Ethereum Limitations And Scaling Solution

Ethereum is a word that has been associated with cryptocurrency and blockchain technology the most, second only to perhaps Bitcoin. Making use of the smart contract feature, it is the second-largest cryptocurrency platform by market capitalization. Ether, or ETH, is considered as one of the most widely used cryptocurrencies for transactions over the globe and to run applications inside Ethereum. Here, we will discuss the scalability potential of this platform, the future scope and their effects on Ethereum.

Scalability

Ethereum’s scalability issue is a tough nut to crack. Just like Bitcoin, each node in the network has to process the network protocol with every transaction. According to the concept of the Blockchain Trilemma, it is almost unimaginable to achieve all three properties (decentralization, security, and scalability) in a blockchain system. Decentralization is the doctrine that’s holding the blockchain ecosystem together, and security is all about the immutability of the public ledger and the ability to resist network attacks like DDoS. Now, scaling Ethereum to make it the world computer as its inventor envisioned, means matching the transaction capacity of various centralized systems like Visa and Amazon. But the very design choice of Ethereum is such that it opposes scalability to make room for a decentralized and secure platform. You can also click here to know more about it in detail.

Proof of Work Consensus

With the goal of deterring DDoS like network attacks, Proof-of-Work is a protocol that keeps a computer system’s resources from being exhausted. Here, the miners have to compete to solve difficult puzzles using their computers’ processing powers, and the first miner to solve the puzzle is rewarded for his work. You need to have a computer that’s 51% more powerful than the rest of the systems in the network in order to add a malicious block. 

PoW existed even before Bitcoin was created, and became the underlying principle which revolutionized the way transactions were done on the internet.

Proof of Stake Consensus

Proof-of-Stake is a kind of consensus algorithm for public blockchains that depend on a validator’s financial stake in the network. Here users who desire to approve blocks are required to deposit a stake of their own Ether (the stake being roughly 32 ETH). That stake is locked, and a consensus algorithm is then applied that only these staked users can partake in. There’s no competition as the block creator is chosen by the algorithm based on the user’s stake. To avoid malicious blocks, you’ll have to own 51% of all the ETH on the network. Moreover, as there is no reward system in place for making blocks, the creator imposes a transaction fee. An Ethereum 2.0 PoS testnet beacon is now under regulation. 

Ethereum Sharding and Off-Chain Transactions

Sharding is a process of partitioning databases horizontally to make them smaller and faster. Sharding splits the entire Ethereum network into smaller ‘shards’ which contain their own unique arrangements of smart contracts and account balances. Each shard manages itself and the effects of transactions remain confined. A dApp may have a whole shard to itself or several dApps related to a domain may share a shard. Moreover, Ethereum 2.0 considers cross-shard communications as a strong possibility, and although complex, it is one of the most unique solutions to scale Ethereum on-chain. 

The transactions that take place on the Ethereum network are called on-chain and the ones taking place outside the network for micro-payments between two parties are known as off-chain transactions. The solution of sharding is that of on-chain and falls prey to the problems it tries to solve like blockchain congestions which regularly result in higher transaction charges.

Off-chain transactions are not visible over the network and don’t belong there, and this is probably a breakthrough in Ethereum scalability because it allows individuals and organizations to open up direct P2P channels and be able to transact without transmitting it across the blockchain.

The Effect on Ethereum

All updates implemented on the Ethereum network have their effects on all dApps including Ethereum. For instance, a switch from PoW to PoS is expected to make the platform even more secure, reducing the risk of an attack focussed on the users’ ether holdings. Scaling Ethereum will allow expansion of the Ethereum platform which will, in turn, lead to a higher payout. Therefore, you have to go through ETH prediction to know all the aspects of this coin and its upcoming updates.

Conclusion

All in all, with the switch from Proof of Work to Proof of Stake in Ethereum 2.0 and sharding and off-chain transactions, the two unique methods of scaling being implemented to scale the Ethereum network, Ethereum can only reap benefits from these updates.