DLTs SCALABILITY

MODEL
How to understand and evaluate
blockchain scalability

- KARIM YASSINE
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Introduction
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Important notice
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Before diving into the content, it's important to note that the
information provided is purely educational and not intended to be
construed as financial advice. This document is designed to guide
individuals in conducting their own research and due diligence
when exploring different DLT projects.

Introduction
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As blockchain technology continues to gain widespread adoption,
the issue of scalability has emerged as a critical challenge that
needs to be addressed. The decentralized and trustless nature of
blockchain makes it an ideal solution for many use cases, but its
limited transaction throughput and slow processing speed have
hindered its mainstream adoption.

This document aims to provide a comprehensive overview of

blockchain scalability, covering topics such as the current
challenges facing blockchain scalability, various proposed
solutions, and the trade-offs between different approaches.
Additionally, we will explore the impact of scalability on
different blockchain use cases and industries, as well as its
potential future developments.

By understanding the scalability challenges and solutions in the

blockchain ecosystem, you will be able to make informed decisions
about which blockchain projects to invest in or participate in.

However, it's important to note that this document is not

exhaustive and there may be additional factors that should be
considered depending on the specific blockchain project being
evaluated.

Remember, investing in cryptocurrencies and blockchain projects

comes with inherent risks, and it's important to always conduct
your own research and due diligence before making any investment
decisions.
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Scalability
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Layers of a Blockchain
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A blockchain network consists of various layers, each serving a
unique purpose to ensure the secure and efficient operation of
the network:
● Network layer: This layer is responsible for the
connectivity and communication between nodes in the
blockchain network. It ensures that data is transmitted
efficiently and securely, using a variety of networking
protocols and technologies.
● Data model layer: This layer defines the structure and
format of the data that is stored on the blockchain (txs,
most of the time). It specifies how transactions are
created, validated, and stored on the blockchain, and how
different types of data can be represented.
● Execution layer: This layer is responsible for executing
smart contracts and other code on the blockchain. It
provides a secure and deterministic environment for running
code, ensuring that the results of each transaction are
consistent and predictable.
● Consensus layer: This layer ensures that all nodes in the
blockchain network agree on the state of the blockchain. It
provides the necessary security and immutability that makes
blockchain technology so powerful, by ensuring that data
cannot be tampered with or altered without the agreement of
the network.
● Application layer: This layer is where decentralized
applications (dApps) are built on top of the blockchain. It
provides a framework for building and deploying
decentralized applications, which leverage the underlying
layers to provide secure & decentralized services to users.

Understanding “Speed”
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One important consideration when evaluating the performance of a
DLT is transaction finality and TPS, or transactions per second.

Transaction finality refers to the assurance that a transaction

is valid and cannot be reversed or altered without the consensus
of the network. TPS refers to the number of transactions that a
blockchain network can process in a given time period.
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The consensus layer of the blockchain technology stack plays a

critical role in achieving transaction finality. On the other
hand, TPS is largely determined by the infrastructure and
technology used to run the blockchain network.

So, while the transaction finality is referred to the time of a

DLT network to assure the immutability of a transaction, TPS is
the ability to maintain a consistent transaction finality even
during peak times.

Throughput of the Network

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When evaluating the performance of a blockchain network, many
people focus on the number of transactions per second (TPS) that
the network can process. However, this metric can be misleading,
as it doesn't take into account the size and complexity of the
transactions being processed.

Instead, it's important to consider the volume of processed data

as a more accurate measure of a blockchain network's performance.
This takes into account not only the number of transactions being
processed, but also the size and complexity of those
transactions, providing a more complete picture of the network's
capabilities.

For example, a single transaction on a blockchain network can

contain multiple inputs and outputs, as well as complex smart
contract logic that can take up a significant amount of
processing power. In this case, a single transaction could
represent a large volume of processed data, even if it only
counts as one transaction in terms of TPS.

