1. Blockchain’s Scaling Problem
Seminar: Blockchain 2018/19
Pablo M. García Sánchez

2. TABLE OF CONTENTS: 1. EXPOSING THE PROBLEM.
1.1.- INTRODUCTION …………………………………………………… 3
1.2.- TRILEMMA BLOCKCHAIN…………………………………….. 4
1.3.- WHAT IS EXACTLY THE PROBLEM?
2.- SOLVING THE PROBLEM.
2.1.- FIRST-LAYER SOLUTIONS…………………………………
2.2.- SECOND-LAYER SOLUTIONS………………………………
2.3.- SCALABLE CONSENSUS MECHANISM…………………
2.4.- SCALABLE DISTRIBUTED LEDGERS……………………
3.- CONCLUSION.

3. Blockchain technology has the potential to disrupt and improve many industries and traditionally centralized systems. But, the biggest limitation is Scalability.
It is hard for blockchains to grow and support increasing numbers of transactions.

4. TRILEMMA BLOCKCHAIN
Scalability
A blockchain can only choose 2 attributes and perhaps sacrifice an attribute.
Bitcoin and Ethereum were designed to focus on decentralization and network security.
CHOOSE ONLY TWO
Decentralization
Security

5. WHAT IS EXACTLY THE PROBLEM?
The problem is that in every blockchain the block size is limited. E.g.: Bitcoin’s block size = 1MB.
Each transaction have data and with a limited block there’s only many payments that can be processed at once.
Safier mechanism but it hasn’t helped to become a future proof.
The biggest names in the bussiness Bitcoin and Ethereum use blocks

6. ------------------------------
Aditionally we have to be aware of the miners fees:
Is knowed that in Bitcoin and Ethereum you have to pay a “fee” to validate a transaction.
With a busy network these fees become higher to make this procedure faster.
Slow transactions
+ Expensive fees
Goodbye cryptocurrencies

7. SO, WHY NOT JUST INCREASE THE CAPACITY?
Too difficult to have the enough support of the community and even then end in disgreement.
E.g.: Bitcoin
Full nodes more expensives = les descentralization.
2 MB
8 MB
32MB

8. WHAT OTHER SOLUTIONS ARE THERE?
There are generally four categories of blockchain’s scaling solutions:
First layer on-chain solutions.
Second layer off-chain solutions.
Scalable consensus mechanisms.
Distributed ledgers.

9. First-Layer Solutions
(On-Chain)
Segwit
Sharding
New Currency
First-Layer Solutions
Firs-t Layer Solutions requires changes to be made onto the codebase of the actual blockchain.
It is important to note that any structural or fundamental change to the property of a blockchain requires a hard fork. This requires the entire community to transit into a new and improved chain.
Bitcoin Cash
Dash
LiteCoin

10. Segregated Witness (Segwit)
Segwit is a protocol upgrade for Bitcoin that changes the way and structure of how data is stored.
It works removing the signature data for each transaction, it frees up more space and capacity for more transactions to be stored in Bitcoin’s 1MB-capacity blocks.
The signature data makes up almost 70% of the entire space of a transaction.
Expected Transactions Per Seconds: 20 TPS

11. Sharding (Ethereum)
Sharding involves breaking down or dividing the blockchain into small parts – called shards – that run parallel to one another.
Each shard has his own set of transactions and they are in-charge of process them.
Fragmenting the network allow the Ethereum blockchain to function as the sum of its parts, rather than being limited by the speed of each individual node.
Expected Transactions Per Seconds: TPS

12. Hard Fork (New Currency)
Bitcoin Cash (BTC)
Most contentious hard fork in the cryptocurrency community.
His developers argued that Segwit is just a temporary fix and didn’t fundamentally address the scalability issue.
The best way forward, they reckon, was to simply increase the block size limit from 1MB to 8MB.
Expected Transactions Per Seconds: 60+ TPS

13. LiteCoin
Litecoin is a fork off Bitcoin that is often regarded as the ‘silver’ to Bitcoin’s ‘gold’.
Was created to significantly reduce Bitcoin’s block generation time from 10 minutes to 2.5 minutes, to enable faster transaction speeds.
Can confirm the legitimacy of transactions a lot quicker as well as process a much higher number of them over the same time frame.
Litecoin’s limit coin is 84 million mark.
Expected Transactions Per Seconds: 56 TPS

