Ethereum’s Scalability— Impediments and Possibilities

Kerala Blockchain Academy
6 min readAug 7, 2023

By Sivadas Neelima, Intern Kerala Blockchain Academy

The Ethereum community last week came together to celebrate the 8th birthday of the network, marking eight years since the Ethereum Foundation first sent the network live. The former Ethereum Foundation CCO Stephan Tual said that the vision of a censorship-proof ‘world computer’ that anyone can program has become a reality as it completes its octave. He also primed that the most critical problem Ethereum has always wished to address is scalability. And after the blockchain’s long-awaited Merge from proof of work to proof of stake, the focus is all more seriously carried out. He added that the Merge has made it easier for the Ethereum network to build “second layer platforms,” which are more scalar. This article discusses the inherent problem of ‘the trilemma’ that blockchain technology faces and the responsibilities taken up by Ethereum to scale up its network.

Let’s get started.

Over the years, there has been a consistent effort from the developer community to overcome the scalability challenges, and in line with this, different solutions have been proposed. Ethereum Blockchain was one such. Launched in 2015 as a technology with immense potential, Ethereum received a warm welcome among the community. The programmability feature made it distinct from its predecessor giving birth to new surfaces- Decentralised Finance and Decentralised Applications. Ethereum was able to arrest the shortcomings of centralization happening in the network streams. But what about the scalability issue, the blockchain trilemma- which is always a pain point? Let’s see.

Back to square one.

How did the Scalability Trilemma emerge?

Blockchain Trilemma

The growth of Ethereum was incredible. Over time, it outperformed many contemporary blockchains, becoming the second-largest blockchain technology after Bitcoin.

However, as the demand for Ethereum increased, the following issues popped up:

  • Hike in transaction fees making Ethereum more expensive.
  • Storage disk space used to run the Ethereum client went out of space.
  • Deteriorating environmental impact caused due to Proof of Work consensus algorithm of Ethereum.

These issues put to the fore the imminent presence of the ‘Trilemma problem’- where a blockchain can achieve only two of its three fundamental properties at a time- Decentralisation, Scalability and Security.

Decentralization means a scenario wherein every system in an organisation/network can access the computational resources unhindered. Decentralization forms the central pillar of blockchain technology and runs the different applications in the ecosystem. This feature has been instrumental in eliminating ample intermediaries from different day-to-day services and further paved the way for developing Decentralised Applications (DApp), and Decentralised Financial (DeFi) platforms. With these applications in hand, the benefits of profits are no longer accrued by a handful but spread to a broader community. But we need to note here that the optimal level of decentralization impacts the network throughput. This is because in PoW, where more miners gain access to the network through the consensus, the speed of transaction drops which forms a hurdle for the progress of the technology.

Scalability is the ability of the system to enhance its ecosystem to accommodate countless transactions. A Scalable blockchain works to ensure that the performance of the blockchain is not compromised by the increase in the use cases and adoption of the technology. While decentralisation and security have been established successfully across different blockchain platforms, scalability is still incomplete for realising a distributed decentralised network.

Security refers to the protective mechanisms to secure the system and its underlying computational resources from attackers. Blockchain security is an indispensable and cardinal aspect of the blockchain platform. One of the common challenges encountered while achieving consensus in the network is the 51% attack, which occurs when attackers gain the hashing power for decoding the computational puzzle of Pow easily. By oppressing the network, the attackers manipulate the transactions and resort to malpractices such as double spending, resulting in millions or even billions of losses through the network! A testimony to this is the series of 51% attacks on the Ethereum Classic (ETC ) blockchain — a fork of the Ethereum blockchain in 2020.

So one may wonder if this problem has emerged off late.

This is untrue.

The problem, in reality, inherits from the CAP Theorem or the Consistency, Availability and Partition Tolerance Theorem proposed by Professor Eric Brewer in 2000. This theorem asserts that a decentralised data storage such as a blockchain can only meet two of the three qualities listed above simultaneously. With the development of distributed networks, this problem became the blockchain trilemma.

The two prominent examples taken to quote this challenge are that of Bitcoin and Hyperledger Fabric. Though Bitcoin promises to be decentralised and secure, the approximate number of transactions per second is 7 TPS. While looking through the performance of Enterprise blockchains like Hyperledger Fabric, though they offer high transactional output, nevertheless, they lean to a certain degree to centralisation with a limited number of consensus-achieving nodes.

What were the different measures taken to scale up Ethereum?

The imminent challenges posed by increased transaction load and the subsequent network congestion called for steps to overcome the same. Some of them are:

  • Layer Solutions in Ethereum- Layer 1 and Layer 2.

Layer 1

Layer 1 refers to the original blockchain platform, such as Bitcoin, Ethereum, etc. One of the solutions proposed is the improvements in the consensus protocol, namely the transition of PoW to PoS — the end of mining to the beginning of staking. This prospects to improve the transactional rate and better energy efficiency.

Another remedy beneath is Sharding. As per Ethereum Co-founder Vitalik Buterin, “Sharding is the future of Ethereum scalability, a key to help the ecosystem support many thousands of transactions per second, thereby allowing large portions of the world to use the platform at an affordable cost regularly”. The transactions are broken into smaller datasets called’ shards’ in sharding. These shards are processed in parallel by the network, thus permitting numerous transactions to be executed simultaneously. It also unburdens the network nodes by requiring them to show only proofs of the main blockchain instead of holding an entire set of information from the genesis block to the present.

Though Layer 1 blockchains offered huge promises, they stumbled over the following issues:

  • The concerns on the security aspect of the blockchain network forced Layer 1 to continue to run on Proof of Work consensus. This was at the cost of intense consumption of CPU resources.
  • Sharding was a much-coveted element in the Ethereum roadmap and was intended to launch even before the Merge. However, the rapid development of Layer 2 rollups and Danksharding offering better outcomes, led the Ethereum community to favour building up Layer 2.

Layer 2

Layer 2 blockchains are the technology that operates on top of the original blockchain protocol to achieve scalability. For example, Rollups like Arbitrum One are a Layer 2 protocol of Ethereum, while Lightning Network is a Layer 2 solution of Bitcoin.

  • Nested Blockchains

These blockchains run a two-level mechanism where at one end, the main blockchain is utilised to input parameters for setting up a broader network; at the other end, an interconnected group of secondary chains are built, which performs the execution part. The secondary chains follow a parent-child connection. The parent chain delegates the work to the child chains, which processes the same and returns the completed work to the parent. The OMG Plasma project is an example of a nested blockchain used in Ethereum.

  • State Channels: In a state channel, two-way communication is established between blockchain and off-chain transaction channels. This is set to improve the overall transaction speed. State channels utilise multi-signature or smart contract mechanisms for validating transactions and hence do not rely on miners. Once a series of transactions are complete, the state channel records only the final ‘state’ of the channel on the main chain. Examples: Liquid Network, Raiden Network of Ethereum etc.
  • Sidechains: They are used to manage large batch transactions. Sidechains use an independent consensus mechanism to that of the original chain. Utility tokens are commonly used to enable data transfer between the side and main chains. The primary role of the mainchain here is to maintain the overall security and dispute resolution.Smart-BCH, Polygon, Gnosis and Skale are popular examples.

How does Layer 2 differ from Layer 1 ?

Layer 1 vs Layer 2

References

>> https://forkast.news/scalability-ethereum-post-merge-focus-vitalik-buterin/

>> https://vitalik.ca/general/2021/05/23/scaling.html

>> https://ethereum.org/en/developers/docs/scaling/

>> https://ethereum.org/en/roadmap/vision/

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