While blockchain technology is proven to be a new foundation of the global economy, the Blockchain Trilemma, or the balancing act between decentralization, security, and scalability inside a blockchain infrastructure, is a unique problem.
Security refers to a blockchain protocol’s defenses against malicious actors and network attacks, while decentralization refers to the meaningful distribution of computing power and consensus throughout a network. Both are deemed non-negotiable for a blockchain network’s operation.
Scalability, or a blockchain network’s ability to accommodate high transactional flow and future growth, is also critical. Scalability is critical because it is the only way for blockchain networks to compete fairly with legacy, centralized platforms that offer quick settlement times.
Bitcoin handles 4–7 transactions per second, which is a frequent comparison to illustrate the scalability gap (TPS). Visa, on the other hand, handles tens of thousands of TPS each year. Blockchain technology must match or exceed these high levels of scalability to compete with these existing systems. There is now an entire sub-sector of the blockchain industry dedicated to enhancing scalability.
Thankfully, a new generation of blockchains and scaling solutions designed particularly to address this transaction-capacity issue is rapidly improving the scaling limits of blockchain and making meaningful progress. These projects address scalability in three different ways:
Layer 0, Layer-1, and Layer-2 scaling solutions.
Scaling Solutions for Layer 1
A Layer-1 network is a blockchain in the decentralized ecosystem, whereas a Layer-2 protocol is a third-party integration that may be utilized with a Layer-1 blockchain. Layer-1 blockchains include Bitcoin, Litecoin, and Ethereum, for example. To boost scalability, layer-1 scaling solutions supplement the blockchain protocol’s foundation layer. Several approaches that directly improve the scalability of blockchain networks are now being developed — and practiced.
The following is how it works:
Layer-1 solutions alter the protocol’s rules directly to boost transaction capacity and speed while allowing for more users and data. Layer-1 scaling solutions can include things like increasing the quantity of data in each block or speeding up the rate at which blocks are created. confirmed, to increase overall network throughput.
To accomplish Layer-1 network scale, other core modifications to a blockchain include:
Improvements to consensus protocols: Certain consensus techniques are more efficient than others. Proof of Work (PoW) is the current consensus protocol for major blockchain networks like Bitcoin. Although PoW is secure, it is time-consuming.
That is why the Proof-of-Stake (PoS) consensus mechanism is preferred by many newer blockchain networks. PoS systems process and validate new blocks of transaction data based on participants staking collateral in the network, rather than requiring miners to solve cryptographic algorithms with significant processing power.
State channels: A state channel improves transaction capacity and speed by allowing two-way communication between a blockchain and off-chain transactional channels.
A state channel does not need to be validated by Layer-1 network nodes. Rather, it’s a network-adjacent resource that’s protected via a multi-signature or smart contract mechanism.
The ultimate “state” of the “channel” and all its inherent transitions are posted to the underlying blockchain when a transaction or batch of transactions is completed on a state channel.
State channels include the Liquid Network, Celer, Bitcoin Lightning, and Ethereum’s Raiden Network. State channels give up some decentralization to get more scalability in the Blockchain Trilemma tradeoff.
Ethereum will switch to a PoS consensus method with Ethereum 2.0, which is projected to significantly and fundamentally boost the Ethereum network’s capacity while enhancing decentralization and maintaining network security.
Sharding: Despite its rather experimental character within the blockchain sector, Sharding is a technology borrowed from distributed databases that have become one of the most popular Layer-1 scaling options.
Sharding divides the state of the whole blockchain network into separate databases known as “shards,” making it easier to administer than having all nodes maintain the entire network. The network processes these network shards in parallel, allowing for sequential processing on a large number of transactions.
Furthermore, instead of retaining a full copy of the blockchain, each network node is assigned to a specific shard.
Individual shards offer proofs to the mainchain and communicate with one another using cross-shard communication protocols to share addresses, balances, and general statuses. Ethereum 2.0 is a well-known blockchain protocol that is exploring shards, along with Zilliqa, Tezos, and Qtum.
Scaling Solutions for Layer Two
A network or system that runs on top of an underlying blockchain protocol to improve its scalability and efficiency is referred to as Layer-2.
This type of scaling solution involves offloading a portion of a blockchain protocol’s transactional weight to an adjacent system architecture, which then performs the majority of the network’s processing and only reports back to the main blockchain to complete the process.
The base layer blockchain becomes less crowded — and eventually more scalable — by abstracting the majority of data processing to auxiliary architecture.
