The Scale-up Path

It did not take long for people to figure out that on-chain scalability has a rigid throughput limitation such that the scale-out method is ultimately inadequate, no matter what throughput design goal can be obtained. Bearing this understanding several proposals prescribed a scale-up methodology: they realized that keep increasing the total throughput on-chain, or on layer 1 of the blockchain, is unattainable. So they began to look beyond the main blockchain itself (layer 1) to offload data to sidechains, these are layer 2 blockchains that anchor or settle their data integrity on the layer 1 blockchain through various mechanism designs.

Bitcoin has Lightning Networks¹³, these are sidechains of the state channel flavor, which compresses many Bitcoin transactions into one single transaction to be finalized on the main Bitcoin blockchain (layer 1), thus achieving the goal of data offloading (more like data shedding), and effectively scaling up Bitcoin throughput. Ethereum had its own version of state channel design with some variations, called Plasma¹⁴.

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¹² DPOS is considered to be more centralized than either POS or POW.

¹³ What is Lightning Network?

¹⁴ Plasma Chains.

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State channels are very special sidechains that mostly concern with scaling payment transactions. They mimic the method of an open tabs bar, where each customer is assigned a tab, or record, to keep their payment obligation recorded but not settled until the customer exits the bar. This scale-up pattern can be applied to many payment centric blockchain use- cases but is limited in applying to general purpose smart contract applications.

A natural design choice at the early attempt of layer 2 sidechains followed state channel’s approach to compress or offload data from layer 1 mainchain to layer 2 sidechains. However offloading data from layer 1 to layer 2 created difficult security challenge for layer 2 application design. Eventually Ethereum found an on-chain data layer 2 solution called Rollups¹⁵. Rollups are layer 2 solutions built with primitives to offload smart contract state and execution off- chain (to layer 2 Rollup sidechains) while keep data available on-chain (layer 2 operators post smart contract calldata¹⁶ to layer 1 Ethereum mainchain), achieving layer 1 security on layer 2 Rollup sidechains¹⁷. Rollups created what is called a merged decentralized consensus between layer 1 and layer 2, something earlier sidechain solutions have not been able to achieve¹⁸.

Rollups’ ability to share consensus with layer 1 on a same-level security is a crucial breakthrough for the scale-up path: layer 1 blockchains’ throughput rigid limit is also crushed. Rollups achieved functionality parallelism¹⁹, akin to scale-out scalability solution in the centralized, non-blockchain realm (it is how contents and services are provided by big-tech Internet companies today), but instead of adding more servers, Rollups scale up by adding more Rollup sidechains, more dimensions of functionality – this is how you deliver scalability the decentralized way. Furthermore, Rollups’ functionality parallelism could enable what is called per functionality scaling that we mentioned earlier⁽⁶⁾, another nicety in scale-up path’s bag of tricks. The Metis DAO project⁽¹⁾ took advantage of this feature to add more service, e.g., decentralized storage support.

On those Rollup sidechains are where DAC economy shall be built and thrive.