On-Chain Solutions
Note: Data in this section last updated August 26th, 2022
Many of the newer blockchains such as Solana, Binance, Cardano, Avalanche, Polkadot and Terra – also known as the “Ethereum Killers” are primarily focused on solving the scalability problem by making improvements directly to their native chain. In particular, all of these projects rely on consensus protocol improvements and several leverage multi-chain architectures.
We will cover these two concepts below as well as examine their potential flaws:
What are Consensus Protocol Improvements?
Consensus protocols are one of the most important elements of a smart contract platform – they give “nodes” (who are effectively auditors) a specific method to verify transactions, review data and confirm what needs to be added to the ledger. When people say blockchains are “trustless”, they are referring to the benefit of these protocols, as they allow a distributed group of strangers to work together to agree on the network’s current state.
As discussed earlier, many first and second generation blockchains, such as Bitcoin and Ethereum, use Proof-of-Work (PoW) as their consensus protocol. While Proof-of-Work is proven and extremely secure, it’s also extremely slow (performing fewer than 20 transactions per second) and requires a lot of energy (at the time of writing, Bitcoin alone consumes about as much power as Finland, a nation with over 5 million inhabitants).
That is why virtually all newer blockchains such as are built on a much more efficient mechanism known as Proof-of-Stake.
Proof-of-Stake is similar to Proof-of-Work in many ways in that nodes are still required to validate and secure the network, and these nodes still receive rewards for doing so. Instead of spending electricity though, these nodes put up large amounts of the native cryptocurrency as collateral. If these nodes are found to be negligent (or worse, malicious) they run the risk of losing some or all of this deposit.
The main benefit to using Proof-of-Stake is that it’s generally orders of magnitude faster and cheaper. This is why nearly all newer blockchains are built using Proof-of-Stake.
One company using Proof-of-Stake in a very novel way is Solana, who combines it with a concept known as Proof-of-History to achieve the fastest speed of any major blockchain in operation today. I will discuss Solana in more detail later in the article.
What is a Multi-Chain Architecture?
Single or “monochain” blockchains such as Ethereum can only process a limited amount of traffic and can quickly become congested.
One simple solution to this is to split blockchains up into many different smaller chains, allowing the network to process transactions in parallel.
Like a freeway adding more lanes, this greatly increases the efficiency of the native blockchain and creates potentially infinite speed (i.e. adding four subchains would theoretically result in a 400% improvement in performance, ten a 1,000% increase, 100 a 10,000% increase, etc…).
Three notable projects using multiple blockchains are Cosmos, Polkadot and Avalanche.
Potential Drawbacks to On-Chain Solutions
Critics argue that smart contract platforms that rely solely on on-chain solutions will not be sufficient and will be forced to continue to make trade-offs along the trilemma. In particular, they argue that among the current batch of “Ethereum Killers”:
High-TPS chains such as Solana rely on a small number of validators and therefore sacrifice decentralization
Multi-chain ecosystems aren’t as secure because an attacker could gain majority in only one of the chains and break the entire network
They believe that a third piece of the puzzle is required, and that’s the implementation of off-chain solutions.
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