Blockchain Scalability: Part Three
-- Bitcoin is still relevant thanks to these tech developments --
Proof-of-stake does use considerably less computing power than proof-of-work. This gives new projects, most of which utilize POS, an advantage when it comes to throughput. More established chains, even POW, can be helped by 'add-on' layer-2 scalability solutions. Finding and developing ways to securely improve trusted decentralized projects such as Bitcoin and Ethereum has grown to be an important crypto market sector. As far as enhancing throughput on POW coins, it's not impossible with certain interventions. Some improvement can be achieved by advancing the consensus algorithm. There is a limit, though, to how effective this can be and scaling Bitcoin itself, has additional challenges.
BTC was a pioneer and is very well established. There is also no formal governance arrangement or core development foundation. Changes or updates can only be decided by brute force competition for dominance of mining hashpower. The community, is resistant to significant changes and differing opinions have resulted in whole new blockchains forking off from it, most notably the controversial Bitcoin Cash fork.
As such, its technology is less versatile. Changing the consensus algorithm is not an option for BTC. Even if it there was agreement, decreasing block interval, increasing block size can only improve throughput by a small margin, and decrease security substantially. Presently, the most practical way to improve BTC throughput is through opt-in, off-chain 'layer-2' solutions.
Some layer-2s merely facilitate more efficient processing for other assets, while others are built on their own blockchain, and some of those also have a native asset. Similar technology can also be applied to new projects as a built-in, compulsory feature to improve overall performance. Understanding the various distinctions between layer-2 solutions is quite confusing. To go with this post, I'll post an explanation of the different categories and examples. For now, though, let's look at the actual technology.
State channels are a data processing protocol that can be applied to blockchains. Usually, they will incorporate onion style routing or something similar to safeguard data integrity. Interaction with the blockchain is defined by a smart contract or multi-signature authorization that locks the assets until confirmed by the state channel (which is still faster than blockchain confirmation would take). These work really well for older, difficult to scale cryptocurrencies, but with one notable disadvantage: both sender and receiver must be online at the same time to complete the transaction.
An advanced application of if this technology, is Plasma. Plasma uses a technically complicated arrangement of multiple state channels to dramatically increase throughput efficiency. Plasma based blockchain technology is touted as one of the contenders for the theoretical next-generation of blockchain iterations.
A sidechain is an independent blockchain that is connected to the main chain via a two-way peg. Much like state channels, assets are locked in the mainchain and converted to a virtual version (e.g., 'wrapped' assets). The sidechain then processes the virtual assets and posts confirmation back to the core chain. Both sidechains and state channels work by reducing the throughput load that the core blockchain must process. The end result is similar to what is achieved by nested multichain environments (Polkadot vs. Atom), but is an auxiliary opt-in service.
Rollups are a relatively recent development in crypto scaling technology. These reduce the workload of the core blockchain by collecting transactions in batches and processing them in bulk. The result is then broadcast back to the core network, which processes multiple transactions as a single transaction. 'Rollup' refers to the batching process.
There are two different ways to secure transactions on rollups: the deterministic approach and with Zero-knowledge (Zk) proofs.
Deterministic rollups are based on the premise that all transactions are valid until proven false. Deterministic rollup solutions allow for an opportunity to dispute transactions before they are finalized and confirmed on the main chain.
Zk-rollups improve confirmation time by proving validity of transactions without the actual details of the transactions being known or identifiable. How this is achieved is technically complicated, but the result is like a jury concluding in private, and releasing the verdict without making the details of the case public. Due to the complexity, development of Zk-rollups represent the current forefront of blockchain scaling technology.
Stay tuned for a deeper look into specific solutions for $BTC and $ETH.
This article is republished from the original here.
(Posts are personal opinion, and not at all intended as investment advice)