Ethereum is a monolithic blockchain: it provides its own security, executes its own transactions, and maintains its own data availability. 

This traditional type of blockchain — a chain that provides its own security, execution, and data availability layers — faces inherent limitations because of its “do it all” approach, however. 

These limitations can lead to high transaction costs for users.

That’s because the scarce blockspace at Ethereum’s execution layer combined with growing demand to use the network has led to bouts of transaction congestion, which pushes up transaction costs. 

In other words, the monolithic blockchain can only facilitate so many transactions at once

To address these limitations, developers and researchers have pioneered a range of different scaling solutions in recent years. These resources come in different shapes and sizes, but the vast majority serve as Ethereum-centric execution layers that offer inexpensive and rapid crypto transactions. 

Many of these new scaling solutions are already available to try today, and more are on the way. To catch up with all that’s happening, let’s dive in and take the pulse of the contemporary Ethereum scaling scene

Off-chain vs. on-chain scaling

The Ethereum community is employing both off-chain and on-chain scaling strategies

  • ⛓️ Off-chain scaling refers to any innovation that offers external execution for an underlying blockchain like Ethereum. People refer to these innovations as “L2s” for layer twos, i.e. secondary layers working from above to optimize the capabilities of “L1” Ethereum.
  • 🖇️ On-chain scaling refers to any direct modifications made to a blockchain to improve its throughput. While off-chain scaling resources like rollups and validiums will scale Ethereum in the near-term, the network’s long-term scaling complement will be sharding, i.e. splitting the Ethereum L1 into multiple chains with shared security. 

Understanding L2s

Image via redditor u/emkoscp

Rollups

A rollup is a scaling solution that executes transactions on its own optimized execution layer but posts its transaction data to Ethereum (and later perhaps other L1s). In this way, rollups directly inherit Ethereum’s security guarantees. 

Zooming in, there are two main types: zk rollups and optimistic rollups.  

Zk rollups “roll up” many off-chain transactions into a single verifiable batch with a zk-SNARK, a special cryptographic proof. These small validity proofs are then efficiently posted to the Ethereum blockchain. Off-chain execution + on-chain data via zk-SNARKs = zk rollups

Loopring - zkRollup Layer2 for Trading and Payment
Loopring: one of DeFi’s most popular L2 projects. 

Optimistic rollups also “roll up” many off-chain transactions into batches, but without using zero-knoweldge proofs. These rollups “optimistically” assume transactions are valid unless successfully challenged through what are known as fraud proofs. Off-chain execution + on-chain data + fraud proofs =  optimistic rollups

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Rollups you can try today:

Validiums

DeversiFi is the largest validium-based project active today.

Another type of rollup-like scaling solution are validiums

Validiums function similarly to zk rollups, in that they rely on zero-knowledge proofs to batch and enforce transactions. In contrast to zk rollups, though, validiums maintain their data availability off-chain. This dynamic makes these scaling solutions highly performant but also custodial to a certain extent. 

Sorare is a validium-powered fantasy soccer game!

In other words, off-chain execution + zero-knowledge proofs + off-chain data  = validiums.  

Validium projects you can try today:

Volitions

Volitions are hybrid scaling solutions that offer users the ability to choose between a “zk rollup mode” and a “validium mode.” 

In practice, this means users of volitions can access off-chain transaction execution while opting for data availability either on-chain or off-chain, i.e. either via Ethereum or through validiums. 

Sidechains

In the context of Ethereum, sidechains are Ethereum-compatible blockchains

They can be independent blockchains, like Binance Smart Chain (BSC), or more popularly they can be bespoke blockchains explicitly catering to Ethereum users, like Polygon’s sidechain. These chains’ compatibility with Ethereum stem from their support for the Ethereum Virtual Machine (EVM). 

Accordingly, sidechains can serve as external execution layers for L1 Ethereum even if they don’t directly inherit Ethereum’s security guarantees like rollups. And some projects, like Polygon’s sidechain, blur this distinction by committing checkpoints to Ethereum. 

Sidechains you can try today:

State channels

Connext Network Scales EVM To Facilitate Cheaper and Faster Micropayments
Connext: one of Ethereum’s most notable state channel projects.

State channels are a type of off-chain scaling solution underpinned by multi-signature smart contracts. ETH (etc.) can be locked in these contracts and used to create bi-directional payment channels between users. 

In other words, these channels are like an “open tab.” Users can make 100s of transactions off-chain between one another and then close their tab and pay off the bill, as it were, by sending one final closure transaction to Ethereum. What would have been many transactions, then, can become streamlined courtesy of state channels. 

State channel project you can try today:

Plasma

A Plasma chain is a scaling solution that relies on fraud proofs like optimistic rollups, yet maintains data availability off-chain unlike optimistic rollups. One of the earliest areas of L2 research, Plasma implementations have since failed to gain as much traction as newer scaling solutions. 

When sharding?

Image via trent.eth

The Ethereum development community anticipates launching sharding in the next couple of years. 

This update will spread Ethereum’s previously lone protocol across 64 new “shards,” or chains. By distributing the blockchain’s network load in this way, Ethereum’s horizontally expanded L1 will offer vastly improved transaction latency and throughput capabilities. 

Notably, the “scaling gains of sharding and rollups multiply,” as Ethereum creator Vitalik Buterin has previously highlighted. Together, these innovations will allow Ethereum to comfortably support billions of users

The future of Ethereum Scaling is modular

Until recently, Ethereum has been a monolithic blockchain and relied on itself alone for its security, execution, and data availability

What we’re starting to see now, and what we’ll see more of going forward, is Ethereum becoming a modular blockchain. That is to say, we’ll see Ethereum increasingly rely on external execution layers and external data availability layers to advance its foundational capabilities. 

We’ve already talked about what some of these early execution layers look like, from rollups to sidechains. It’s worth noting, too, that bespoke data availability chains like Polygon Avail are also going to play big roles in expanding the possibilities of the modular blockchain future.