Blockchain scalability is the hottest topic in the Web3 space today, and the rapidly evolving crypto industry offers many ideas. From rollups and sidechains to modular blockchains and nested networks, we have a plethora of solutions, all aimed at improving scalability in their unique ways.
But even after these breakthroughs, there’s still no global adoption. Despite the growing presence of faster Layer-2 networks, most blockchain apps continue relying on archaic Layer-1 networks.
As the next DeFi summer is suspected to be around the corner, cryptocurrencies are bound to get more popular. And the question arises, would the current blockchain systems bear the increased load on the network, or would they succumb to it and become congested?
Why Do Blockchains Scale Poorly?
The main reason why blockchain networks scale poorly is because of their architecture. There are two main reasons behind this, both tied to the current dApps architecture and the function of the blockchain.
Layer-1 networks form the base layer of the blockchain, and they have several duties to perform. They range from dispute resolution to code execution and storage; they tend to be slow.
Some widespread Layer-1 networks like Bitcoin and Ethereum are already facing this issue, and their networks are overburdened. Layer-1 scaling solutions improve this layer's scalability, but they deal with security and decentralization tradeoffs.
This trend has also reinforced a widespread belief amongst the community, ignited by Vitalik’s blockchain trilemma, previously discussed in the Developer's Guide to Web3 Security article on Attirer Web3 Wire earlier, stating that a blockchain can never be secure, decentralized, and scalable simultaneously.
The Stereotypical dApp Design
Almost all blockchain apps today follow the same design formula: a frontend application connects directly to a blockchain network through a smart contract interface.
These apps are mostly built on top of Layer-1 networks, and not only does this make them extremely slow, but it also makes the cost of every operation more expensive. Moreover, these apps rely on settlement, which is a major contributor to network congestion.
The problem arises from the design pattern that the industry has been following for now. We have devised several solutions to help blockchains scale.
So What’s The Missing Link?
We can only scale a blockchain by decongesting the network and re-designing blockchain apps so that they do not directly communicate with Layer-1 networks. In the former case, Layer-2 scaling solutions have proven useful as they offload the data and computation to a separate layer.
But they fail to provide liquidity of Layer-1 networks – which is essential for any DApp to function properly. This flaw is one of the major reasons why most of the popular DeFi protocols still operate on Layer-1 networks. As for them, trading liquidity for faster transaction speeds is too big of a price to pay and is just not worth it.
Layer-3 Solves Everything
Layer-3 provides a common interface of communication between blockchain networks and apps. And in doing so, it can provide better liquidity than any Layer-1 network and higher transaction speeds than any Layer-2 solution.
Innovative Layer-3 protocols such as Yellow Network powering the cutting-edge technology crypto portals like Yellow Exchange create a simple peer-to-peer mesh overlay that operates on top of existing solutions. It scales and connects multiple blockchain networks by leveraging the recent state channel technology, which could prove a global breakthrough in handling financial transactions and settlements online. Think good old bank SWIFT protocol, supercharged with blockchain technology.
State channels allow DApp to connect directly with any blockchain network without implementing a new protocol. This way, we unlock the liquidity locked in isolated networks while providing a fast and secure cross-chain communication channel.
Yellow Network’s state channels can open thousands of positions by storing an index of all operations off-chain. This decoupling between transaction/trading and settlement helps in scaling any on-chain operation to a whopping billion transactions per second.
Layer-3 creates an ecosystem where blockchain developers can make backend-heavy server-to-server decentralized apps that can safely perform many operations; without worrying about high transaction costs, transaction speed, and liquidity.
By decongesting and interconnecting blockchains, Layer-3 creates a safe ecosystem for decentralized apps, thus proving to be a true application layer for the blockchain ecosystem.
Layer-3 is a game changer for the crypto industry, and it’s not far from now that we’ll see more blockchain apps being designed on it, as the benefits of Layer-3 trump any existing blockchain network.
Yellow Network allows more complex applications to be built on the blockchain, which benefits from the server-to-server architecture. Eventually, this would lead to greater adoption of cryptocurrencies and help onboard existing Web2 businesses to Web3.
Learn more about Yellow Network at https://www.yellow.org/