Blockchain and Scalability – What solution does Layer 2 offer?
Security, scalability, and decentralization are known in the blockchain world as one of the most challenging trilemmas to solve.
But what exactly is “Scalability” and how does it relate to Layer 1 solution?
To answer this question, this article will review the sections below:
- Decentralization by nature
- Scalability: a matter of logistics
- How to combine security, scalability and decentralization?
- The multiple layers structure as a resort: layer 2
- Going Further – Scaling Solutions Video
Decentralization by nature
The relentless expansion of a cryptocurrency ecosystem and technological innovation is based on how computer systems keep data: each transaction is recorded in blocks linked together by cryptography.
Improved security, greater privacy, and traceability of data at reduced costs: for years, Blockchain technology has pledged to guarantee the storage of a precise and transparent order of events without a trusted third party.
But how much a Blockchain can actually handle in 2022?
Is the much-vaunted decentralized structure of Blockchain really able to maintain this degree of efficiency even with the increasing complexity of networks and the number of users making transactions?
Blocks have a limited capacity in size and frequency, bringing up a severe practical issue (known as scalability of Blockchain) which represents a significant challenge moving forward, requiring sustainable and imperative antidotes.
Scalability: a matter of logistics
Imagine a long journey ahead and just an old worn car to get you through, or suppose you run a manufacturing facility, but you only have in place some mediocre machinery: that’s not the ultimate guarantee of reliability.
Your chances to grow (or scale) well aren’t great, and if you don’t scale well, you won’t succeed!
“Scalability” refers to the capacity of any program, process, or organization to manage an increasing amount of work while keeping up with good performances and maintaining the same costs.
A hardware system is expected to perform at high standards even when the number of users increases, expanding its throughput to new opportunities.
Instead of shrinking the supply, modern technology must add more seats to the table, ensuring new market participants can also attend the banquet.
How to combine Security, Scalability and Decentralization?
However, various factors that affect Blockchain’s scalability are intrinsic, such as hardware limitations (which can hinder tracking transaction history), transaction fees, block-time, and size.
The higher number of trades requires more sophistication to execute and validate those transactions, increasing block size exponentially and potentially leading to fees’ introduction.
The larger a block, the slower the network will be, undermining security properties and modifying parameters that make Blockchain inviolable and impenetrable how we know it.
Increasing the maximum size and frequency of blocks indeed improves latency on one side but concentrates power under a few players of the cryptocosm with greater resources betraying the original mission.
Lack of transparency can only hold back investments; slow times prevent investors from keeping the momentum, but mainly, no remedies should jeopardise the premise of decentralization which is at the base of the game.
Decentralization is the crucial element of the scalability trilemma (dated December 2017) that Blockchain developers are trying to solve: can we keep security and scalability without sacrificing decentralization?
The multiple layers structure as a resort: Layer 2
Thankfully, a vibrant range of options is on the table to overcome this deadlock, where often hybrid strategies try to boost scalability without compromising the critical properties of Blockchain.
One option is sharding, which entails partitioning huge databases into smaller, more manageable ones called shards, which work faster and better.
Nested blockchains are interlinked but separated blockchains regulated by a set of parameters given by the main chain to child chains. Even Proof of stake (POS) protocols, needing less energy than POW (Proof of work), are intended to simplify the validation process in Ethereum by allowing participants to create their own validator nodes, but often at the expense of security.
To shed some light, think that Blockchains are typically conceived to be arranged in different layers: Layer 1 is where the chain of blocks is formed by applying the main consensus mechanisms: POW (Proof of work).
POW securely validates transactions occurring in the Bitcoin crypto space by solving a random mathematical puzzle, achieving consensus and security.
This overwhelming workload on Layer 1 requires another layer to come to the rescue taking charge of a part of Layer 1 transactional burden to improve overall scalability and efficiency, simultaneously opening new opportunities to grow.
Not only does Layer 2 provide an appropriate optimal structure external to Layer 1 and tailored to the need of the undertaken service, but it should boost interoperability among different platforms where distinct cryptocurrencies operate.