The faster a blockchain can process transactions, the more competitive it will be with legacy centralized systems. For example, Ethereum's initial Proof of Work network can only handle about 15 transactions per second (tps), whereas Visa's network can handle over 65,000 tps.
In blockchain networks, this ability to scale often comes at the sacrifice of centralization and security. For instance, you can make the network move a lot faster (handle many more tps), if you have a few specified nodes in charge of validating the transactions. Those few specified nodes will have a much easier job finding each other to collude and validate dishonest transactions; opposed to a more secure network with a larger number of anonymous and widely-distributed nodes.
This brings us to the purpose of this section...
HOW TO SCALE & THE RISKS OF EACH METHOD:
Sidechains are considered a layer 2 scaling method, because they are not part of the main blockchain; it is a separate layer. A sidechain is attached to its parent blockchain using a two-way peg. The original blockchain is usually referred to as the ‘main chain’ and all additional blockchains are referred to as ‘sidechains’. Use- Sidechains allow some of the burden of processing transactions to happen off the main blockchain, meaning that the main chain does not get overwhelmed by too many transactions. In practice, many users consider side chains for relatively small and insignificant transactions (low risk transactions), and use main chains for larger and more important transactions. This is because the main chain is often more secure. Security- Main chains are often more secure, especially if they have a relatively large number of anonymous and widely-distributed nodes. Sidechains can be more risky because they are run by 3rd party companies that may not have established trust among users.
Sharding is when a node is only responsible for validating a portion of a block, instead of the entire thing. Nodes get assigned to shards, which operate as a subset of the blockchain, allowing for computation to get split apart into smaller sections.
They operate as domains- regions of blockchain state. The domains allow for synchronous interactions where processing can happen much faster because programs are communicating within the same domain. Asynchronous (less efficient) interactions happen between shards or rollups.
Rollups are considered a layer 2 scaling method, because they are not part of the main blockchain; it is a separate layer. Rollups have some properties of sharding, but not all. Rollups are also designed to split apart computation into smaller sections. Rollups rely on the same data layer, which is downloaded verified by all users. This is different from shards where certain data is not verified by all. One rollup can use data from multiple shards.
Rollups have subsets of participants. They operate as domains- regions of blockchain state. The domains allow for synchronous interactions where processing can happen much faster because programs are communicating within the same domain. Asynchronous (less efficient) interactions happen between shards or rollups.
Works well for payments, but not smart contracts.
BA in Economics. BS in Finance. Hostess of the Crypt Keepers’ Club. Passionate about research and data. I don’t fold sheets, I spread them.
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