Blockchain Scaling 101

Two Types of Blockchain Scaling

On-Chain Solutions for Scaling

  • Increase the amount of data that can be put into a block. Thus, a block can process more transactions. Bitcoin Cash (BCH) and Bitcoin SV (BSV) are Bitcoin hard forks that were launched with this type of protocol change.
  • Accelerate block formation. Litecoin is a Bitcoin successor with 4 times faster block time (2.5 minutes against 10). In Ethereum and many other coins, new blocks are created every few seconds.
  • Reducing the space transactions occupy in a block. By implementing the SegWit update in 2017, Bitcoin has decreased the amount of transaction data that had to be put into a block, so the latter could fit more transactions.
  • Changing the blockchain design completely. To handle the growing number of transactions, Ethereum is currently undergoing a series of updates changing its consensus algorithm from PoS to PoW and split the network into 64 shard chains that will process transactions in parallel.

Why Off-Chain Scaling Solutions?

Approaches to Off-Chain Scaling

  • Lightning Network (Bitcoin) is a Layer-2 scaling solution for sending BTC almost instantly and at incredibly low fees. Here’s how it works: two parties create a payment channel via a smart contract and exchange Bitcoin through it. Once they decide to close the channel, all transactions that have been made are organized into one and are validated through a regular block mining procedure.
  • Rollups is a technology that allows grouping a few Ethereum transactions and processing them as one using smart contracts. There are two kinds of rollups: Optimistic and ZK-Rollups. Arbitrum and Boba Network are among the top platforms using the technology.
  • Sidechains are blockchains that run in parallel with the parent chain and connect with it via a two-way peg. For instance, Polygon is an Ethereum sidechain that leverages the main network’s security by processing, again, a bunch of transactions as a single one.
  • Plasma chains are another scaling solution for Ethereum. They are smaller copies of the original Ethereum network that use Optimistic rollups. Although plasma chains allow for high throughput and low transaction fees, their functionality is relatively limited.
  • State channels for Ethereum work much like the Lightning Network: they help two peers establish a connection and make as many payments as they want. When the channel closes, all transactions are grouped into one and processed in the Ethereum mainnet.

Summary and Prospects

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