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Blockchain Scalability Trade-offs: How to Choose a Platform

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Blockchain scalability is one of the most frequently cited reasons that blockchain adoption isn’t happening faster.

The truth is, most blockchain networks are slow when compared to traditional centralized technologies and networks like AWS or the Visa network. Ethereum, for example, can process transactions in the range of 15 transactions per second — and Bitcoin is even slower.

On the other hand, blockchain networks have unique properties, such as native digital scarcity and unstoppability, that cannot be achieved in the same way with centralized approaches.

As developers continue to experiment and iterate on novel uses of these properties in decentralized software applications, popular platforms are hitting up against scalability and transaction limits. In this context, blockchain scalability is widely seen as a limiting factor in further blockchain adoption among software developers and end users.

In response to these blockchain scalability issues, the community has poured a lot of energy into developing scalability solutions at Layer 2 (e.g. Lightning, Plasma) and migrating existing platforms to faster consensus mechanisms (e.g. Ethereum 2.0). These solutions are all interesting in their own right, but I would argue that they are less important for scalability than design decisions in the protocol itself, and the use cases which are being targeted by those designs.

Developers who are investigating which decentralized platform to build on should carefully consider their requirements and the design goals of the platform they are choosing relative to those requirements.  Two important trade-offs in order to achieve your optimum level of scalability for your application are the level of decentralization and the level of programmability that you require. Not every application needs maximum decentralization nor programmability.

The Top Two Trade-offs to Blockchain Scalability

Level of Decentralization

The Blockchain Trilemma

For those who are unfamiliar with the famous blockchain trilemma, it states that when designing a blockchain protocol, you can only have two of these three properties: security, decentralization, and scalability. The insight is that it is hard to achieve all three simultaneously.

From my point of view, the most interesting use cases for blockchains are related to the storage and movement of value, so any significant sacrifices to security seem like a non-starter.

The key point behind the trilemma is the relationship between decentralization and scalability. It is easy to achieve scalability if you sacrifice decentralization. For example, traditional deployments using AWS infrastructure achieve very high scalability in a centralized model. But in this deployment model, the key properties that make blockchains interesting — namely, native digital scarcity combined with unstoppability — disappear.

Some projects use this relationship to their advantage. Take the example of EOS. In the EOS network, there are 21 block-producing nodes. This is far fewer than Ethereum or Bitcoin. By becoming more centralized, EOS achieves far higher transaction throughput than either Ethereum or Bitcoin. Twenty-one nodes isn’t totally centralized, but it is much more centralized than many other blockchain networks.

EOS’s goal is to be decentralized enough to keep the most interesting blockchain properties intact, but centralized enough to achieve significantly higher performance than competing blockchain networks. The question to ask yourself as a DApp developer is, what level of decentralization does your use case require? How worried are you about censorship of your application? Many high-value-oriented use cases may require higher levels of decentralization; for others, it may not matter.

Level of Programmability

The level of programmability that is supported by a blockchain protocol is at least as important a factor for blockchain scalability as decentralization. The key question is, what use cases are your applications going after, and what level of on-chain logic do you need to achieve your goals?

I can think of a range of applications with varying needs for platform programmability, running from money and asset transfer use cases on one end of the spectrum to Web3/decentralized applications on the other end of the spectrum. A money transfer application, a securitized tokenization platform, or a marketplace for digital collectibles may be perfectly well served by a platform that supports a rich set of asset transfer use cases. Whereas, a DAO or decentralized exchange that needs extensive onchain logic would require a full Turing-complete programming environment.

All other things being equal, platform scalability degrades as you move toward a more decentralized model. Bitcoin seems to be an exception to this rule as it is firmly on the “money” end of the spectrum, but it also isn’t scalable. The point is that Bitcoin would be even less scalable if it had full Turing-complete smart contracting functionality.

Platform scalability also decreases as you add Turing-complete smart contract functionality. With Turing-complete smart contracts, you need a gas concept to meter contract execution and produce deterministic behavior, which adds fees and operational costs to your application. You also need to allow smart contracts to store arbitrary state or data on the chain, which leads to more fees and increased storage requirements for the underlying blockchain nodes. Most smart contract platforms have a single one-size-fits-all virtual machine for all contracts on the platform, which can also become a scalability bottleneck. All of these factors reduce the scalability and throughput of Turing-complete smart contract platforms.

Opposite Ends of the Blockchain Scalability Spectrum: Algorand and Ethereum

Let’s take a couple of concrete platform examples to illustrate the point.

Algorand Prioritizes Performance Over Turing-Complete Programmability

Algorand is a high-performance, next-generation blockchain that focuses on the money and asset end of the design spectrum, and is also highly decentralized (unlike EOS). It achieves very high performance and transaction throughput by focusing on money, asset, and asset transfer use cases and doing them well.

Algorand’s new scripting language, TEAL, is intentionally non Turing-complete to avoid the gas fees, arbitrary storage, and infinite loops that come along with Turing-complete smart contract platforms. These are specific choices that allow it to achieve high performance for the money, asset, and asset transfer scenarios. This is why applications supporting these use cases that have high throughput requirements, such as Tether and Securitize, are porting their applications to run on Algorand.

However, if your use case requires Turing-complete onchain logic such as DAOs, onchain DEXes, or the development of onchain decentralized protocols sitting above the base protocol layer like Compound or 0x, then the level of programmability in Algorand isn’t as good of a fit.

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Ethereum Prioritizes Turing-Complete Programmability Over Performance

By contrast, Ethereum is the most prevalent full smart contract platform. Ethereum puts programmability first, at the expense of throughput and scalability.

Scalability issues on Ethereum result from arbitrarily complex logic execution and arbitrarily large storage that comes along with its smart contracts. Logic and storage are metered by gas fees, and these fees have increased over time as the number of smart contracts has increased. The underlying blockchain on an Ethereum full node (let’s leave out archival nodes for now) takes over 100GB of storage and growing. Ethereum has a small fraction of the scalability of Algorand from a transaction-per-second and node storage perspective.

However, what you get in return is the ability to express arbitrary smart contract logic in the Ethereum virtual machine. And since all the programs run in the same virtual machine, you get composibility between different contracts which is driving a lot of advances in the DeFi space right now.

For DApp developers, you should carefully consider which parts of your application need to be de-centralized / onchain, and if you really need a full Turing-complete smart contract language to build your application. Turing-complete smart contract platforms allow for arbitrary expressions of onchain logic, but often at a cost in terms of scalability and throughput.

Choosing the Right Platform for Your Application

The scalability of the underlying platform is a critical part of choosing where to build. Even if your application itself doesn’t need high levels of scalability, those scalability challenges inevitably lead to high transaction fees, which will increase your operating costs as an application project, and may make certain use cases unviable from an economic perspective.

You should carefully consider the level of decentralization and programmability you need to support your use cases when choosing a platform. For a use case that requires only an ERC-20 contract on Ethereum, but does not require interoperability with other Ethereum smart contracts, it may make sense to look at platforms that are optimized for this scenario, such as Algorand. On Ethereum, you could be paying a lot more unnecessarily without realizing the benefit of the increased programmability.

 

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