The Importance of Scaling Solutions to the Blockchain Ecosystem
As the blockchain ecosystem continues to expand in both adoption and application, scalability solutions are needed to handle the growing demands in the domain. We’ve seen the likes of decentralized finance (DeFi) reaching the multi-billion dollar mark in total value locked. Also, we’ve seen bigger collaborations in the industry that have yielded NFTs, scalable dApps, decentralized exchanges (DEX), and so on.
All these and more need security, speed of transaction, and efficiency to meet the growing expectations in the crypto and blockchain space and accommodate as many innovations as possible. In this article, we highlight the solutions to the scalability problems in the blockchain ecosystem and the possible benefits of such solutions.
What Is Scaling in Blockchain?
Scaling in blockchain refers to protocols that increase the efficiency and operations of blockchain systems without altering the system’s operations. Scaling solutions aid the functionalities in blockchain technology and support its protocols to enhance the productivity and proficiency of the ecosystem.
Forms of Scaling in Blockchain
Scaling solutions basically take two forms: Layer 1 (on-chain) and Layer 2 (off-chain) scaling. Other forms include sidechains and parallel chain scaling.
While layer 1 scaling solutions directly affect the protocols of the system, layer 2 scaling solutions work in parallel to the protocol, yet increase the system’s efficiency. We’ll further highlight these forms of scaling and their applicable protocols.
Layer 1 Scaling Solutions
Layer 1 scaling solutions primarily include sharding and alternative functions in the cryptographic systems of blockchains.
- Sharding: In computer science, sharding refers to splitting a protocol or database into different portions, particularly to reduce its workload. In the blockchain, a sharded network means it is divided into partitions to increase efficiency, throughput (TPS) and reduce the network’s congestion.
Sharding is one of the major scaling solutions for emerging blockchain networks, especially in the PoS consensus for the ETH 2.0 network. Sharding as a scalability solution means computers can combine resources to run network nodes, thus creating a cost-effective protocol for validating transactions.
- Alternative Cryptographic Signatures: The higher the adoption and integration of blockchain, the more data on its ledger. There will be a need for more computational power to serve this purpose. Alternative cryptographic signatures eliminate the need for more computer power by minimizing the number of transactions recorded on a ledger through ring signatures, threshold signatures, multisigs, etc.
Layer 2 Scaling Solutions
Layer 2 scaling typically takes the form of off-chain scaling protocols that do not interfere with the normal processes of the mainnet protocol but rather enhances it. They include state channels, rollups, and blockchain interoperability protocols.
- State channels: Alternatively referred to as payment channels, the state channel makes it easy to make transactions off the mainnet without actually leaving the mainnet. By doing so, network congestion is limited, and there is a faster speed of transaction validations.
- Rollups: Comprise both zero-knowledge rollups (ZK-Rollups) and optimistic rollups. They are scaling solutions on the Ethereum blockchain, which allows smart contracts to run and process transactions off the mainnet, thus allowing for faster transactions of up to 2000 TPS.
- Blockchain interoperability: For blockchain networks to solve scalability problems, interoperability of chains is necessary to facilitate progress. Interoperability means that computers, networks, and platforms can work together anonymously yet cooperatively to achieve speed and efficiency in transactions.
Sidechains
Sidechain supplements the mainnet or main chain to speed up transactions. They combine the features in layer 1 and layer 2 scaling to achieve scalability in blockchain networks. The sidechain runs parallel to the main chain making it less vulnerable when threatening cases arise.
An example is the Liquid Network and Plasma attached to Bitcoin and Ethereum, respectively. It supports the network’s main chain by freeing up some of the PoW protocols to enable a faster validation of transactions.
Parallel Chains
Also known as Parachains, parallel chains comprise individual chains that run parallel to one another but connect through a relay chain. Parallel chains contrast with sidechains in that they can work independently, though bearing the same security and operational features.
Parallel chains reduce congestion in splitting the workload among individual chains. They operate in interconnected blockchain protocols and are evident in Polkadot.
Application and Importance of Scaling in the Blockchain Ecosystem
As innovations keep coming up, there is a greater need for scaling in the different applications of blockchain technology such as decentralized finance (DeFi) and dApps, PoW and PoS protocols, NFT ecosystem, and so on.
1. Decentralized Finance and apps
The DeFi ecosystem is one of the fastest-growing domains in the crypto sphere, with over $90 billion in total value locked. However, the space keeps expanding with nascent innovations from the crypto community.
Smart contracts have also made deploying these projects on different blockchain networks such as Ethereum and Polkadot easy. But it doesn’t end there as these decentralized applications and DEXes need scalability to stand the tests of time. Scalability is important in decentralized finance and apps to tackle network congestions that increase gas fees and slow transaction speed.
Security has been another area in which the DeFi and the decentralized sphere have trailed behind over the years. With the layer 2 scaling combining security measures in the layer 1 scaling, there will be an increased security level in the decentralized domain.
2. Validation of Transactions
The introduction of the PoS consensus brought an eco-friendly, low energy, and cost-effective alternative to the PoW algorithm with Bitcoin. By holding crypto assets in wallets, anyone can participate in the validation process of transactions on the blockchain.
To make it more interesting, the introduction of ETH 2.0 and reward-based PoS models in decentralized exchanges changed the game, bringing more computer power and increasing the throughput rate (TPS) of transactions and efficiency of networks.
3. The NFT Industry
The NFT ecosystem is another trending application of blockchain technology that allows even non-crypto-savvy creators to join the blockchain sphere. Creative people can mint, sell digital assets, and earn from them.
As it is with several other sub-sectors of the blockchain industry, the NFT space has experienced setbacks with scaling in areas of high gas fees, network congestion on blockchains, a slower rate of transactions, and security. However, to revitalize the industry, there need to be scalability solutions put in place.
Immutable X brings this sort of scalability solution needed in the NFT ecosystem to light. Immutable X is a product of Immutable, an Australian-based company known for creating the NFT card game Gods Unchained. The product is the first layer 2 scaling solution for NFTs on the Ethereum blockchain.
It allows clients to mint NFTs, build scalable marketplaces, games, and apps that operate at faster throughput of over 9,000 trades per second (TPS). The platform has many features and also employs the layer 1 protocol to offer a secure and decentralized service on the Ethereum blockchain. With a solution like this, there is light at the end of the tunnel for the NFT ecosystem.
Conclusion
Apart from the aforementioned domains, other sectors too will benefit from scaling. One of them is the supply chain and logistics market. Scalability will increase the confidence and mass adoption of decentralized finance and applications because these innovations will attain higher efficiency. There will also be mitigation of security problems that have posed as a vicious cycle in the system.