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This is how Ethereum will scale

Published on: January 17, 2018

When it comes to Ethereum, scaling is the most important issue to take into consideration. The blockchain technology has expanded rapidly over the last two months, as you can see in the transactions chart below. On November 11, there were less than 500,000 transactions per day. But today, the network is approaching almost 1500,000 daily transactions. With the number of transactions rapidly growing—the Ethereum network’s scaling is now facing the true test of whether or not it can handle rapid user-growth.

Since its development, the goal of Ethereum has always been to develop a cryptocurrency with the capacity to grow into a mainstream global currency. Unlike many other blockchain technologies, the founders of Ethereum primary intentions were to create a currency that would change the world—rather than focus on profits.

That’s why I was really excited to hear Ethereum founder Vitalik Buterin say it will just take “a couple of years for the Blockchain to replace Visa” at TechCrunch Disrupt 2017.  Setting a goal like Buterin’s is extremely ambitious—but is it possible? How exactly can the Ethereum Foundation scale their digital currency platform onto a level that can provide millions of transactions per second?

On-chain Scaling

Contrary to popular belief of blockchain, Ethereum has the potential to scale on-chain—rather than exclusively off-chain. In this article, I use on-chain scaling to refer to methods that can increase blockchain network capacity. This is one of the main ways that Ethereum’s focus diverts from other blockchain networks.

Sharding

The founder of Ethereum particularly emphasizes promise behind the on-chain scaling method known as “sharding.” According to Vitalik, sharding can be understood as a blockchain that “has different universes and each of these universes is a different account space.”  The really fascinating thing about these universes is that—while they maintain distinct parameters from one another—they also share a broader “universe” that connects one another.

As a result of the blurred line that sharding enables between Ethereum’s transactions being both connected and distinct, my research shows that Shard, while it may take a while to ideally develop, will contain an unparalleled level of security and data capacity. Ultimately, I think this will allow the storage of vast amounts of state data—and extremely quickly.

Proof of Stake

The product mostly developed by Ethereum developer Vlad Zamfir known as “Casper” attempts to resolve issues that have previously been coined as problematic to overall PoS solutions. The function of Casper sidesteps the conventional blockchain scaling method—mining—that involves a user competition and reward system.

In place of the conventional method, Zamfir’s PoS designates validators of transactions, based on the amount of their Ether stakes, and has those validators then put up a portion of their Ethers as stakes. When these validators discover a useable block, they hedge their money on that block being certified—if they are correct about block, they are rewarded; if incorrect, they lose the money that they hedged.

The major benefit of the Casper PoS is that it has designed the Ethereum blockchain to prioritize pragmatism over user-trust. Casper is specifically designed to deter instances of potentially harmful blocks for individual benefit.

Off-Chain Scaling

The more commonly noted method of scaling blockchain technology involved off-chain scaling. This is the method that was embraced by earlier cryptocurrencies, such as Bitcoin. I think that Ethereum is employing off-chain strategies as a result of its partial success in the past.

My definition of off-chain includes tactics to make the use of blockchain more efficient (without altering the blockchain itself), as well as decrease the use of the blockchain while increasing overall transactions.

Raiden state channels

Ethereum’s main off-chain strategy involves taking advantage of Raiden state channels. What exactly is a Raiden state channel? Essentially, the Raiden Network is channel for transactions to occur without using the blockchain every time. Similar to Bitcoin’s Lightning Network—but, in my opinion, substantially stronger and quicker.

The purpose of the Raiden Network is to increase the speed of transactions while decreasing the cost.

By avoiding the Ethereum blockchain and using its own channel to trade Ether, Raiden holds the potential to enable millions of micro-networks to facilitate off-chain transactions. The main benefit of this—it dramatically decreases the burden and requirements of Ethereum to handle. ongoing and future increases in transactions.

Plasma

Plasma, essentially, creates its own network of blocks, similar to a blockchain—only it is more of a sub-blockchain to the overall Ethereum network.  The plasma system relies on incentivizing smart contracts to allow a massive amount of state updates per second.

With Plasma’s potential fully exploited, Vitalik believes that Ethereum will be able to take complete advantage of its untapped potential.  This process relies more on user-censorship for identifying misuse of the blockchain. Through the plasma network, other users are responsible for flagging negatively intended usage of Ethereum.