Ethereum has opted for decentralization and security at the expense of scalability – these three features are known as the “blockchain trilemma” trade-off. Therefore, ETH has long been criticized for high gas fees, a result of low scalability. However, in a report published in August, CoinShares researcher Marc Arjoon outlines the steps Ethereum is taking to scale its blockchain without compromising on the other two attributes.
Key takeaways:
- After Ethereum upgrades to Proof of Stake (PoS) in the coming days (estimated 15 September), there will be different chains specializing in specific tasks to improve each function.
- Rollups/layer 2s can combine several transactions into one, enabling greater transactions per second (TPS) and reducing network congestion and user gas costs.
- CoinShares researcher finds it is reasonable to expect 1 million TPS for Ethereum in the next six years as a result of Rollups/layer 2-100x, Data Sharding-100x, and Bandwidth-10x.
Traditionally, most blockchains, like Bitcoin and Ethereum, have chosen to prioritize security and decentralization over scalability. In order to scale to 1 million TPS, Ethereum will need a further three implementations – improved rollups, sharding, and increased bandwidth. We discuss these technologies in greater detail below.
Rollups/layer 2s – 100x increase in throughput
Rollups/layer 2s are separate blockchains that absorb the burden of executing transactions. Many transactions are executed on layer 2 and then rolled up into a single transaction which is subsequently posted to the Ethereum blockchain for verification. The bundling of many transactions into one allows for more transactions per second (TPS), reduces network congestion and lowers gas fees for users.
Moreover, moving the computation off-chain to a layer 2 provides greater scalability and allows for more optimisations around throughput and latency. Off-chain execution could scale the Ethereum network by a factor of 10x, and posting compressed data to Ethereum further reduces the cost and could improve scalability by another 10x.
Data Sharding – 100x increase in throughput
Sharding is a network architecture designed to scale data availability. Currently, every consensus participant must download all of the data from a block and independently verify the data before signing off on a block. This is an inefficient process and a considerable bottleneck of the network because if data is missing, the network will not be able to verify if blocks are valid.
However, sharding allows for network participants to only download a sample of all the data while simultaneously guaranteeing data availability. Given the complexity of this design, sharding will be completed in two phases, proto-danksharding (also known as EIP-4844) and the full danksharding.
Bandwidth – 10x increase in throughput
Ethereum intends to move to a stateless architecture, which does not need three resources (CPU cycles, storage, and disk I/O), but still requires bandwidth.The bandwidth tends to increase by roughly 50% every year (similar to Moore’s law). Given this exponential growth, it would take approximately five to six years to realize a 10x increase in bandwidth (and another 5 years for a 100x improvement). There is a good reason to believe that bandwidth will continue to improve at this current pace.
Towards One Million Transactions Per Second
Once the Merge will have materialized effectively (expected 15 September 2022), the technologies analyzed in the report will become the main priorities for Ethereum to scale, as it is a crucial aspect of its widespread adoption. Considering that these technologies have been developed and refined over several years, we think it’s realistic to expect that Ethereum will be able to support one million transactions per second within the next six years.