Is Ethereum scalable?
Introduction
In July of 2024, the cryptocurrency network Ethereum hits its highest-ever TPS (Transaction per second). When you look at this graph it’s obvious that Ethereum is on the rise when it comes to TPS.
But how did Ethereum manage to hit such high numbers?
In this guide, we’ll dive into these concepts and try to understand why scalability matters and the different scaling solutions Ethereum uses to achieve these milestones.
The Blockchain Trilemma
To understand the blockchain trilemma, we need to first understand whats know as the “blockchain trifecta”. Which are
- Scalability
- Security
- Decentralization
Much like how you hear about people struggling to balance social life, work, and sleep, the blockchain community believes that truly decentralized networks need to choose between security and scalability to be decentralized. This is called the blockchain trilemma.
For Ethereum decentralization is key. So Ethereum has chosen to provide high security and proper decentralization at the cost of low scalability.
Addressing scalability
L1 and L2
L1 or Layer 1 is the base of every blockchain. Ethereum and Bitcoin are examples of L1 blockchains.
L2 or layer 2 scaling solutions are systems that work on top of L1 systems to provide additional functionality.
L1 scaling solutions are then used in conjunction with layer 2 solutions to bring more scalable blockchains. Let’s look at each of these layers separately to understand the underlying technology used in each layer.
L1 scaling solutions
These solutions are also known as on-chain scaling since they refer to any direct modifications made to a blockchain to improve its throughput. L1 solutions involve enhancing the base protocol of the blockchain to accommodate a higher number of transactions per second.
These L1 solutions include shrading. This is the process of splitting the network into smaller, more manageable parts called shards.
Although other solutions like SegWit exist, Ethereum does not rely on these technologies.
L2 scaling solutions
L1 solutions alone face limitations in TPS, causing instability in the network and higher gas fees. To address these issues improve the stability of the network and keep gas costs down L2 scaling solutions have been introduced.
Some of the scaling solutions built into L2 include,
- Nested blockchain:
Also known as plasma chains, this solution relies on blockchains that contain other blockchains in a parent-child blockchain relationship.
These solve the scalability issue by offloading certain transactions that need particular resources to other specialized blockchains.
- State channels
These are essentially private and temporary communication channels established between two parties.
These solve the scalability issue by conducting transactions without the need to record each transaction on the main blockchain.
- Rollups
This solution combines multiple transactions into a single transaction.
They solve the scalability issue by reducing the amount of data that needs to be processed and stored on the main chain. These are of two types.
Optimistic Rollups
These sit parallel to the blockchain and assume all transactions are valid hence the name “optimistic”. If the transaction is suspected to be invalid they simply revert back to the main blockchain to validate the transaction. These have something called a challenge period. Transactions are bundled and executed on Layer 2 if no fraud is detected within a challenge period.
zk-Rollups
zk-Rollups or zero Knowledge rollups use a cryptographic technique known as zero-knowledge proof to validate transactions. Transactions are bundled and accompanied by a cryptographic proof that verifies their correctness without revealing transaction details. This results in much cheaper and faster transactions, since it does not have to wait for a challenge period.
Why scalability matters
When the user base grows systems need to adapt to this new demand of resources. This adaptation is called scaling. As the technology gets complex scaling that technology also becomes increasingly complex.
It’s no different when it comes to blockchains. These blockchains only have a limited block space. When demand for transactions exceeds this capacity, users (validators) compete for inclusion.
- Gas price
Due to this inclusion, users increase their gas prices to prioritize their transactions. This creates a bidding war, driving up gas costs for everyone. This is why during peak activity gas prices can skyrocket.
- Unpredictability
Gas costs become highly volatile and unpredictable, complicating user experience and application design.
- Better dApps
Better scalability allows for more diverse and complex applications on the blockchain.
- User experience
Faster transaction processing and confirmations improve usability. Faster transactions can also enhance the user experience.
FAQ’s
Is Ethereum scalable?
While Ethereum has faced scalability challenges, the ecosystem is rapidly evolving. Layer 2 solutions have emerged as the primary scaling solution. These offer significant transaction speed and gas cost reduction.
What is Off-chain and on-chain?
Any transactions that are directly recorded on the blockchain are on-chain transactions. Every transaction, from sending ETH to interacting with smart contracts, is permanently recorded on the Ethereum mainnet. Token transfers and NFT mining (mining NFTs directly on Ethereum) are examples of on-chain transactions.
Any transaction that occurs outside the main blockchain is called off-chain. These transactions happen on separate networks or platforms that interact with the main chain.
State channels are an example of off-chain transactions. These are direct payment channels between parties, where only the opening and closing transactions occur on-chain.
What is Ethereum 2.0?
Ethereum 2.0 is an informal name used to describe a major set of upgrades designed to make the network more scalable, efficient, and environmentally friendly.
The main upgrade was the consensus Mechanism which used to be Proof of Work (PoW) before and was changed to Proof of Stake (PoS) in this update. This happened on September 15th, 2022. This was also known as “The Merge”.
The Ethereum foundation prefers to call the new upgraded system “Ethereum” and, the new consensus layer as ETH 2 and the execution layer as ETH 1.
How will Ethereum 2.0 affect scalability?
Transferring to PoS will significantly reduce energy consumption which will in turn improve scalability. Along with new technologies such as Danksharding, Ethereum 2.0 is a significant improvement over Etherrium 1.0 in terms of scalability.
What’s better PoS or PoW?
While PoS is known for its low energy consumption and increasing accessibility, PoW is still being used widely due to PoS consensus mechanisms stake centralization issues.
What is The Ethereum roadmap?
The Ethereum roadmap outlines the specific improvements that will be made to the protocol in the future
Conclusion
The Ethereum ecosystem is rapidly evolving. As the technology matures, we can expect to see increased adoption of layer 2 solutions, leading to a more scalable and efficient Ethereum network.
According to the Ethereum website,
“Regular users are not required to actively participate in an upgrade, nor are they required to do anything to secure their assets”
But, it’s important for both developers and regular users to understand the developments in the Ethereum network for better decision-making.
