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why is scaling up needed?
The demand for blockchain space has been increasing substantially over the past years, in particular with the rise of DeFi apps and the sudden explosion of the NFT market in 2021.
As a result, gas fees — the cost paid by users for Ethereum transactions, has increased dramatically as well. A basic transfer of Ether cost about $5 in November 2021, while a DeFi transaction (Uniswap for example) can cost more than $100. These high costs can be very discouraging for regular users and explain why a lot of blockchains with higher throughput and cheaper fees have been in the spotlight in recent months, for example Solana, Cardano, or Binance Smart Chain.
To accomodate increasing demand, scaling is necessary. Scaling simply means offering more transaction per second (TPS). There are two ways for blockchains to do that.
The base layer solutions
The first one is to either increase the block size, decrease the time between blocks, or both. That’s the solution adopted by high TPS blockchains such as Binance and Solana. Think of transaction data as cars on the road and nodes as checkpoints. There is only so many cars per hour a checkpoint can process. If you want to handle more traffic, you need to build bigger checkpoints.
In blockchain terms, that means you need more powerful hardware for nodes to process transactions and more disk space to store data. When you crank up requirements for nodes, at some point you push away regular individuals and end up with only a few dozens nodes run by corporate entities. In other words, you centralize, which means you lose censorship resistance and security.
Ethereum’s security model is to rely on tens or hundreds of thousands of nodes operated by individuals on their personal computers. Bitcoin’s model is the same. Low requirements for running a node means more participants: everyone can do it at little cost. This model is very resistant to censorship: it’s difficult to coerce ten thousand individuals scattered across the globe, much more than to coerce a dozen private companies.
The decentralized model is also more resistant to technical failures. Recently, the Solana chain experiences an…
