Demystifying Ethereum Scaling Solutions — Rollups, Sharding
Like it typically goes, it started with my curiosity after hearing a lecture on EthWarsaw and led to me dedicating a few days trying to catch up with the latest Ethereum Scaling solutions.
According to L2 Beat (a well-known analytics and research website focused on Ethereum Layer 2 scaling and btw led by a Polish team), the current value locked in Ethereum stands at approximately $10.86 billion.
Some people, particularly podcasters trying to push their audience to spend some money on the projects they are betting on, are claiming that ‘L2 Summer’ is coming. And obviously, we don’t want to miss the next crypto wave.
But setting aside of all of the buzz, let’s start by understanding basics of the current Ethereum Scaling landscape.
The good news is, I’ve done the research so you don’t have to!
I wanted to kick off by explaining:
- Why do we even want to scale Ethereum at the first place?
- What is the Blockchain (aka Scalability) Trilemma?
- How can we scale Ethereum? (On-chain/Off-chain Scaling)
Let’s dig in!
Also, if you’re a pro, feel free to skip the initial paragraphs and jump straight into a table highlighting the pros and cons of current Ethereum scaling solutions.
Why do we even want to scale Ethereum at the first place?
You all probably remember the DeFi and NFT craze, with billions of dollars locked across various protocols. But all the hype comes with a price — scalability (and it can literally cost you money!;)).
It’s important for everyone to realize that:
Blockchains sell block space. As blockchains have a limited capacity to process transactions per second (TPS), so when demand rises, so do the prices for the block space.
Why?
Blockchains synchronize their state globally. In the case of Ethereum, the block size is around 15–30 million gas (yes, it’s not about the number of transactions but the amount of gas a block can handle, so you can fit a lot of regular transactions but only a limited number of smart contract calls/transactions). In Ethereum not only the block size is fixed but also the time separating blocks — theoretically around 12 seconds, known as a ‘slot,’ which can vary based on node availability.
Considering all these factors, Ethereum has a capacity to handle approximately 15 transactions per second (TPS). When the limit is reached, users are forced to compete against each other for their transactions to be included, which causes fees to go up.
Users are essentially competing for a space within each block, and there have been cases where companies issuing NFTs have driven prices up. One such case occurred in May 2022, when Yuga Labs, the creator of Bored Ape Yacht Club, launched a sale of Otherdeed NFTs, causing fees to skyrocket. Users had to pay as much as $440 to complete transactions on the Ethereum network during that period.
Okay, so it seems like there is an obvious and significant drawback in Ethereum. So, all we need to do is either increase the block size or reduce the time between blocks, correct?
Unfortunately, the answer is ‘no,’ and I’ll explain why.
What is the blockchain (aka scalability) trilemma?
The term, which was coined by Vitalik, says that there are three properties blockchains strive to achieve:
- Scalability — the network’s capacity to handle a growing number of transactions (TPS).
- Decentralization — the absence of excessive control by any single entity or group over the blockchain network.
- Security — the ability of the chain to resist attacks, typically including defense against a 51% attack and protection against double-spending.
The catch is that, according to this concept, only two of these three properties can be reached simultaneously at any given time. Typically, various blockchains prioritize different attributes, forcing them to make trade-offs.
Going back to Elon’s tweet. When the block size is increased, it might lead to a greater centralization, as only a limited number of nodes can effectively run a full node, and this contradicts the fundamental nature of most blockchains.
Because the goal is to decentralize blockchain networks, we’ve got to keep in mind that running a node shouldn’t be expensive or difficult. Nodes need to be able to easily sync the chain after being offline.
The good news is that developers are actively exploring unconventional solutions to overcome these limitations and improve all 3 aspects simultaneously.
How can we scale Ethereum?
I’ve put together a comparison table to provide a solid starting point. Now, let’s dive deeper into each of Ethereum’s Scaling Solutions.
On-chain Scaling
This involves scaling the core blockchain itself and increasing the number of transactions Ethereum can process. However, we can’t simply increase block size, as it risks centralization.
- Sharding
Off-chain Scaling
Here, we move most operations, especially those related to computation and storage (the execution layer), to a separate layer. In most cases, using L1s for verification.
- Layer 2s
- New Chain Creation
‘Effectively, the past 6 years of scalability research boil down to one thing: what kind of “bounced checks” could be enforced. At first, only a pre-agreed set of parties could transact among each other (state channels!). Then, anybody could transact, but could also be censored (plasma!). Eventually, we solved censorship too (rollups!).’ (Source: Introducing EVM Equivalence)
The current Ethereum roadmap is built around Rollups — A rollup-centric Ethereum roadmap. However, in order to achieve scalability goals, both L1s and L2s need to scale in parallel — L1s to accept more data in blocks, L2s to increase bandwidth. Thanks to Ethereum’s Rollup-centric roadmap and the development of Blobs, in the near future, rollups won’t be consuming block space but blob space.
When we look at what’s happening in the L2 scene right now, we’ve got a few big players, and the top three are Arbitrum One, Optimism, and Base.
In my next blog post, I’m thinking of going through the roadmaps of three L2 scaling solutions and providing you with an overview.
Stay tuned!
