Scale-out vs. Scale-up
We must correct a misconception about an economy relative to size. Many think that economy is about sheer size – many consider blockchain economy, or just Bitcoin economy alone, to be fully established because they already passed the trillion dollar threshold in terms
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⁷ Bitcoin whitepaper is titled Bitcoin: A Peer-to-Peer Electronic Cash System.
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of size¹⁰. This logic is problematic. Some billionaire’s net worth is more than the size of economy of some countries – but a billionaire is not an economy. An economy is not only about size, it is also about people and what they do (and can do) in that economy.
A single application can become an economy – if its network and ecosystem contain vibrant and diverse social and economic behaviors – in other words, not merely size in dimension but also size of dimensions, matter.
Which brings us to another blockchain specimen, Ethereum.
Ethereum has implemented what is considered full-blown on-chain smart contract (Bitcoin’s version is limited comparably). Smart contracts bring rich functionality to the blockchain world – finally it looks like we can build a truly vibrant and diverse blockchain economy with the help of on-chain smart contracts. Problem solved? Again, not so fast. The problem is, the Ethereum blockchain has the same fundamental characteristics and similar consensus protocol construction as Bitcoin – it shares the same curse with Bitcoin and all first generation decentralized blockchain protocols – which means it can’t be scaled out easily.
Solving this scalability challenge became the first priority for the blockchain community, though many forget the other side of the curse – the barren economy curse, mentioned earlier.
Two paths had been taken and pursued by the blockchain community at large with various efforts – the scale-out path, and the scale-up path.
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