Dear Blockchain, Rethink Scalability: An In-Depth Look At Its Current Scaling Landscape
The blockchain industry is growing at breakneck speeds. We’ve seen a thousand-fold increase in the number of new projects and millions of dollars invested into new companies, services, and technologies; all focused on bringing blockchain technology to the masses. However, this growth has also come with some challenges—chief among them being how to scale existing networks to handle billions (or trillions) of daily transactions successfully. We’ve seen approaches such as sharding and sidechains proposed as possible solutions, but these approaches are still early in their development cycle and haven’t been widely adopted by projects.
In this post, we’ll explore how blockchains work and why their current state of operations is not enough for them to be considered scalable. We’ll cover what throughput and latency mean in terms of transaction speed, finality as it impacts consensus algorithms, and smart contracts. We’ll also discuss off-chain scaling solutions, finally looking at layer 2 protocols such as Orbis.
When you think of blockchain, the first thing that comes to mind is the concept of decentralization. But what’s actually going on under the hood?
Blockchain technology allows users to transact directly with one another in a secure and verifiable way (i.e., without a go-between). This function is supported by two primary components: a consensus algorithm and a distributed ledger.
The consensus algorithm determines which transactions are valid; this prevents double spending when more than one user attempts to spend their coin at once because it ensures no one can spend their cryptocurrency twice. While mining is used as proof-of-work in Bitcoin, Cardano uses something called “proof-of-stake.” In this system, miners stake ADA (the native token) on blocks of transactions they want to be included in the chain. Their stakes are only returned if other nodes validate them on the network within some time (usually ~15 seconds). These staked tokens serve as collateral against spamming attacks or denial-of-service attacks targeting other users’ computers or accounts for malicious purposes like data theft/destruction or system interruption -- hence why we call these types of attacks ‘DoS’ instead of just ‘DDoS.’
The second component plays an equally important role: maintaining an immutable record ledger with every transaction ever made since its creation date so that anyone can validate whether their coins were spent correctly or not without having access to prior knowledge about who owns those coins initially due simply because everything has been recorded publicly beforehand.
All of this begs the question: What is blockchain scalability? Broadly speaking, it’s the capacity of a network to support an increasing workload. In other words, if you have a blockchain and want to maintain its integrity as more transactions are performed on it, then your platform needs to be able to handle them all. This is where the question of “blockchain scalability” comes from—how we can ensure that our platforms can keep up with ever-rising transaction volumes.
The scalability trilemma: security, decentralization, and scalability.
Blockchain technology is the result of years of research in cryptography, distributed systems, and game theory. The three pillars of blockchain technology are:
- Decentralization (which means no one entity controls the network)
- Scalability (the ability to process transactions quickly)
The scalability trilemma, also known as the trade-off between decentralization, security, and scalability, has been plaguing blockchain developers since forever. It refers to the fact that there are trade-offs between security (decentralization), scalability, and decentralization when building blockchain applications — you can’t have all three at once! For example, if you want high transaction throughput, then your system will be centralized where only one node retains complete control over it; whereas if you wish to have it highly encrypted, then your system will be more vulnerable because only one node holds all keys needed for encryption/decryption; additionally, if you want high decentralization, then your network may suffer lag due to slower nodes having less computing power than others which means fewer transactions per second possible during peak times on average across a network without changing anything else about how much computing power each node has available either vertically or horizontally (vertically meaning increasing computational resources within every single machine horizontally meaning adding more devices onto the same computer).
Curious to learn more? Check out our latest thread on it: https://twitter.com/orbisproject/status/1544694369831231488
What is throughput?
Throughput is the number of transactions processed in a given time. It’s typically measured in transactions per second (TPS). For example, if a blockchain can process 50 TPS and there are 10,000 users on the network at any given moment (as opposed to an empty network), only 50 of their transactions would be able to be processed in that given period of time.
What is latency?
Latency is the time delay between when a transaction is sent and received. It’s a measure of how fast data can be sent over a network, and it’s one of the critical factors in blockchain scalability.
If you want to send an email across the world, latency doesn’t matter much: The time between your computer pressing send and your friend getting their email is usually only seconds or minutes. But if you’re sending something valuable or sensitive—like money—you want to minimize the time from when that transaction occurs until it’s recorded on the blockchain.
What is finality?
In the context of blockchain, finality is the point at which a transaction is considered irreversible. In other words, it’s when your transaction is safe from being double spent.
This might be a bit confusing because we’ve been talking about mining as an activity where miners compete to solve complex mathematical problems that result in new blocks being added to the blockchain. But if you think about it more broadly, what miners are actually doing is adding transactions that have been validated by consensus and recorded into blocks onto the chain—which means they’re creating blocks with verified transactions.
Challenges & solutions.
Let’s start with the basics.
On-chain scalability refers to methods such as increasing the block size to increase the number of transactions that can fit into a single block. This approach is problematic because it delays confirmation times given higher node requirements to validate transactions.
Off-chain scalability refers to using an additional layer outside the blockchain to process transactions. Transactions are sent directly to this layer without going through the blockchain itself, reducing congestion and increasing transaction speed. This approach also decreases transaction fees because they are not paid directly to miners.
As it turns out, there’s no such thing as perfect. Each proposed solution to the scaling issue has its own set of limitations—but that doesn’t mean we can’t try to make things better! We’ve developed a new scaling solution on the Cardano blockchain: Orbis.
Orbis is Cardano’s first zk-rollup layer 2 solution built to support DeFi applications and a thriving blockchain ecosystem. Orbis offers the level of scalability and transaction throughput necessary for blockchain to realize its aim to become a truly global financial system. Transactions occur off-chain on the Orbis layer 2 and are bundled into a single zero-knowledge proof submitted on-chain to the Cardano layer 1 and verified. This proof provides a mathematical and unfalsifiable proof that the transactions have happened on Orbis.
Enter Orbis—and behold a vision of how we aim to fix it.
The blockchain space is still a young one, and there are many more advances to come. We at Orbis are excited to be part of the revolution that’s changing the world as we know it.