One of the main issues that hinder the mass adoption of cryptocurrencies is the lack of scalability. For example, the world’s most valuable blockchains – Bitcoin and Ethereum – cannot process thousands of transactions per second (TPS). So, before you purchase bitcoin for the long term, you should consider these implications.
Currently, the Bitcoin network is restricted to a clumsy performance of 4.6 TPS, while Visa can handle an average of around 1,700 TPS. Many people believe that adding a second layer on top of an existing blockchain is the solution for these scalability and processing issues.
In this article, you will discover what sharding is and why it is crucial for blockchain scaling.
Sharding vs Blockchain Scalability – An Explanation
The term “sharding” refers to a technique used by blockchain programmers for database partitioning. It allows layer 1 networks to achieve a higher level of scalability, which permits them to process more transactions per second.
In essence, this technique consists of splitting the entire network of a blockchain into smaller chunks of data (shards). Each shard is comprised of unique data, making it distinguishable and independent from other shards.
Blockchain scaling is one of the most heated debates amid the crypto community since the rise of Bitcoin and Ethereum as major networks. From time to time, the scaling debate always heats up after a period of network congestion.
In Ethereum’s case, the first major congestion crisis happened in 2017. At the time, the network was already crowded due to the crypto bull market. However, network traffic got even worse after the ICO boom and the success of CryptoKitties.
The situation caused major congestion in the entire network, which led to a colossal spike in gas fees.
The second major congestion in the history of Ethereum happened in mid-2020. While the world economy was suffering from constant lockdowns amid one of the worst sanitary crises in history, the crypto industry was booming.
This time, the cause was the popularity of DeFi and yield farming, which led to spikes in gas fees as high as 500 GWEI. If ETH can solve these issues with the help of sharding, we will see the price of ETH reach new heights.
Blockchain Technology and Layer 2 Scaling – Understanding the Process
When it comes to scaling a blockchain network, there are two main ways of doing it – scaling the layer base itself (layer 1) or scaling the network by offloading some of the work to another layer (layer 2).
Generally, layer 1 is the base consensus layer where most of all transactions are settled (e.g., Bitcoin blockchain). On the other hand, layer 2 refers to another layer built on top of layer 1.
In this context, there are several differences between these two methods of scaling.
For instance, layer 2 scaling does not require any changes in layer 1. The process of scaling a blockchain by adding a second layer to it can utilize elements from layer 1 (e.g., Ethereum smart contracts).
Layer 2 scaling can dramatically increase the number of transactions processed per second. For example, Ethereum can currently process 15 transactions per second. As the entire network is going through a process of layer 2 scaling, it is expected to process an average of 2,000-4,000 transactions per second.
Understanding Ethereum 2.0 – A Case Study
There is no better example to illustrate the concept of sharding than the rise of Ethereum 2.0, which introduced PoS (Proof-of-Stake) and sharding to increase the transaction throughput in the network’s base layer.
The main goal of Ethereum 2.0 (ETH2) is to provide a unique set of upgrades to the network to make it more scalable, more sustainable, and more secure.
While PoS will remove the necessity for huge loads of electricity involved in the PoW (Proof-of-Work) mining process, it will also unlock sharding.
In this context, each shard would act as a separate chain by itself. Initially, there will be 64 shards to spread the network’s workload and enhance transaction throughput. Plus, each Ethereum node will have to run only one of these shards.
Each node will store only a small chunk of data, making it easier to run and maintain a node without powerful hardware. Accordingly, nodes easier to run will result in more network participants, which provides further decentralization and more security.
However, it is crucial noting that sharded blockchains would not be able to handle transactions or smart contracts. Consequently, sharding does not contribute directly to scalability, but it is part of layer 2 scaling.
As a blockchain grows, so grows the amount of data stored in each node participating in the network consensus. With the growing popularity of major networks such as Bitcoin and Ethereum, scalability has been the center of the community’s debate.
Accordingly, even though sharding is not the definite solution in terms of scalability, it is a crucial step for blockchain developers and programmers to reduce the workload on the network and enhance performance.
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