is implementing sharding – the honour belongs to Zilliqa. Other projects like Cardano, Harmony and Elrond have also been working to integrate sharding into blockchain technology.

Unfortunately, Eth 2.0’s development team has been shifting the project milestones for a while now. From January, 2020 to an ‘undisclosed date’ in Q2, 2020, the date of deployment of the first phase of Eth 2.0 has now been set to July, 2020.

Such uncertainties make us skeptical as to when exactly will we be able to see Eth 2.0 in its full glory.

Other Blockchain Scalability Solutions

Before sharding came in vogue, developers had been tinkering with the idea of off-chain state channels. A state channel is a two-way communication channel between network participants which enable them to conduct transactions off the blockchain, and then broadcast the final state of the transactions to the blockchain.

Since all intermediate transactions occur off-chain and only the final state is verified on the main blockchain, state channels decrease transaction time exponentially. Bitcoin’s Lightning Network, Ethereum’s Raiden and Celer Network are some of the projects working in this domain.

DAG (Directed Acyclic Graph) is another concept that has gained popularity
among blockchain developers looking for scalability solutions. In a DAG, each transaction is linked to multiple transactions.

As compared to a traditional block-chain, there are no blocks of transactions in a DAG network. Individual transactions provide validation for one another.

So theoretically, higher the volume of transactions, the faster a DAG can validate them. Iota, Nano and COTI are some of the crypto projects which are based on DAG technology.

Iota's DAG (known as Tangle) connects each transaction to multiple other transactions

Recent Developments

Last month (February, 2020), Harmony launched its mainnet and announced a token swap from ERC-20 (Ethereum) and BEP-2 (Binance chain) tokens to native ONE (Harmony) tokens.

While token swaps from public blockchains to native blockchains are quite common, what makes this one unique is that Harmony is the first project to have made PoS sharded blockchain a reality.

As per the blockchain explorer, Harmony has a block finality of 8 seconds with 4 active shards.

This development is important in the context of other PoS projects which are looking to implement sharding too, such as Eth 2.0 and Cardano. Till a long time, the symbiosis of PoS consensus and sharding was considered to be a purely theoretical concept.

Not only has Harmony’s achievement shown that it can be realized in practice, but it has also paved the way for Ethereum to implement a sharded and PoS-enabled blockchain, making blockchain enthusiasts confident that Eth 2.0 might see the light of day soon now.

The Lightning Network, a super-fast payments layer on top of the Bitcoin blockchain that allows users to send and receive BTC quickly and cheaply, has also made significant progress over the last few months.

The layer-2 scaling project reached 10,000 nodes in Q4 of 2019. Last December (2019), their development team announced that it would soon be possible to use the network to send large Bitcoin payments.

The success of the Lightning Network is expected to drastically reduce Bitcoin confirmation times, making it more acceptable to merchants as a means of payment.

On the DAG front, COTI has launched and integrated token issuance protocol MultiDAG into their mainnet nodes.

MultiDAG is the first DAG-based protocol that allows tokens to be issued on top of a DAG based infrastructure.

Similar to Ethereum, the COTI MultiDAG ecosystem is a common decentralized platform for different tokens and smart contracts, while utilizing one native coin for all fees and staking; but unlike Ethereum, the MultiDAG consists of permissioned entities that allows the owner of the individual MultiDAG instance to set their own rules specific to their needs.

Multiple blockchain scalability projects exist, but very few have actually been able to accomplish their goals

A Bright Future

Faster blockchain transactions translate to greater adoption and more real-life use cases, which have been on our minds since 2017. DeFi has
already grown into a big sector in the blockchain space.

Greater scalability is expected to lead to more DeFi use cases, including faster remittances, cross-border payments, and so on.

The supply chain and logistic industry is also expected to hugely benefit from advancements in blockchain technology. Identity management is another field that is witnessing more and more use of blockchain with time.

More scalable solutions should aid in further integration of blockchain in our daily line. Needless to say, this is just a subset of all possible applications of blockchain technology.

And the pace at which scaling solutions are being developed makes us optimistic that blockchain is here to not only stay but also change the world.