Blockchain Scalability: Exploring Off-Chain Scaling Solutions

Blockchain has become a major technical innovation in recent years with its novel ability to manage and secure data. The functionalities like immutability, transparency, and decentralization are shifting traditional ways of data storage to the blockchain. However, the current generation of blockchain is going through several challenges, and blockchain scalability is one of them. This problem arises alongside the increasing use of Blockchain like Ethereum, as more people would want to use it, and this rush results in decreasing performance. 

The rush of users and data on blockchain often leads to network congestion, and we see huge increases in gas fees that must be paid to send transactions. Various methods currently address this problem of blockchain scalability, and an ideal one has yet to be found. 

All the blockchain scaling methods are categorized under on-chain and off-chain categories, which we will discuss in this article. While Ethereum stays at the forefront of blockchain scalability, all the understanding and explanation throughout the article will be in the context of Ethereum. So let’s delve into;

Types of Blockchain Scalability

Blockchain scaling mainly falls under two categories: on-chain scaling and Off-chain scaling. Both of these have a different approach to scaling a primary blockchain network like Ethereum. Let’s understand it both firmly and then we will thoroughly discuss the off-chain scaling solutions and how they work.

• On-chain Scaling
• Off-chain Scaling

What is off-chain scaling?

Off-chain scaling involves the settlement of the primary blockchain’s problems on external sources and giving back proof to the primary blockchain. This method usually includes transaction processing or managing blockchain data through a separate chain called Layer 2 network. Arbitrum and Optimism are examples of off-chain scaling solutions that run in parallel to Ethereum. 

How Off-Chain Scaling Works?

Off-chain scaling, also called second-layer scaling, uses a separate blockchain infrastructure (Layer 2 Networks) to process the transactions and upload the state back to Ethereum. This enables faster transaction finalization while reducing transaction costs significantly. Executing transactions off-chain takes away heavy load from Ethereum and minimizes the chances of massive network congestion. 

Off-chain scaling is achieved by innovations outside of the primary blockchain. These innovations facilitate faster transactions as they are not required to be validated by every node on the blockchain network. Off-chain transactions also improve privacy and security by providing a secondary execution layer. 

The method of Off-chain scaling could be divided into 3 types according to the technique each uses for executing transactions. Below are the three main types of Off-chain scaling solutions;

Sidechain: A parallel blockchain that transfers transaction data with layer 1 blockchain.

Rollups: Bundling multiple transactions in a single transaction and updating it to layer 1 blockchain. 

Channels: A state where multiple transactions are executed, and later, the settlement is updated on the layer 1 blockchain.

Off-chain Scaling Methods

Let’s understand all these above-mentioned off-chain scaling solutions in detail;

Sidechains

Sidechains are parallelly running blockchain networks that have their own consensus while they inherit the data availability layer from the primary blockchain. It validates and verifies transactions on its own and later updates the data to the main chain via a two-way bridge to transfer data with the primary blockchain. 

The typical function of a sidechain is locking funds on the first blockchain and allowing transactions of that fund on the second layer. This could improve transaction speed and lower the cost of transfers. Sidechains could be public or private per the base blockchain’s scalability requirement. Some prime examples of Ethereum sidechains are Polygon PoS, Gnosis Chain, and Skale. 

Rollups

Rollups use a different approach to processing off-chain transactions by bundling transactions and updating the state to the main chain. The flow of this scaling method involves verifying and rolling up multiple transactions on off-chain infrastructure, which is later uploaded to the layer 1 chain via a single transaction hash. Rollups are considered ideal off-chain scaling solutions as they make transactions extremely cheaper while maintaining security and decentralization. 

Blockchain Rollups 

Blockchain rollups are mainly of two types: zk-rollups and optimistic rollups. They are distinct from each other by the method they use to upload transactions on the primary blockchain. 

• ZK-rollups

Zk-rollups use zero-knowledge proofs (ZKP) technology to generate transaction validity proofs. By executing a batch of transactions off-chain, zk-rollups submits minimal summary data and uploads it to the parent blockchain. Two popular applications based on zk-rollups are ZK-SNARKs and ZK-STARKs. 

• Optimistic Rollups

Optimistic rollups use a different method for submitting data to the primary blockchain via transaction calldata. These rollups do not guarantee the validity of off-chain transactions and “optimistically” assume that all of them are legitimate. If a validator on the layer 1 blockchain does not agree with transaction validations, they can challenge optimistic rollups to prove the validity. 

Channels are basically extensions that enable payments between two or multiple parties. This can be created between a One-to-one party (State Channel) or between various parties involved (Payment Channels). Channels facilitate a series of transactions until a final settlement is issued to the primary blockchain.

Off-Chain Scaling Solutions for Ethereum

Ethereum is a major blockchain facing scalability issues that cause sky-high transaction fees, network congestion, and other drawbacks that lower its credibility. This has put Ethereum at the forefront of off-chain scaling, with several solutions deployed on top of it. Some of them are as follows;

Arbitrum

Arbitrum uses optimistic rollups in bundling and merging a batch of Ethereum transactions. All the transactions are carried out as valid immediately; however, they can be disputed by anyone by publishing fraud proof to the network within 7 days of transaction execution. Arbitrum runs two layer 2 networks, Arbitrum One – an EVM-compatible infrastructure for processing off-chain transactions – and Arbitrum Nova – a native blockchain for deploying a variety of decentralized applications (dApps). 

Optimism 

Optimism (OP Mainnet) is also an optimistic rollup-based layer 2 network. It bundles off-chain transactions in batches and submits data to Ethereum, similar to Arbitrum. Optimism also has a 7-day transaction dispute period but has a single round of submitting fraud-proof, unlike Arbitrum, which allows multiple times. 

Polygon

Polygon is a leading Ethereum scaling company that has developed several applications. The most popular is Polygon PoS – an Ethereum sidechain – zk-EVM – a zk-rollup-based EVM infrastructure. Polygon zkEVM executes off-chain transactions and submits data back to Ethereum, using zero-knowledge proofs. 

Other popular off-chain scaling solutions are STARKNet, zkSync, and Loopring. 

Off-chain Scaling Benefit

Off-chain scaling is beneficial in many ways, such as improving the speed of transaction executions, reducing the computational load, and compressing the ledger size by only submitting valid proofs. The off-chain processing also lowers the cost of sending transactions as they will be grouped with other transactions and uploaded to the primary blockchain using a single hash. When it comes to privacy, off-chain transactions are more feasible as only validity proofs are broadcasted to layer 1 blockchain, where on-chain transactions will be public. 

Off-chain scaling Drawback

However, transparency also becomes a drawback in off-chain scaling when it comes to accessing transaction data. Here, all the transactions have to go through third-party confirmation, compromising the value of decentralization and network security. Off-chain scaling also spoils user experience as users will have to move funds to other chains and use different sets of tools and technology. 

Onchain vs. off-chain Scaling 

Conclusion

Off-chain scaling solutions are promising and more convenient ways to improve blockchain’s performance and capabilities. One of its key factors is executions outside the primary blockchain environment, which unlock broader functionality with data sharing. For instance, it could be enabled with privacy or layered protection. In the coming time, all the off-chain scaling methods will be more advanced and ideal for improving blockchain efficiency. 

Also Read: Exploring NEO’s dBFT Consensus Algorithm: Enhancing Efficiency, Security, and Scalability in Blockchain Technology

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