How scalability works in blockchains: Ethereum vs. Everscale [Deep Tech]

Explore Ethereum’s scalability challenges and the proposed solutions in a three-part series. Discover the advantages of blockchain technology and how it impacts Ethereum’s transaction cost and processing time. Learn about rollups as a solution for Ethereum scalability and compare it with Everscale’s approach involving data and execution sharding. Gain insights into Everscale’s ability to handle high throughput and enable business applications on separate workchains.

Understanding Ethereum’s Scalability Constraints

According to Vitalik Buterin (per his last article), there are three major technical issues that hinder Ethereum’s further blockchain expansion. They are dubbed the ‘’three transitions’’ and consist of the blockchain’s scalability constraints as well as its lack of smart contract wallets and sufficient transaction privacy. None of them are embedded in the core protocol of the Ethereum blockchain. Without resolving all three, Ethereum will face both fewer projects launched on it and a gradually reduced customer base.

This is the first of three articles examining each of the three transitions outlined by the founder of Ethereum. These articles have purposes. First, to supply readers with a comprehensive analysis of these issues alongside the solutions proposed to eradicate them. Second, to examine Ethereum’s problems in the context of the Everscale blockchain. That is to say, to find out whether Everscale needs to make changes of its own or whether the blockchain’s current tech stack handles scalability, smart contract wallets and privacy adequately.

The Five Main Advantages of Blockchain Technology

Currently, not only Ethereum, but most other second-generation blockchain protocols have one significant limitation. It arises from the fact that each network node must process each transaction. This is the result of blockchains aiming for full-fledged decentralization where each network node is responsible for the security of the entire system by processing each transaction and storing a copy of the state.

Actually, the decentralized consensus mechanism provides the key advantages of blockchain technology which were envisaged at the moment of its very inception. Let’s briefly examine the five main advantages of blockchain technology. Basically, all others, in one way or another, stem from them.

1. Distributed — resistance to technical failures and malicious attacks due to the blockchain being distributed.

2. Stable — confirmed blocks cannot be reversed. That is to say, once some data has been recorded onto the blockchain, it is not possible to remove or change it.

3. Transparent — any observer, irrespective if they are community members, can verify any data stored on the blockchain.

4. Traceabie — blockchains, with the help of explorers, allow any changes on the network to be easily traced.

5. Censorship — blockchain technology is free from censorship due to the fact that it is not controlled by any single party.

These fundamental blockchain characteristics, in turn, cost the system the ability to scale, since decentralization by definition limits the number of transactions that the blockchain is able to process to the scale of one node in the network.

The Impact of Ethereum’s Scalability Limitations

As for Ethereum, there are two practical implications of its scaling limitations:

Expensive transactions: the cost of transactions on the Ethereum blockchain in normal conditions averages 3.75 dollars (several cents in Everscale) and greatly increases in periods of heightened network activity. For instance, Buterin’s figure for the next bull run is 82.48 dollars per Ethereum transaction.

Slow Ethereum transaction rate: heightened network activity leads to the slowdown of transaction processing time due to validators prioritizing crypto transactions that offer more gas units. Therefore, users who do not want to spend more on crypto transaction fees have to wait until higher priority (more gas units) transactions will be processed.

In the animation below, you can see how Ethereum validators prioritize transactions offering more gas units.

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Currently, processing an Ethereum block takes 14 seconds. During periods of high network activity, even more time is required. Compare and contrast this with the almost instant transaction confirmations offered by centralized services such as Visa or decentralized fifth-generation blockchains such as Everscale, Cosmos, Avalanche and others.

Ethereum and most other older blockchains have to choose between low blockchain throughput and a high degree of centralization.

In other words, as the volume of the blockchain grows (which is inevitable), the requirements for memory, throughput and computing power necessary for the operation of the network also increase. At a certain stage, the blockchain becomes too overloaded and only a few nodes that can provide the resources required for processing blocks can cope with it. This, therefore, leads to the risk of centralization. In this case, we end up making a 360-degree turn and returning to the characteristics of a centralized system that requires the trust of several major players. This is a far cry from a system capable of processing at least thousands of transactions per second in a decentralized manner that both private and corporate users really need.