State Bloat
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As more transactions are added to the blockchain, the state
database grows larger, which can lead to slower transaction
processing times and increased storage requirements. This is
because each node in the network must store a copy of the state
database in order to validate transactions and participate in
consensus.
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One major cause of state bloat is the use of smart contracts,

which can be complex and require significant storage space.
Additionally, if a blockchain network lacks mechanisms for
cleaning up outdated or unused data, the state database can
continue to grow indefinitely.

For example, bitcoin has been running for around 13 years, and
uses around 500gb. Solana, however, is using 2TB per year!

Consensus Finality
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A very important consideration is the speed at which new blocks
can be added to the blockchain. While faster block times can
increase the TPS of a network, they can also lead to issues with
consensus, such as an increased risk of orphaned blocks.

Nevertheless, consensus is also important for managing state

bloat, as it allows for the efficient pruning of outdated or
unused data from the blockchain's state database (by implementing
consensus mechanisms that allow for the removal of obsolete
data).

Problems Identified
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Through our topics on blockchain scalability, we've identified
several key components that are critical to achieving optimal
network performance. Among these, the execution layer, storage
layer, and consensus layer stand out as particularly important
factors in achieving great network scalability.

Solutions for Execution Layer

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There are various approaches to efficiently handle execution,
including vertical scaling, multichain ecosystems, execution
sharding, modularity, and payment channels. Each approach has its
own advantages and disadvantages, which we will discuss in more
detail below.
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● Vertical Scaling: involves upgrading the hardware of a

single machine to increase its processing power and storage
capacity. This approach is often used to handle large
amounts of data, such as in the case of Solana and Fantom,
which focus on absolute performance.
○ Pros:
■ Faster and cheaper for the user due to the
increased processing power and storage capacity.
■ Can handle large amounts of data and transactions.
○ Cons:
■ Expensive to implement and maintain due to the
cost of upgrading hardware.
■ Usually centralized.
■ Short term solution.
● Modularity: involves separating the three scalability layers
(execution, consensus, and storage) into three different
chains outside of the main DLT. This is typically achieved
by introducing rollups, like ZkRollups or Optimistic
Rollups. This approach is used by Optimism and Arbitrum.
○ Pros:
■ Inherits layer 1 security (after finality).
■ Runs execution on a cheaper and faster chain.
■ Less expensive from a storage perspective.
○ Cons:
■ Usually centralized.
■ Not as fast as sidechains/chains.
■ In optimistic rollups, finality only happens after
7 days (if not contested, otherwise it's more).
■ Breaks composability, atomicity and atomic
composability.
■ Split of liquidity can result in less effective
markets.
● Payment Channels: Payment channels involve blocking tokens
on a chain and sending messages of this property to other
addresses off-chain, only paying gas to lock and unlock the
token on the main chain.This approach is used by Bitcoin LN.
○ Pros:
■ Basically free and instant transactions.
■ Reduces congestion on the main chain.
○ Cons:
■ Channels need to be online 24/7.
■ Can be challenging to set up and maintain.
■ Limited to specific use cases (such as
micropayments).
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● Execution Sharding: involves breaking up the network into

smaller pieces called shards, with each shard managing its
own execution. The security, consensus and storage is shared
across all shards, and a central chain is responsible for
managing the shards. Examples of execution sharding are
Polkadot, Avalanche, Oasis, Ziliqa.
○ Pros:
■ Security is shared & enforced by a central chain.
■ Parallel execution can be achieved.
■ Easy communication with other shards.
■ Easier to update and scale with time.
○ Cons:
■ Limit on the number of shards.
■ Could be a central point of failure.
■ Shards have no control other than the app layer.
■ Composability is somehow inefficient, atomicity
and atomic composability are also inefficient.
■ Partial split of liquidity can result in less
effective markets.
● Multichain Ecosystem: is a network of independent
blockchains that can communicate with each other but do not
share security, consensus or storage. This approach results
in specialized DLTs for each use case that isolate both
security and execution. Examples of multichain ecosystems
are Cosmos.
○ Pros:
■ Security is isolated in each chain.
■ Parallel execution can be achieved.
■ Easy communication with chains in the network.
○ Cons:
■ News projects are inherently insecure.
■ Breaks composability, atomicity and atomic
composability.
■ Split of liquidity can result in less effective
markets.

