Scalability issues plague some blockchains, such as Ethereum 1.0, to the extent that they suffer from congestion, high gas fees, and lower transaction speed.
Typically, a blockchain should be able to solve three major issues, which are scalability, decentralization, and security. These features make up the blockchain trilemma.
The blockchain trilemma focuses on three key elements that blockchains should possess. A blockchain should be decentralized, meaning it is free from elements of centralization. It should be secure, which means that it should not be easily compromised by attackers. Scalability describes how much a network can expand without compromising transaction output and speed.
Not every network can offer the three features, and most are lacking in the aspect of scalability. This is why scaling solutions were created.
This article comprehensively examines the definition of scaling solutions, state channels, and popular examples of state channels.
What are Scaling Solutions?
Scaling solutions are blockchain infrastructures designed to improve chain scalability.
Some are designed to operate within the chain, while others operate independently of the network, which is why they are called Layer 2 scaling solutions.
Examples of scaling solutions are nested blockchains, state channels, and sidechains. A nested blockchain is a decentralized architecture that receives commands from the main blockchain and then executes them. They are an example of a Layer 2 scaling solution.
In the case of sidechains, they are smaller chains connected to the main blockchain through infrastructure similar to a bridge. This type of scaling solution uses an independent consensus mechanism from the main chain, allowing it to verify transactions. A sidechain is designed to validate transactions in record time. The main chain’s responsibility is to secure, resolve disputes, and maintain public records.
In the case of Ethereum 2.0, shards are expected to be incorporated into the architecture after the Merge to improve scalability.
What is a State Channel?
The nodes in Layer 1 do not verify transactions in a state channel. A special smart contract architecture isolates the adjacent network resource.
When a transaction is completed, the transaction’s final state and elements are incorporated into the base layer. Completed transactions are added to the distributed ledger, but the transaction details are kept private between the various participants.
What are Examples of a State Channel?
Lightning Network
The Lightning Network is one of the most popular state channels and supports the Bitcoin and Litecoin networks.
It is a decentralized payment channel network that operates on the previously mentioned blockchains. Its existence as a second-layer network does not compromise the architecture of the Bitcoin or Litecoin networks.
This state channel employs two types of contracts to function effectively: Revocable Sequence Maturity Contracts (RSMCs) and Hashed Time Lock Contracts (HTLCs).
The former is in charge of simple bilateral payment channels, while the latter connects the payment channels to the chain. The Lightning Network only scales payments that occur within a network. As a scaling solution, it improves transaction speeds on Bitcoin and Litecoin. Users of these networks benefit from instant payments.
The Lightning Network has been able to scale the transactions that occur on these networks without affecting the architecture of the underlying chain. The Lightning Network provides lower transaction costs to its users, allowing for the occurrence of micropayments.
Cryptocurrencies have been promoted as a means of making inexpensive transactions over time, but this may not be generally applicable in a congested network.
Crypto enthusiasts may be discouraged from using a congested network when considering the fees they must pay for microtransactions. The likes of the Lightning Network are reversing the trend.
Perun
Perun is an off-chain state channel that accelerates blockchain payments. It is designed to improve transaction speed while decreasing gas fees charged by existing chains.
Transactions are executed off-chain or outside the existing chain as a state channel, and the results are submitted to the chain, improving scalability.
In addition to acting as a payment channel, it incorporates cross-chain functionalities into a chain, allowing for interoperability.
This blockchain channel is supported by industry leaders such as the Ethereum Foundation.
The payment structure of Perun works both online and offline. Perun’s offline mode enables payments to be completed using Bluetooth and NFC.
Celer Network
The Celer Network is a blockchain infrastructure that improves blockchain interoperability. Unlike the Lightning Network, it can scale payments as well as the state of a smart contract.
This blockchain interoperability protocol, coupled with Celer’s Inter-chain Message SDK, allows teams to build decentralized apps that work across multiple chains.
Celer Network is revolutionizing the operation and application of blockchain technology. With the cBridge, users can enjoy cross-chain transactions seamlessly. It currently works on a large number of blockchains.
Another feature on the Celer Network is the Inter-Chain Message SDK, which allows developers to build innovative inter-chain dApps in the DeFi space, the NFT ecosystem, and even DAOs. The cChannel is a state channel and sidechain architecture that improves scalability on existing chains. It utilizes generic dependency DAG.
Liquidity Network
The Liquidity Network is a blockchain infrastructure known for injecting scalability into existing chains while charging zero gas transactions.
Currently, it acts as a payment channel, meaning it only scales payments, not smart contracts. The Liquidity Network allows users to control their funds and enjoy zero transaction fees when transferring or swapping tokens.
Developers can use this architecture to build decentralized apps while ensuring users enjoy fast transaction speeds. Generally, the SDK permits micropayments on blockchains.
The Raiden Network
This list will be incomplete without mention of the Raiden Network. This is an off-chain scaling solution that acts as a payment channel on the Ethereum chain to promote fast, scalable and affordable transactions.
It operates as a state channel on top of the Ethereum network, allowing developers to launch their dApps on scalable infrastructure.
The Raiden Network ensures that value can be securely transferred off-chain while the transaction results are then incorporated into the existing chain, improving scalability.
It is private in the sense that individual transactions are not submitted to the chain. A micropayment is an impossible feature on the Ethereum chain due to scalability issues. This is a use case that is being developed as a result of the existence of state channels such as the Raiden Network.
In Conclusion,
- Scaling solutions are blockchain infrastructures designed to improve chain scalability.
- Some are designed to operate inside the chain, while others act independently of the network, which is why they are called the Layer 2 scaling solutions.
- In a state channel, transactions are not verified by the nodes in Layer 1.
- Transactions are verified off-chain, and the cumulative result is submitted to the existing chain.
- The Lightning Network is one of the most popular state channels and supports Bitcoin and Litecoin networks.
- Perun is an off-chain state channel that accelerates blockchain payments.
- Celer Network is a blockchain infrastructure that improves blockchain interoperability.
- The Liquidity Network is a blockchain infrastructure known for injecting scalability into existing chains while ensuring zero gas transactions.
- The Raiden Network is an off-chain scaling solution that acts as a payment channel to promote fast, scalable, and affordable transactions on the Ethereum chain.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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