This is the third in a series of blog posts exploring the key ideas behind the development of Nervos. Each article will alternate between a core tenet of Nervos’s governing philosophy, and a use case that illustrates how these principles are intended to work in practice. Today, we focus on what has been called blockchain’s scalability “trilemma” and how Nervos’s multi-layer design can overcome it.
Blockchain’s Scalability Challenge
Scalability is perhaps the number-one challenge facing blockchain projects today. Major existing blockchains currently handle transactions at a rate that is a fraction of what would be needed to compete in mainstream verticals like finance; Bitcoin is limited to 7 transactions per second (tps), versus an average of roughly 2,000 tps for Visa.
The blockchain community understands this, and has proposed many scalability solutions in recent years. These solutions fall into two categories: on-chain scaling and off-chain scaling. On-chain scaling solutions aim to expand the throughput of the consensus process, creating blockchains with native throughput that rivals centralized systems. Off-chain scaling solutions only use the blockchain as a secure asset and settlement platform, and shift nearly all transactions to other layers. Nervos falls into the second category.
Nervos’s Multi-Layer Structure is Designed to Scale
Nervos has been designed from day one with scalability in mind. A key element of our philosophy is that blockchains lend themselves to a multi-layer design, with the highest-value functionality — store of asset — performed by Layer 1, and high-volume transactions shifted to Layer 2.
As Nervos Lead Architect and Researcher Jan Xie explained in an op-ed:
Attempts to solve the trilemma typically commit a key error: the assumption that all transactions must take place on a single, base layer of the blockchain. This is to misunderstand what is actually revolutionary about blockchains, and what their transformational power can accomplish
Nervos is premised on the idea that a blockchain’s ability to store value in a new, decentralized, immutable way is the fundamental capability that sets it apart and makes it a transformational technology. This function, and the large amount of computing power it requires, should be reserved for Layer 1. The high volume of transactions taking place between users, each of which individually requires much less power, can be shifted to Layer 2. This allows us to maintain the network’s ability to store assets and units of value in large volumes while still scaling to accommodate mainstream demand.
Layer 1 for Store of Asset
Blockchains’ greatest power lies not in processing transactions but in storing value. Assets stored on a blockchain become immutable, just like inscriptions carved on the walls of ancient Egyptian temples. Because storing information immutably in this way requires a lot of computing power, it should be reserved for high-value, long-term assets. This has important design implications, which we have made central to the Nervos architecture.
Nervos is built to separate and spread the different functions of the network across different layers or components. This offers greatly improved functionality over current solutions. Coupling all functions into a single layer would likely slow transaction throughput to a crawl. Instead, we process these activities on a secondary layer, leaving the base layer of the blockchain to store only the value of assets. This is intended to achieve speed and scalability while preserving decentralization and security for the crucial function of the blockchain: the store of value.
Layer 2 to Scale, and Beyond
In a multi-layer protocol like Nervos, the base layer blockchain acts as a settlement layer, while the Layer 2 network routes cryptographic proofs that allow participants to “take delivery” of the asset. All activities of the second layer are cryptographically secured by the underlying blockchain, and Layer 1 is only used to settle amounts entering or exiting the Layer 2 network. These designs operate without any delegation of custody (or risk of loss) of funds and enable instant, nearly free transactions. In this way, the multi-layer design of Nervos avoids the scalability trilemma.
(We invite you to read our previous blog discussing the challenge of state bloat , which is likely to arise once scale is achieved, and the innovative ownership model Nervos uses to avoid this problem)
The Sky is the Limit
Scalability has been a crucial element of Nervos’s design from day one, and we have built a multi-layer network we believe will offer the best solution for rapid growth of decentralized applications. This opens the door to true, broad-based adoption of blockchain technology as a basis for many mainstream applications. The next installment in this series will explore the real-world possibilities that can be unlocked once we move past the “trilemma.” Please check this page for regular updates over the coming weeks.
Originally Published on Medium