Blockchain and Scalability

The emergence of Bitcoin gave rise to a sharp interest in crypto technologies, however, it did not simultaneously lead to the demand for blockchain.

06:12 24 April 2024

Prelude

The emergence of Bitcoin gave rise to a sharp interest in crypto technologies, however, it did not simultaneously lead to the demand for blockchain as a technology. It was only after several years that interest in blockchain technology began to grow steadily. Its first users were small and medium-sized companies with their first blockchain projects. To be fair, it should be noted that not all of them were successful and suitable for the companies’ purposes. However, even the implementation of unsuccessful projects made it possible to accumulate certain experience and additional knowledge regarding blockchain technology, not only for the user companies themselves, but also for companies providing consulting services in the field of blockchain.

Today, the blockchain philosophy has affected not only SMEs, but also large enterprises and even government organizations. At the same time, many managers came to understand that the implementation of blockchain does not mean solving absolutely all the problems of their companies, so they often began to lean towards the option of creating blockchain solutions together with blockchain consulting services. Practice has shown that choosing such a path almost always leads to optimistic results.

The essence of the blockchain network

It must be said that along the way of their development, blockchains became victims of their own success. The point is that the traffic within the networks was constantly growing, and a moment came when they could no longer quickly cope with the huge number of current operations, which, naturally, led to an increase in commissions. In other words, the growing popularity and demand for blockchain has led to a problem related to scalability. From the moment blockchain platforms encountered this problem, experts began to intensively look for ways to solve it. 

Let's start with the fact that blockchain networks are essentially nothing more than computer networks. Participants in computer networks are nodes that exchange data and share computing resources. There are 4 types of computer networks.

1) "Grid". In such a computer network, any node is connected to every other node.

2) "Ring". In such a computer network, a node connects to two other nodes, creating a bidirectional ring.

3) "Tire". In such a computer network, a node is connected to only one other node.

4) "Star". In such a network, the server node is connected to client nodes.

The most common type of computer network is “Star” due to its mobility, low cost and efficiency. However, the price of such positive qualities is significant centralization of the network, both from a management and failure point of view. That is, the failure of one point in the network leads to the failure of the entire network. Unlike similar architectures, peer-to-peer (P2P) networks do not require server nodes to coordinate the entire network. In such peer-to-peer networks, each node represents a "client-server" chain, distributing computing resources across the network. And such a computer network solution would be the best, if not for one of its problems - such networks are difficult to scale. The problem of poor scalability has also spread to blockchain networks, since the ones are protected by the consensus of P2P networks.

The main problem of the blockchain network

Speaking about how the blockchain works, let's remember that the most famous ecosystems Bitcoin, Ethereum and Solana are first-level (L1) blockchain networks. In L1 networks, the scalability problem can be solved by increasing the size of each block, which should lead to an increase in the number of processed transactions per second. However, this approach requires node operators to use more powerful computers, which not every operator can afford. The scalability problem can also be solved using the consensus mechanism and sharding. 

Users often ask the question: will solutions to increase scalability at the L1 level be implemented soon? It is difficult to give a definite answer to such a question, because intervention in the blockchain network is a very delicate process. And the very first blockchain platform - Bitcoin - in solving the problem of scalability gives priority to solving the second level (L2) through the Lightning Network. A similar approach can be seen in the Ethereum ecosystem, which has dozens of L2 networks built on top of the main L1 network. Both Bitcoin and Ethereum's L2 protocols take the workload off the main network by processing data and then return it to L1 in the most efficient way possible. In order for such a process to function, various scalability technologies are used. However, the joint work of L1 and L2 has its own difficulties, one of them is the need to move tokens through special bridges. Therefore, if it were possible to use only L1 networks to increase scalability, this would be the best option, since in this case it would be possible to significantly make life easier for both developers and users. Many new blockchains on the L1 platform have tried to solve the scalability problem, but none of them have yet become as popular as Bitcoin or Ethereum.