Bitcoin, for example, is a Layer-1 network, and the Lightning Network is a Layer-2 solution designed to increase transaction speeds on the Bitcoin network in this way. Layer-2 solutions can also be found in:
Nested blockchains: A nested blockchain is a blockchain that sits inside — or rather, on top of — another blockchain.
The nested blockchain architecture typically consists of the main blockchain that establishes the parameters for a larger network, with executions taking place on a web of secondary chains that are interconnected.
On a mainchain, several blockchain tiers can be established, each with its parent-child link.
The parent chain assigns work to kid chains, which process it and then return it to the parent.
Unless there is a need for dispute resolution, the underlying base blockchain does not participate in the network functions of subsidiary chains.
The work distribution in this architecture minimizes the processing load on the mainchain, improving scalability tremendously.
Layer-2 stacked blockchain is demonstrated by the OMG Plasma project is an example of layer-2 nested blockchain infrastructure that is utilized atop the Layer-1 Ethereum protocol to facilitate faster and cheaper transactions.
Sidechains: A sidechain is a transactional chain that runs alongside a blockchain and is often used for big batch transactions.
Sidechains make use of a different consensus method from the main chain, which can be tuned for speed and scalability. The main chain’s principal function in a sidechain design is to maintain overall security, confirm batched transaction records, and resolve disputes.
In several important ways, sidechains differ from state channels. To begin with, sidechain transactions are not private between participants; instead, they are published openly on the ledger. Furthermore, security breaches on sidechains do not affect the mainchain or other sidechains. Because the infrastructure is normally developed from the ground up, establishing a sidechain could take a long time.
All blockchain protocols are built on the foundation of layer 0 protocols. While Layer 1 projects, such as Uniswap and Aave, allow for the development of decentralized apps (dApps) on the blockchain, Layer 0 initiatives allow for the development of whole blockchains.
The Binance Chain (Layer 1), for example, was created with Cosmos SDK, Cosmos’ customizable platform for creating blockchains. Layer 0s enable not just the construction of blockchains on top of them, but also cross-chain interoperability between these Layer 1 initiatives. This means that multiple blockchains can communicate with one another, which is a functionality that Layer 1s normally lack.
Layer 0 Scaling Solutions:
View on Cosmos:
Cosmos’ mission is to make it simple for developers to create blockchains and to tear down barriers between them by allowing them to transact with one another. The ultimate goal is to establish an Internet of Blockchains, a decentralized network of blockchains that can connect. Blockchains can maintain sovereignty, execute transactions rapidly, and communicate with other blockchains in the ecosystem using Cosmos, making it ideal for a wide range of use cases
This ambition is realized through a set of open-source tools including Tendermint, the Cosmos SDK, and IBC, which allow users to swiftly create bespoke, secure, scalable, and interoperable blockchain applications. Let’s take a closer look at some of the ecosystem’s most significant tools, as well as the Cosmos network’s technical architecture.
Note that Cosmos was created as an open-source community project by the Tendermint team.
Everyone is welcome to contribute to the development of new tools that will benefit the developer community as a whole.
“A next-generation blockchain protocol that joins an entire network of purpose-built blockchains, allowing them to operate smoothly together at scale,”
View on Polkadot
Polkadot makes use of sovereign blockchains called parachains and parathreads, which connect to and are safeguarded by the Polkadot Relay Chain. These parachains and parathreads can link to and communicate with external networks like Ethereum and Bitcoin thanks to Polkadot’s bridges.
Anyone can create an application-specific Polkadot parachain using Polkadot’s Substrate framework. Polkadot has been used by several well-known projects, including Moonbeam, Efinity, and Acala, to develop blockchains that are compatible with Polkadot’s ecosystem. $DOT, Polkadot’s native token, offers a variety of applications, including governance, staking (blockchain security), and bonding (auction for parachains & parathreads).
Layer 0 is the most fundamental design, serving as a support system for Layer 1 chains as well as communication between them. Layer 1 chains specify protocols and standards, as well as support decentralized applications. Layer 1 chains typically have their ecology and structure, as well as a well-defined transaction verification process carried out by the participating nodes. Layer 2 networks are primarily designed to aid Layer 1 in terms of scaling, with the majority focussing on the Ethereum network.
Layering is also used in Internet protocols, and it took a long time for the community to agree on which structure was ideal. Protocols, standards, and foundational development for blockchains are still in their infancy.
We’ll give it some time, support those projects that are truly dedicated and innovative, and be critical of and pay special attention to those projects that produce nothing original or valuable and instead focus just on selling tokens.