14. Dash
DASH is one of the oldest cryptocurrency that is a fork of Bitcoin.
Is a dual-tiered system
There is a minimum deposit of 1,000 DASH for anyone interested to become a masternode.
Nodes:
Masternodes:
Validates blocks
Facilitates the added features of privacy and instant transactions. Possess voting powers to vote on governance and funding proposals.
Expected Transactions Per Seconds: 48 TPS

15. Second-Layer Solutions
Second-layer scalability solutions refer are built on top of the main blockchain where transactions are ‘off-loaded’ from the main blockchain to save space and reduce network congestion.
Second-layer solutions are usually in the form off side-chains and state-channels.
2nd Layer
(Off-Chain)
Trinity Network
Raiden Network
Plasma
Lightning Network

16. Lightning Network
Creates private, off-chain channels to facilitate instantaneous transactions with minimal fees.
Light the main blockchain’s moving the transactions off the main .
The transaction won’t need to be broadcasted to the public blockchain network until the parties decide to close the channel.
Users will not incur mining fees and there will be no block confirmation time.
Is a second-layer scaling solution for bitcoin
Expected Transactions Per Seconds: TPS

17. A B C

18. Raiden Network
Raiden is basically Ethereum’s version of Bitcoin’s Lightning Network.
Raiden is an off-chain scaling solution for the Ethereum blockchain that allows users to establish private channels (called ‘State Channels’) without broadcasting them to the main blockchain.
Off-chain transactions are faster and cheaper because they can be recorded immediately, and fees are only paid for forwarding transactions between nodes.
Expected Transactions Per Seconds: TPS

19. Plasma
Uses ‘child chains’ that stem from the original blockchain (parent blockchain).
Each child chain works as a separate blockchain that processes its own transactions although it still depend of the security of the main chain.
Because each child blockchain is created through a smart contract, it may be governed by its own set of rules and constraints.
Expected Transactions Per Seconds: ∞ TPS

20. Trinity Network
Trinity Network Credit is an off-chain solution built on the NEO blockchain. Trinity is similar to Lightning Network and Raiden Network.
Focused on:
Private Payment Channel
Resolve Scalability Issue
Open Protocol
Expected Transactions Per Seconds: ∞ TPS

21. Scalable Consensun Mechanism
There are several consensus mechanism that streamlines the consensus-making process to allow for greater scalability and transaction processing output. Various projects have developed and manage these consensus mechanims which can be a viable solution to the scalability probem.
Consensun Mechanism
Proof of Autorithy
Delegated Proof-of-stake
Byzantine Fault-Tolerance
We are not going to see all the scalable consensus mechanism only those which projects a ver worked on and they improve thoir scalabilitites

22. Delegated Proof-of-Stake (DPOS)
DPOS is a consensus mechanism where token holders vote in delegates that validate transactions on the network on their behalf.
DPOS operates as a collaborative system where delegates work together to produce blocks.
Although DPOS is partially centralized.
DPOS blockchains are able to run faster than other traditional public blockchains.

23. Why DPOS is scalable?
Because is partially centralized. There is a total of N delegates who sign the blocks, eliminating the need for trust in all the nodes of the network.
Centralized, YES, but with a layer of technological democracy.
These delegates are voted on by those using the network with every transaction that gets made. By using a decentralized voting process

24. Byzantine Fault Tolerance (BFT)
Byzantine Fault Tolerance (BFT) refers to the property of a distributed system in constantly achieving consensus even if there are adversarial actors within the network. There are several forms of BFT which are pretty scalable:
Delegated Byzantine Fault Tolerance (DBFT)
Practical Byzantine Fault Tolerance (PBFT)

25. Delegated Byzantine Fault Tolerance (DBFT)
DBFT is a form of BFT that divides nodes into 2 forms:
bookkeeping nodes (also called delegates)
ordinary nodes.
In the DBFT system, ordinary nodes get to vote for delegates that will be randomly picked to verify and validate transactions.
The difference with DPOS is that preselected nodes maintain consensus even if some of them fail or are malicious.

26. Delegated Byzantine Fault Tolerance (DBFT)
DBFT is a form of BFT that divides nodes into 2 forms:
bookkeeping nodes (also called delegates)
ordinary nodes.
In the DBFT system, ordinary nodes get to vote for delegates that will be randomly picked to verify and validate transactions.
The difference with DPOS is that preselected nodes maintain consensus even if some of them fail or are malicious.
Why is scalable?

