A common problem as technologies or businesses grow is that they tend to outgrow their resources, structure, or technological underpinnings. There are two answers to this dilemma. One is to remain small and risk having the world pass you by and the other is scaling of your operations from top to bottom to maintain efficiency and cost-effectiveness as you grow. The crypto world is structured atop blockchain technology and for successful crypto ventures like Ethereum, a point has come where bigger has become less efficient and more costly. The issue is maintaining efficiency by scaling as Ethereum grows.

What Is Scaling at Ethereum All About?

Ethereum has published information about what they are doing with scaling of their operations and why. Depending on your level of expertise in dealing with the blockchain, this may be easy reading. Our take is that for most folks it is not. Thus, here is our “dumbed down” version for the mere mortals who want to invest in Ether tokens or take advantage of the sorts of smart contracts and other decentralized finance solutions that Ethereum provides.

With Blockchain Growth Comes Pain

The internet and the blockchain entities within it are physical entities and they have limits as more and more folks use Ethereum. The limits on capacity now occurring in the blockchain make operations more expensive and slow down processes. Ethereum is currently trying out several approaches and comparing the results. Their goal is to speed things up so that transaction speed is better. In tech talk this is “faster finality.” This will allow more processes to occur over a given time frame. They simply measure transactions per second and want to significantly increase the number. Along the way their goal is to maintain the features that make blockchain transactions valuable namely decentralization and data security.

The Problem on Ethereum Layer 1

The issue for Ethereum is that on layer one increasingly higher demand has slowed transactions and caused gas prices that are not viable. If you have now started to scratch you head, gas is the fee for conducting a successful transaction or executing a contract on Ethereum’s blockchain platform. Gas fees are paid in ether (ETH) in “gwei” which is ten to the minus 9 thether. Gas payments go to validators for resources consumed in conducting transactions. Gas prices fluctuate according to supply and demand which in turn determine the capacity of the network at any given moment.

Layer 1 in Ethereum is where smart contracts reside. These advanced programs, in our opinion, are the future and salvation of the crypto world as it moves through its crypto winter. The blockchain has layers one and two which work together in storing, maintaining, and distributing information across immutable, peer-to-peer, decentralized public ledgers (databases). Layer one is the base or main layer or “mainnet” where rules are defined and protocols reside that process and finalize blockchain transactions.

Possible Scaling Solutions for Ethereum

Ethereum intends to keep growing and providing more and more services to its users. To make their services economically viable they need to speed up transactions and not greatly increase the cost of their services. Along the way they wish to maintain their decentralized and secure system. Two basic ways to go in order to achieve their goals are off-chain scaling and on-chain scaling. On-chain includes sharding. Sharding refers to splitting databases “horizontally” in order to keep all meaningful packets of data but lighten the load for processing. It involves creating more blockchains so that a validator only works within a collection of data necessary for their current task. Sharding is not off chain but rather uses “sub-chains” to do its work.

Off Chain Ethereum Scaling Solutions

There are several off chain scaling solutions being investigated separately from the primary on chain solution. What all of these have in common is that they require no changes in the Ethereum protocol because they operate separately from it. These include layer 2 scaling, rollups, side chains, state channels, plasma chains, and validium chains. Data needs to be sent from the primary blockchain to where it is then processed and then sent back. Each of these solutions has its own technical details and challenges.

As testing of these various potential solutions to the scalability issue progress, care needs to be taken to preserve system wide security. We have written about blockchain hacks and how assets can disappear in an instant. Being knowledgeable about this risk, Ethereum is likely to take its time finding the optimal solution to their scaling issue.