Solutions for Storage Modal Layer

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As the volume of data on blockchain networks increases, storage
becomes a crucial issue. To tackle this issue, several solutions
have been proposed and implemented, such as vertical scaling,
pruning, state expiration, sharding, and data compression.
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● Vertical: involves upgrading the hardware of a single

machine to increase its processing storage capacity. This
can be achieved through increasing CPU, RAM, or HDD/SSD
capacity.
○ Pros:
■ Cheap.
■ Easier access.
○ Cons:
■ Centralization.
■ Price tends to increase as storage grows.
● Pruning: involves constantly cleaning older blocks after a
certain "checkpoint", so that full nodes do not need to
download all the blockchain. Archive nodes are responsible
for this.
○ Pros:
■ Less data volume.
○ Cons:
■ Access to older data needs to involve third
parties (archive nodes).
● State expiry: mechanism where data that has not been
accessed during a certain timeframe is deleted.
○ Pros:
■ Optimizes storage.
○ Cons:
■ Important data can be lost.
● Sharding: involves breaking down the data into smaller
subsets called shards and storing them separately. Each
validator needs data for only one shard.
○ Pros:
■ Cheap
■ Preserves decentralization.
■ Easier to integrate with Rollups.
○ Cons:
■ Limit on the number of shards.
■ If validators change shards, downloading all data
related to the new shard is required.
● Data compression: Data compression is usually done with
layer 2 chains, where hundreds of transactions are
compressed into a single tx and sent to the main DLT
network.
○ Pros:
■ Significant reduction in data volume.
○ Cons:
■ Loss of a big chunk of transaction metadata.
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Solutions for Consensus Layer

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Solutions to improve the consensus layer of a blockchain network
are crucial for ensuring its efficiency and scalability. Here are
two potential solutions:

One solution for reducing the amount of bandwidth used in

consensus is to limit the number of nodes that communicate with
each other. Instead of all nodes communicating with each other,
the design of the consensus protocol could be made in a way that
only a few randomly chosen validators are required to participate
in the consensus process.

Another solution for improving consensus is to reduce network

latency. Network latency refers to the delay or lag that occurs
when sending data from one point to another over a network. One
way to reduce network latency is by using a consensus algorithm
that is optimized for low-latency communication. For example,
some consensus algorithms use gossip protocols to spread
information quickly throughout the network, while others use
specialized data structures to optimize data transmission and
reduce network overhead. Additionally, network improvements such
as faster and more reliable communication channels can also help
reduce latency and improve overall consensus performance.

Conclusion
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In conclusion, scalability is a crucial factor for the long-term
success of blockchain technology, as it enables networks to
handle increasing volumes of transactions and users. There are
several approaches to scalability, ranging from increasing block
size to implementing layer 2 solutions and sharding. Each
approach has its advantages and disadvantages, and it's essential
to evaluate them based on the specific use case.

Furthermore, improving the storage and consensus layers is also

critical for the scalability of blockchain networks. Solutions
like vertical scaling, pruning, state expiry, and sharding can
help address storage issues, while reducing bandwidth and latency
can enhance consensus mechanisms.
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Despite the challenges, the blockchain industry is continuously

evolving, and developers are actively working on new and
innovative solutions to improve scalability. As adoption
continues to increase, the need for scalable blockchain networks
will only grow, and it's essential for the industry to continue
pushing the boundaries of what is possible.

**It's important to note that none of these resources should be taken as

financial advice. The cryptocurrency market is highly volatile, and investing
in cryptocurrencies can be risky. It's always recommended to do your own
research and consult with a financial advisor before making any investment
decisions. Additionally, keep in mind that the cryptocurrency market is
constantly changing, and the information provided by these resources may not
be up to date or accurate at all times.**
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End