27. Practical Byzantine Fault Tolerance (PBFT)
Standard blockchain for enterprise.
Very similar to DBFT, centralized nature.
The difference is often a private blockchain with appointed signing nodes from the very beginning.
Fits well for private setups which don’t require a large amount of capacity, but demand many transactions.
PBFT is a can support tremendous computational work with only a small increase in latency.

28. Practical Byzantine Fault Tolerance (PBFT)
Standard blockchain for enterprise.
Very similar to DBFT, centralized nature.
The difference is often a private blockchain with appointed signing nodes from the very beginning.
Fits well for private setups which don’t require a large amount of capacity, but demand many transactions.
PBFT is a can support tremendous computational work with only a small increase in latency.
Why is scalable

29. Proof-of-Authority (POA)
Selected nodes or accounts validate transactions in the network
Unlike in a Proof-of-Stake model where participants stake their tokens, participants in a POA system must stake their identities.
This often entails a rigorous screening process to be a validator.
Staking identity means voluntarily disclosing who you are in exchange for the right to validate the blocks.
POA’s high-throughput and identity-based model.

30. Why POA is scalable?
It’s because POA is partially centralized like DPOS.
Only selected nodes are able to validate transactions in the network.
POA is more suited towards a permissioned and private blockchain system

31. Scalable Distributed Ledgers
Blockchain technology is a subset under the general Distributed Ledger Technology (DLT).
There are other forms of distributed ledgers that do not use the same data structure of organizing information (transactions) into chained, sequential blocks.
The most popular form of distributed ledgers is a technology called the Directed Acyclic Graphs.
Distributed Ledgers
Blockchain
Directed Acyclic Graphs:
IOTA
Byteball
Hashgraph
NANO

32. Why is more scalable than Blockchain?
IOTA
IOTA is a variant of DAG that uses a data structure called Tangle.
Tangle data structure is basically a string of individual transactions that are interlinked and connected to each other.
Each user is technically a miner
There is no miners fees.
The heaviest branch is deemed to be the most trustworthy and valid
Why is more scalable than Blockchain?
Expected Transactions Per Seconds: TPS

33. Why is more scalable than Blockchain?
Byteball
Byteball’s data structure is similar to IOTA but it uses a different consensus mechanism. Instead PoW  Main Chain
Earlier transactions are given more weights.
Transactions on the network has fees.
Why is more scalable than Blockchain?
Expected Transactions Per Seconds: TPS

34. Because the data is stored in Tangle structure.
The important thing is, that every transaction has to approve at least two other transactions. This means, that every vertex has to be connected by directing edges to at least two other vertices.

35. So instead of storing transactions in blocks with a limited size, each transaction lives on its own and has to approve other transactions.
With this method, the number of transactions, that can be handled in a certain amount of time, increases with the number of transactions

36. Hashgraph
Hashgraph uses a Gossip about Gossip protocol that randomly ‘gossips’ with other nodes about their transactions until the entire network is aware of all transactions that has been processed.
Gossip about Gossip means adding some extra information to the current gossip, then they can converge on a consensus of the history of transactions quickly.
Hashgraph will be more regularly updated (faster transaction) when more information is gossiped, on each node.

37. NANO
Nano uses a different form of DAG called Block-lattice, where essentially all participants get their own, controlled with their own private keys
You, as the user, performs the confirmation by signing your transaction. This process takes a trivially small amount of time.
In general, your transaction is fully confirmed and processed in a matter of seconds that means highly scalability.
Expected Transactions Per Seconds: TPS

38. What’s going to happen if nothing changes?
Transactions will take longer and longer to process. Blockchain platforms need to offer the same transactions speed than centralized systems.
There’s a real risk that the community will abandon this technology altogether.
Dwindling user numbers could see prices for major cryptocurrencies tumble

39. Let’s not be dramatic…
The universally feared scalability problem of blockchains is not a generic defect of public blockchain technology.
It merely needs consensus on a feature change, which is in the process of being decided among the cryptocurrencie community.
We strongly hope that the fixes are coming soon because it is evident that delay in achieving scalability poses risks of losing relevance over the current standards.

40. THANKS FOR YOUR ATTENTION.
The End.
Pablo M. García Sánchez
Uniwersytet Wroclawski