Scalability as a Service (SaaS)
What is blockchain scaling and how does it drive innovation at L2s.
The ultimate need for faster transactions on the blockchain has driven innovation for a long time now. While the number of transactions on Bitcoin stands at 5 TPS, scaling solutions like Polygon PoS chain stand at 1000 TPS. As use cases for blockchain diversify and new dApps flood the market, the demand for unique solutions also grows. The need for private or public blockchain networks that are modular and extensible is evident. This article explores how scalability is achieved on L2s, scaling solutions like Polygon Edge and Avalanche Subnets, the need for private blockchain networks, and much more.
Financial systems are dependent on the processing power of their systems. These are often discussed through a metric called transactions per second or TPS. Although there are several metrics that can be used to evaluate blockchains, TPS is important as it allows us to compare blockchains to their traditional counterparts. TradFi’s Visa claims that its global systems have a capacity of handling 24,000 TPS. While these figures are widely debated, the average number stands at 1,700 TPS due to latency and other reasons. It was evident that the TPS for L1 blockchains were substantially low. Bitcoin had a TPS of 5, while Ethereum could process around 15 TPS, this was also complimented by high gas fees and network congestion. This led to the need for scalable blockchain networks that could process more transactions in a fraction of time. Scalability of blockchain networks is the ability of that platform to support an increasing load of transactions, as well as increasing the number of nodes in the network. Polygon, one of the leading firms in Scalable Blockchains, had a TPS of 1000. Blockchain scaling was identified as one of the major blockchain innovations by Harvard Business Review.
Let’s learn more about the chronology of blockchain scalability. Bitcoin’s success was complemented by its predictable block times and low gas but the block size limitation existed. Meanwhile, a part of the bitcoin community started working on Ethereum, to build more complex smart contracts.
The majority of the Bitcoin community concluded that L2s were the best approach to scale the blockchain, which led to the creation of the Lightning Network. The Lightning Network is far from flawless or comprehensive, and while it works well for small payments, it has yet to gain traction beyond on-chain bitcoin transactions.
On the other hand, the Ethereum community has a large number of solutions when it comes to L2s for scaling, ranging from rollups to validium, plasma chains, and sidechains. All aim to solve high gas fees on Ether and reduce network congestion. These have been proven to be efficient and companies like Polygon, Boba, and Near are among the key players in the L2s space.
Types of L2 Solutions
Now that we’ve established the importance of L2s and how they help in solving the scalability trilemma. Let’s know more about the different types of solutions existing on L2s. We have state channels, sidechains, rollups, plasma and validium.
State channels facilitate multiple transactions off-chain from the Ethereum base layer by submitting two transactions to the base layer in a multi-sig contract. This helps in achieving high throughput at low gas fees. They play a monumental role in reducing the load from L1s. Yet, there are limitations to state channels like users need to deposit funds into multi-sig contract and are to be informed in advance. It is also a time intensive process. Sidechains are independently operating blockchains with their consensus algorithms that connect to L1s using a bridge. They are EVM compatible and facilitate Ethereum mainnet. One of the main drawback of sidechains have been security but many breakthroughs have been made in that domain too. Another issue might be if the sidechain validators act maliciously. Rollups work by settling transactions on L2s but posting the transaction data on the Ethereum Mainnet. This reduces the fees and maintains the security that was there on Ethereum without significant changes. There are two types of rollups; Optimistic Rollups and ZK-rollups. Optimistic rollups provide composability but they have long waiting times and are susceptible to potential attacks. Meanwhile ZK-Rollups require less data and a more efficient use of blockchain space, it still requires complex validity proofing and does not support smart contracts. Learn more about ZK-Rollups here. The Plasma framework drives on Merkle trees by building an additional chain apart from the main blockchain. They are connected to the main blockchain via a root contract that establishes the rules for child chains. This lowers the gas as the transactions aren’t settled on the main chain block, without the need to store data on the ledger. This framework only supports certain transactions. Validium's framework differs from ZK-rollups as the ZK-rollups keep data availability on-chain and validium keeps it off-chain. Hence, achieving considerably higher throughput. As this framework uses ZK proofs which require high computational power and finality time is slow.
Recent Innovations on Blockchain
With the substantial growth of dApps, and as more and more users onboard these blockchains, a need for private blockchains is seen. These blockchains are leveraged for the creation of new dApps, performance isolation, or using a blockchain for compliance. This has led to some new solutions like Polygon Edge and Avalanche Subnets.
Polygon Edge
Polygon Edge allows you to build your private blockchain with customisable features. It has a modular design that is extensible and is made for ease of use by developers, creating new dApps. Polygon Edge also supports ERC-20 and ERC-721 token transfers via centralised bridges. It is a completely trustless and decentralised built-in Ethereum Bridge solution.
To know more about How Polygon Edge stands out, click here.
Avalanche Subnets
Avalanche Subnets (short for “subnetworks") allow developers to create their own L1 blockchain which in new use-cases can also operate as L2s. A subnetwork can be a single customized blockchain or a group of customized blockchains that are validated together.
Polygon Edge and Avalanche subnets are evident examples of the growing need for customisable infrastructure for decentralised applications. As Web3 adoption grows, more and more networks will experience throughput issues. These innovative L2 solutions in that case would be at the forefront of impact.
A recent example of the same is DeFi Kingdoms (DFK). DeFi Kingdoms, a play-to-earn game built on the Ethereum sidechain Harmony, has created its Avalanche subnet as a part of the Multiverse initiative, along with a new Avalanche-native token, $CRYSTAL.
Conclusion
As the world competes for faster transactions and better scalability, L2s seem to be the dominant solution for the time ahead. We also saw that the need for private blockchain networks is ever increasing. Creating an application-specific network removes the need of having to compete with other applications for network throughput. This in return ensures faster and cheaper transactions that make adoption of any chain easier.
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Author is a decentralized finance (DeFi) intern at Polygon, with a keen interest in blockchain, and business modeling. They are a student at Aligarh Muslim University - majoring in Electrical Engineering. Also, a sitcom junkie who often passionately argues about music, particularly TheWeeknd and can be reached out on Twitter @ArsalanSartaj