Ethereum is a public, open-source, blockchain decentralized computing platform and platform built specifically for creating smart contracts. Ethereum also introduced its digital currency, called Ether. Blockchain ether is a token generated by the Ethereum platform. Ether is largely known today as a cryptocurrency or a "token".
As smart contract systems' value is booming greatly in the modern era, all the prominent Software Development firms have started to focus on these implementations to stand ahead in the future market.
The blockchain ecosystem provides a lot of Ethereum scaling solutions. Multiple propositions are being experimented, such as Layer 1 (On-chain) and Layer 2 (Off-Chain), for achieving the end goal of cheaper and faster transactions at scale. Let's try to understand scaling approaches. In simple terms, currently, Ethereum cannot help/support any decentralized apps (DApps) with significant transaction volume due to scaling restrictions, which leads to high fees and long waiting times.
Suppose we talk about the Layer 1 (On-chain) Ethereum scaling approach that helps keep all transactions on the base Ethereum chain to increase the throughput of the base chain itself. Blockchain Sharding is a smarter approach, where you can break the entire shape of the network into a cluster of partitions called shards, which contains their independent piece of shape and transaction history. In such a system, definite nodes would process transactions only for fixed shards, allowing the throughput of transactions processed in total across all shards to be much higher. Ethereum can process a maximum of 15 transactions per second generally. Sharding, Casper, eWASM, and other efficiency technologies are called Layer 1 solutions as they modify the core Ethereum protocol and depend on security.
Sharding is the most popular database management technique that is being applied to Blockchains along with consensus mechanisms. It refers to breaking of entire Ethereum network into smaller portions known as shards. These shards are a separate blockchain with its own state. You will not be able to provide throughput to run a truly global decentralized app (DApp) in Sharding its conjunction with the other layer 2 scaling. Every node has to validate and execute transactions, which minimizes the scalability and throughput of Ethereum. Shard chain consists of validators processing it, only processing and verifying transactions in that shard. Sharding is a technically complex solution on Ethereum roadmaps, and it requires a lot of research and testing that has to be done before implementation.
Layer 2 (Off-chain) Ethereum scaling approach is mainly divided into State Channels, Sidechains/Plasma architecture, and other Truebit. Off-chain is known as layer 2 because it involves processing transactions to layers that sit on top of the base Ethereum blockchain. The vision of layer 2 is not just payment networks but also in decentralized apps computing. You can imagine State Channels on Ethereum along the lines of Lightning Network payment channels on Bitcoin. State Channels on Ethereum, they are deliberate not just to handle transactions but also aim to address 'State' changes to process smart contract computations. Layer 2 requires additional software and hardware to be developed, so it takes longer to feel its effects. Let's take an example of an application with two users where they are exchanging a series of small transactions. In this series of transactions building a state channel at the child-chain can be cheaper and faster than performing each of those transactions on the chin directly. Some common instances of off-chain scaling include batching multiple payments into one transaction, sidechains, and payment channels.
The off-chain method permits participants to directly perform transactions, instead of doing them in Blockchain without any trust issues. Participated parties or companies can maintain off-chain state machines only to resume an on-chain consensus when required. This technique is built on top of Ethereum does not guarantee similar as if they were done on-chain; for instance, they may need participants to remain online to respond to fraud attempts, but they can be sufficiently secure and final to be very useful. Some of the methods in Layer 2 are sidechain, state channels, plasma. They enhance scalability and minimize transaction fees. The off-chain mechanism's main purpose is that Blockchain should be only be used as a reliable and arbitration layer.
These mechanisms are broadly categorized as –
• State Channels
State channels on Ethereum enhance blockchain performance by moving state-modifying operations off-chain. These operations are performed directly between the participants. Fist type of state channel described were payment channels using off-chain transactions to modify ownership of locked Bitcoin, enabling users to make "off-chain payments" between each other. They are built similarly as the Bitcoin Lightning network. State channels allow users to send state updates, such as an update to a smart contract.
Sidechains are attached to the main-chain using a two-way peg. They enable tokens and digital assets from one Blockchain to be used separately and then moved back to the original. They are independent of the main chain and responsible for their own security. This means that they execute their own technique to obtain consensus.
This is a framework to create scalable blockchain applications. This mechanism has a series of smart contracts running on the top of the blockchain root network. This network contract processes only a tiny amount of commitments from child blockchains that can do an incredibly large amount of computations in most cases. The function of plasma is quite simple and easy though it looks complex. One can create smaller blockchains of many complexities as long as the Ethereum network can validate that Blockchain is valid.
Ethereum scalability congestion is that each node in the network has to process each transaction. In Ethereum scalability, each node maintains an accurate copy of the current network state that means they don't need to rely on a third party to confirm the balance of every account and smart contract. Apart from Ethereum on-chain scaling, simultaneously triggers a series of events on Ethereum. Ethereum network can verify everything valid Blockchain.