Global companies are implementing distributed ledger technologies to drive efficiency gains in areas such as global payments and supply chain visibility. Blockchain technology can replace slow, paper-based processes and improve security.
However, many of the platforms in use today suffer from poor design. Networks are too easily clogged with traffic, leading to latency issues and ultimately a sub-par user experience.
According to a 2019 McKinsey report, there are now over 20 billion connected devices worldwide, all of which “require data management, storage and retrieval”. However, the blockchain design is ill-equipped to handle this immense wave of data, which puts pressure on the networks to maintain high speed and adequate storage capacity.
Make blockchains sustainable
Transaction speed is important for blockchain adoption and sustainability. There is a performance tradeoff, however.
There are several factors that can delay an acknowledgment, but a congested network is a major cause. When many users send transactions, there are longer queues for nodes to validate. This is because miners or auditors who operate a network conduct their audit based on a publicly shared ledger. While this process reduces risk, it can also slow transaction speeds, especially when there is a lot of traffic.
Developers also deal with the permanent storage of blocks in the chain. A huge increase in storage requirements can make a network slow and unstable. A protocol requires participant nodes in order to be able to transfer and download the chain within a short time.
The blockchain trilemma is a technical challenge between scalability, decentralization and security. Developers can achieve two of these factors but must sacrifice the third.
Immediate confirmations are becoming a key factor in adoption as decentralized innovations compete with traditional solutions in the marketplace. In financial services, for example, there is an imperative need for high throughput, low latency networks that can potentially match the capacity of Visa and MasterCard networks, which process tens of thousands of transactions per second.
Meet user expectations
Over the past year, we’ve seen several developments that bring near-instant confirmations closer to reality. Protocol-level improvements such as signature aggregation and block suggestion pipelining are two examples.
Signature aggregation enables validators with multiple Boneh-Lynn-Shacham cryptographic keys to combine all signatures into a single aggregated signature and send it as a single peer-to-peer message. With the block suggestion for block suggestions, a validator suggests a new block immediately after collecting two thirds of the signatures. This means that a new block suggestion process and the collection of the last third of the signatures take place at the same time.
The net result of these improvements is a remarkable reduction in block life time to just a second or two in a live mainnet environment. The two-second final is a disruptive, near-instantaneous feature in the digital assets industry as Bitcoin (BTC) and Ether (ETH) take minutes to confirm at higher fees. To put things in perspective, it is the speed that meets the expectations of mainstream users swiping plastic cards in a grocery store.
Another solution that is being tried out by several blockchain projects is called sharding. The sharding method partitions a database into smaller blocks so that nodes can process transactions faster and update a shared ledger in real time.
Sharding has been widely recognized as the best solution for achieving blockchain scalability because it increases the number of transactions per second and uses less storage space for nodes. Sharding dissolves blockchain bloat without losing too much of decentralization and security. Bloat refers to the challenge of finding enough storage space to hold an immense amount of collected data.
Other solutions are also being explored, although they are not yet implemented on a mainnet. Danish researchers have proposed a solution that includes a separate validation layer to achieve a finality that is partly synchronous with a standard block validation process. However, this has not yet proven effective on a live mainnet.
The imperative is there. The quick finality gives DApp developers the ability to build the fastest and most usable applications for real adoption. For example, Brian Brooks, acting director of the currency converter, recently wrote a vision for “self-driving banks” in the Financial Times.
Solve the trilemma
Reducing the blocking time cannot and should not come at the expense of blockchain security. To resolve the trilemma, it must be ensured that decentralization of the network remains a priority. The solutions described here show that a blockchain project can achieve decentralization, security and lightning-fast confirmations.
With decentralized applications, a fast and responsive experience leads to high user satisfaction and retention rates. Waiting for ten seconds or even minutes to confirm a transaction is the last thing we want for mass adoption of Web 3.0 applications.
With the technology gaining widespread global adoption, common ledgers must provide compelling use cases, improve key performance indicators, and increase ROI.
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Stephen Tse is the founder and CEO of Harmony.one. Previously, he was a researcher at Microsoft Research, a senior infrastructure engineer at Google, and a senior search ranking engineer at Apple.