Blockchain is spoken about as if it’s the key to a utopian future, but the technology is merely a new way to accomplish old ideas such as hosting content, applications, online marketplaces, transactions of value and more. Though we can theorize and understand how blockchain will one day offer a better deal to people users who interact online, it’s difficult to demonstrate this convincingly, because decentralized projects on blockchain are largely unable to scale. Ideas that might be hailed as revolutionary haven’t made it to the mainstream, and transaction speed is one of the most recognized bottlenecks.
Ethereum’s “decentralized computer” has significant potential as the medium by which blockchain ideas can achieve adoption, so many want to know when that potential will be realized. The answer is, unfortunately, perhaps not anytime soon. Where a centralized application is instantly able to handle millions of visitors, any Ethereum dApp relies on the network’s connected peers for throughput instead relying on centralized servers. This type of network isn’t yet mature enough to host real applications, especially those that have demand from many users simultaneously.
While the roiling cryptocurrency market gives this problem more urgency, traders looking desperately for a bullish signal don’t realize that Ethereum’s woes were anticipated far ahead of time and will take years to solve. They’ll be waiting longer yet before fundamentals can lead the cryptocurrency market to new heights. Yet Ethereum is still the frontrunner due to its enormous developer community and the various ways they’re helping it to scale. This alone justifies optimism for the growing platform.
Ethereum’s Scaling Problem and First-Layer Solutions
CryptoKitties, the first “popular” decentralized app, allowed people to breed digital cats and trade these on the blockchain, and despite the novelty of the idea it single-handedly shut the network down the network because transaction speeds couldn’t keep up with demand. This pitiful example of Ethereum’s capacity was one of the louder wake-up calls for better scalability. If Ethereum can’t handle mild enthusiasm, what chances does it have to support some of its more ambitious ideas?
Open-source developers have been figuring out how Ethereum could scale back when its gas costs first skyrocketed during the ICO bubble. The solutions are first-layer, or on-chain upgrades to the Ethereum blockchain itself. Some of the most well-known first layer solutions are Sharding and Plasma.
Sharding is a basic concept that has come to be considered a potential solution to Ethereum’s inability to scale. Because each node must store a full version of the blockchain to provide maximum security, the individual load on any node increases as the network does. Achieving consensus on a transaction is harder because Ethereum nodes have the same permissions and level of authority, so they all need to be synced together to reach concensus.
Sharding groups similar nodes together, and only nodes within the shard can process transactions relevant to the shard’s other nodes (based on geography, smart contract support and more). This makes it possible to process many more transactions at once and also preserves the ability for shards to communicate and sync, as every transaction is stored at the base level (merkle tree) for other shards to reference, instead of another node’s version of the entire ledger.
Casper is the second piece of the Ethereum-layer scaling solution, and like sharding, will be implemented at the onset of Ethereum 2.0. It could be one of the biggest blockchain events of 2019. Casper will come arrive before sharding and establishes a new Proof of Stake (PoS) system to determine which nodes within the shard are best for the job at hand. PoS rewards nodes that use their ETH as a sort of security deposit to help process transactions. Instead of working to “mine” new blocks, staking nodes “bet” on blocks that can be added to the chain and are rewarded with transaction fees when their block is validated and added. This system provides greater incentives to more users, and furthermore encourages them to reinvest their ETH into the network.
Off-Chain Solutions Shore Up Scaling Gaps
A popular topic of conversation among blockchain enthusiasts is whether on-chain scaling is more important or more effective than off-chain, or second layer solutions. Instead of shrinking block sizes, boosting rewards, or altering the protocol, second layer scaling tools are like the scaffolding that contains and props up the main blockchain. Those familiar with the Lightning Network already know the most popular off-chain platform for Bitcoin, and Ethereum developers have some similar ideas.
The first is called Plasma, in keeping with the futuristic naming convention for Ethereum network updates. Like the Lightning Network, Plasma is an off-chain platform that will handle much of the minutiae that bloats the Ethereum blockchain. At this point many experienced blockchain developers have realized that only the beginning and end of a transaction need placement on the chain itself, and all other peripheral details can (and should) be stored elsewhere. Two parties can reasonably expect to transact off the blockchain entirely, with only their initial agreement and its conclusion (like a signature, escrow payment, or transmission of data or cryptocurrency) stored on the Ethereum blockchain.
Plasma would lighten the load on Ethereum and move the most demanding blockchain functions to an adjacent space, with Ethereum simply acting as the settlement layer for this extraneous volume of transactions. Generalized State Channels are the second part of Ethereum’s off-chain arsenal and address the idea that in an ideal blockchain system, validator nodes won’t need to reference merkle tree data to securely finalize a transaction. Instead, if every node involved in the transaction confirms its relevance, it can be added immediately to the blockchain instead of waiting for the original receipt.
The Bleeding Edge Blockchain Debate
Ethereum’s developer community is where some of the world’s most brilliant minds choose to occupy themselves, and it has resulted in a multi-faceted and multi-team effort to scale a solution that countless people are already enchanted with. While some are concerned with making Ethereum itself as robust as possible through first layer tools and want it to handle as many complex transactions as possible on mainnet, second layer enthusiasts work to offload these processes to outsiders while keeping the original chain as secure and reliable as possible. The tradeoff between security and speed is still raging today.
Both camps are toiling with the same goal in mind and can be encouraged that the Ethereum community is robust enough to tolerate both potential solutions without the same infighting that spurred Bitcoin to hard fork. In terms of a future and a universal goal, Ethereum seems to have learned from its peers’ folly, and slowly but surely gains strength with each passing day.