2022 Prediction #1: L1 Scalability

I start this series just to express my opinions about what crypto may evolve in 2022. Maybe it will not but my hope is they can do better.

With more and more users joining the crypto universe, scalability is a challenge for Layer 1 platforms such as Ethereum and many others. Scalability was a problem that had been identified in 2015. However, blockchain technology was not able to resolve and the issue has been persistent on many platforms.

TL;DR

There is no single solution to the scalability problem in blockchain technology. 2022 will be another year of continually seeking and researching the optimal solutions for future blockchain usage.

Here is a 1 min summary of the article if you want to skip the reading.

Why Scalability

Blockchain provides an ecosystem for users to interact. Unlike the Internet of Things (IoT) which users share their data with each other, blockchain provides an additional layer of verification for each data to be validated and broadcast to the public. Scalability in blockchain then becomes more costly and slow processes.

Challenge of Scalability

Cost is one of the challenges each blockchain will be faced. To be able to validate each block of information, you require either more validators to work in a more efficient way (or input more energy) so that each data can be processed. The more data to be processed, the costly each validation process and the longer time it will take to process each data.

Solutions of Scalability

One of the currently existing solutions is the Proof of Stake consensus algorithm. With additional two features Tower BFT (Byzantine Fault Tolerant consensus) and Proof of History from Solana, the blockchain resolve scalability issues temporarily. Both features are technology to determine honest members or nodes in a short time and dedicate them to process validation a guaranteed way to agree on the timing and order of a set of transactions. Such a consensus algorithm is also being used in Hedera, a project that completely opposes Proof of Work. However, Solana has sacrificed its decentralization feature to reach scalability optimization.

Blockchain Trilemma

There is a trilemma on the blockchain that will continue debating along with the progress of the development. Scalability, security, and decentralization. One can not be solely optimized without sacrificing the other two. 

If you sacrifice decentralization to become centralization, then you have scalability and security. Think about credit companies like Visa who control all user’s data as securely as possible and transact payment at lightning speed.

If you sacrifice scalability, you have security and decentralization like Bitcoin. Bitcoin is the most secure cryptocurrency and it is decentralized with many participants working together to improve. But when Bitcoin starts pursuit scalability through Lightning Network, it has to sacrifice its security and only broadcast output of the final transaction while keeping all other intermedia transactions in the black box. It is prone to have security issues during intermedia transactions that no one may be able to discover until later.

If you sacrifice security, then you got scalability and decentralization like Defi projects Uniswap. Then your bank account is open to every hacker to try to test their ability to breach into and eventually lost millions of dollars investors contribute.

2022 Is Scalability Testing Year

Scalability is an ongoing problem in blockchain and many researchers will continue working on it. Ethereum is slowly phasing out Proof of Work into Proof of Stake and many layer 1 solutions that resolve scalability problem has already been implemented by Proof Stake such as Solana. There will have a better way to resolve scalability issues. However, we shall see how others play out.

In Conclusion

Scalability is a problem but it is also an opportunity to introduce better layer 1 solutions. Every competition can help another platform to evolve and become a better version of the cryptocurrency for everyone to participate in.

Stay tuned for the 2022 Prediction #2: L2 Bridges