A Layer-1 blockchain: what is it?

Since it can take the blockchain anywhere from 15 seconds to a few minutes to process your transaction, you can’t buy your morning coffee with cryptocurrency. Yet why? You must be familiar with Layer-1 blockchains and how their architecture restricts the speed at which transactions can be processed to comprehend why blockchain transactions are so slow.

The fundamental building block of a blockchain is a Layer-1 blockchain. Blockchains at the layer-1 level validate and carry out transactions without assistance from another network and recoup transaction costs using cryptocurrency.

For instance, Ethereum has its native cryptocurrency, Ether, and manages transactions without relying on an external system.

Blockchains aren’t big on scalability. The maximum transaction rates for Bitcoin and Ethereum are 4.6 and 15 Transactions per second (TPS), compared to at least 1700 TPS for centralized payment systems like Visa. Why? Blockchains require access to the full system’s database to validate a transaction and add a new block.

Processing rates are only a few transactions per second because the procedure requires a lot of calculation. This issue, also known as the blockchain trilemma, was first identified by Vitalik Buterin, a co-founder of Ethereum.

Every blockchain network must possess the following three qualities:

Decentralization: The chain operates independently of centralized actors thanks to decentralization. In other words, it is run by a dispersed network of computers (nodes), not by any government or organization.

Security: The chain is capable of withstanding an assault from at least 51% of the participating nodes.

Scalability: The chain can handle a growing number of transactions.

The trilemma states that you can only have two of the three qualities simultaneously.

Numerous solutions to the blockchain trilemma have been put forth since it was first articulated.

Some technologies, such as Segregated Witness (SegWit), are straightforward soft forks in which only the code is altered and the blockchain is still used by consumers. Others, though, such as adjustments to the consensus method, may result in a hard fork that separates chains and affects the value of your cryptocurrency.

To put it briefly, each approach has trade-offs, but they both greatly increase scalability.

Modify the consensus process

A majority of the blocks must agree on the network’s state for there to be “consensus,” as it is known in the blockchain community. For instance, for a transaction to be validly executed and added as a block to the chain, at least 51% of the nodes in the network processing the transaction must agree. Theoretically, to alter this transaction, hackers would need to compromise 51% of the system.

Consensus procedures or methods make sure that the “51% attack” doesn’t take place and undermine the system. One such instance is the Proof of Work (PoW) algorithm used by Bitcoin. Miners compete with one another to solve challenging puzzles and earn Bitcoin by adding fresh transaction blocks to the blockchain. PoW is carried out by them.

This approach is safe since it encourages users to contribute to the network, but it also consumes a lot of computational resources and has a limited capacity to scale. This is the rationale behind Ethereum’s decision to switch to a Proof of Stake (PoS) architecture in which a validator is selected at random to build new blocks.

These modifications to consensus processes may help with some of the blockchain trilemma’s problems, but they are still not perfect because it takes years of study to design new consensus mechanisms.

Expanding the block size

Increasing the block’s size seems like the logical solution because the scalability problem arises when the block isn’t big enough to handle transactions. Contrary to popular belief, however, raising the block size (B) won’t fix the issue because relay time (TR) and block generation time (TB), two other important elements, are also involved in the process.

A new block must be broadcast to every node on the network in TR, whereas a new block must be generated in TB.

Imagine that B is fixed at 1 MB. It would take more time for each node to download the block if we increased its size to 2MB, which would double TR time and reduce the limit on TB. An illustrative case that makes use of the Bitcoin network is as follows: The Bitcoin network has 10,000 nodes as of January 2021, and it took an average of 14 seconds to inform 99% of the network about the TR99 block. If B were raised, this period would be capped at 28 seconds.

A new block will be generated before it reaches all of the system’s nodes if the time required to generate a block falls below this threshold. The result will be security flaws like double-spend attacks. The user made another transaction before the network was updated, hence the same currency was used twice in these transactions.

The Bitcoin network’s TB now stands at around 10 minutes, so lowering it to 28 seconds would be a victory. It won’t, however, be sufficient to match Visa’s 1700 transactions per second.

Segregated Witness (SegWit)

Let’s look at why SegWit was implemented before defining what it is.

The sender (input), the digital signature (authentication), and the receiver are the three elements that make up every transaction on the chain (output.) As it links a person’s identification to the transaction, the digital signature is crucial to these transactions. You cannot dispute a transfer of funds to another party that you approved by signing a check, as your signature serves as proof of your consent.

Although this verification approach appears to be error-free, there is still an opportunity for error. For example, the attacker could slightly alter the transaction ID to produce a new transaction. The attacker can ask the sender to resend money while keeping the money from the original transaction because the sender is unable to locate the original transaction on the blockchain.

Transaction malleability is the name of these assaults, and a SegWit was first put in place to combat this problem. By doing so, it unintentionally solved the scalability problem by enlarging the chain’s block size.

How SegWit operates

To allow the main block to execute more transactions, SegWit is a network upgrade that tries to decouple transaction signatures from it.

The main block, also known as the legacy block, and the SegWit block are now the only blocks in the system. The digital signature and other “witness data” are transferred from the Legacy block and placed in an extended block by these SegWit blocks. Since the witness data accounts for 65% of the transaction size, it increases TR and makes room for more transactions inside the old block.

Attackers are therefore unable to modify the transaction ID before the nodes verify the transaction. The upgrade enhances TPS as well, however, the improvement is insufficient to address the scalability problem. This is when sharding, a more effective option, comes into play.

How does Layer-1 sharding work?

With layer-1 sharding, a network is divided into shards and given a specific set of transactions. By doing this, the system handles several transactions concurrently as opposed to only one.

Let’s say you have 100 blocks to verify across a network of 10,000 nodes. The first 100 nodes are given a random assignment to verify the first block, the second 100 nodes are given a random assignment to check the second block, and so on.

Validators publish a signature attesting to the verification when they validate a block. The 10,000 signatures are now the only ones being verified by the remaining nodes, which takes less time than confirming the blocks.

As opposed to a multi-chain ecosystem, sharding is more secure (a system with several interconnected blockchains).

An attacker can cause chaos in a multi-chain environment (total assets locked in the system) even if they get control of 0.5% of the total stake. With sharding, however, an attack on the system would require at least 30–40% of the stake. Because of the random sampling technique it uses, it is nearly impossible for a hacker to focus all of their efforts on a single shard.

Additionally, if a shard receives a poor block, the system discards it and the chain as a whole rearranges itself to avoid it. Let’s say there are two contracts, A and B, and B behaves badly. A transaction will be rolled back by the network.

Sharding is scalable and offers greater security than multi-chain ecosystems.

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