Rollups as a Solution to the Ethereum Scalability Problem

It has been a long time since rollups were viewed as one of the solutions to Ethereum scalability, albeit in combination with some other solutions, such as plasma and state channels. However, with the latest article, it seems that Buterin sees rollups as the only way forward.

Exploring the Benefits of Rollups for Ethereum

Rollups are a layer-two scaling solution that moves computation and state storage off-chain. Their modus operandi is quite simple. They bundle thousands of transactions and send some compressed information about them further to the Ethereum mainnet. This leads to considerable gains in terms of throughput achieved via both off-chain computation and compressed transaction data posted on the Ethereum blockchain.

There are different tricks that can be used to compress transaction data. Let’s see the most common ones.

1. There is no need for nonce — we can get it from the previous state root.

2. An address of 20 characters can be replaced with a shorter index of 4 characters.

3. It is possible to aggregate many signatures into one block and validate it at once.

4. Values can be stored in exponential form (1–3 characters).

5. Network gas fees can be fixed or can even remove the protocol’s gas payment.

6. A fixed amount of gas can be set or a ceiling of the amount of gas per transaction batch.

7. Transaction verification can be carried out completely off-chain since it does not affect the state root.

The animation below illustrates how transactions are compressed, bundled and then sent to the Ethereum mainnet.

Let’s see what rollups will offer Ethereum in practice.

Note: the figures below are not Everscale’s interpretation. They are taken from the official Ethereum documentation.

• Today, Ethereum has ~15 TPS.

• If everyone moves to rollups, it will soon have ~3000 TPS.

• Once phase one comes along and rollups move to eth2 sharded chains for their data storage, Ethereum will go up to a theoretical max of ~100000 TPS.

• Eventually, phase two will come along, bringing eth2 sharded chains with native computations, which give Ethereum… ~1000–5000 TPS.

In the table below, you can see some gains for specific applications offered by rollups.

If Ethereum succeeds in achieving 100000 TPS it will be a remarkable result. However, it is not sufficient to accommodate high-loaded systems such as CBDCs, corporate payment systems and some other applications that require instant processing of an exceedingly high number of transactions at a reduced cost (several cents per transaction).

Everscale’s Take on Scalability: A Solution with Data and Execution Sharding

Everscale scales the network via a combination of both data sharding (workchains) and execution sharding (shards).

The necessity to develop and adopt such a technical solution was dictated by several constraints: uninterrupted internet availability and processing power. The first one comes into play in situations when there is a need to send a lot of messages between servers. At a certain point, the internet connection to one of the servers could run out. Although data sharding resolves this issue, it leaves the second problem unanswered, which is the lack of processing power. For this reason, parallel smart contracts execution is fundamental for blockchain scalability.

TIP

Generally speaking, sharding is a mechanism designed for partitioning the general state of a blockchain into segments. Each segment is stored and processed by different network nodes. Each node, in turn, processes only a small part of the state, doing it in parallel with other nodes. Blockchain sharding is similar to the fragmentation of a traditional database, except for the extremely difficult problem of maintaining security and authenticity within a decentralized set of nodes.

Execution Sharding: Achieving High Throughput with Everscale

Everscale’s architecture, from the very beginning, was designed to accommodate at least one billion users. Normally, such a system requires a very high throughput rate to operate in a trouble-free manner. Therefore, in contrast to Ethereum, which predicts more than eighty dollars per transaction in the next bull run, Everscale can process up to one million TPS (at a few cents per transaction) irrespective of the workload on the network. This is achieved by means of parallel smart contract execution. Shards partition smart contracts into groups while validators rotate among shards within their workchains to process transactions.

Shard splitting in action:

Data Sharding: Enabling Business Applications on Separate Workchains

In Everscale, there are currently two workchains: the Masterchain and the Main Workchain. The work enabling the creation of additional workchains (data sharding) is currently underway. It will make it possible to host any business application (dApp) on a separate Everscale workchain with the potential of having its own virtual machine, internal currency, commission policy and more.

For illustration, you can see below how several workchains with different use cases (an exchange, a wallet, a logistics company and an industrial company) will be able to coexist on Everscale. We also depict how one of the exchanges’ shards splits due to the increasing transaction volume.