What is Sharding in cryptocurrency and how does it work?

By Ehis Ohiwerei

Key Takeaways:

  • Sharding is dividing large data content on a peer-to-peer network to make the system work faster and more efficiently.
  • The separate data units stored in a sharded network are called Shards.
  • As the number of users increases in a network or a crypto community, the data also increases, and you need Sharding to keep the network effective.
  • The biggest concern for experts when it comes to Sharding is hacking or shard takeover, which can happen when shards attack each other, leading to data loss.

What is Sharding?

Sharding is a way of dividing large data tables into smaller chunks, called “shards,” which have their own unique data.

Sharding is a technique used to share the workload of a peer-to-peer (P2P) network so that no single node is responsible for handling the entire network’s transactions. With sharding, each node keeps only the data related to its shard or division, while other nodes can still view all entries.

By doing this, sharding reduces the latency and prevents excess data in a P2P network.

One common example of sharding is the Ethereum Network, which uses sharding to address scalability problems.

Ethereum was designed as a new cryptocurrency to solve scalability issues with blockchains. However, as with many blockchains, Ethereum needs help with slow transaction times and high fees, such as gas fees of up to $100 to buy an NFT.

Despite these challenges, blockchains are being used in more and more pilot programs, ranging from international financial transactions to supply chain management.

Sharding is a clever way to make blockchains work better by solving problems with how data moves around the network.

Types of sharding

Sharding is a method used in blockchain technology to increase network capacity and improve performance. There are several types of sharding that can be used, including network sharding, state sharding, transaction sharding, and hybrid sharding.

These four have been briefly explained below.

Network Sharding:

Network sharding splits the network into smaller subsets of nodes, with each node responsible for processing a portion of the network’s transactions.

This helps reduce the burden on individual nodes and increase the network’s overall capacity.

State Sharding:

State sharding divides the network based on the data that needs to be stored rather than the nodes processing the transactions. Each shard is responsible for keeping a portion of the network’s data, and each node processes transactions related to the data stored in its assigned shard.

This approach helps improve the network’s scalability by reducing the amount of data each node needs to process.

Transaction Sharding:

Transaction sharding divides transactions into smaller subsets and assigns them to specific shards for processing. Each node is responsible for processing transactions related to the shard it is assigned to.

This type of sharding can improve the speed and efficiency of the network by reducing the amount of data each node needs to process.

Hybrid Sharding:

Hybrid sharding combines the above approaches to balance network performance and storage capacity. The sharding approach’s choice depends on the network’s specific requirements and the desired level of scalability and performance.

As a developer, you can combine any of the above methods into your system.

Also read: What is an IDO?

Examples of sharding

As a crypto ecosystem enthusiast who is looking to understand the importance of sharding, it is essential that you know some platforms that have used sharding.

These four top examples can give you a good idea of how necessary sharding can be.

Ethereum Beacon Chain

The Ethereum Beacon Chain is an essential component of Ethereum 2.0 and serves as the “master chain” in the new Casper Proof of Stake system.

The Beacon Chain is responsible for processing crosslinks, managing the set of active, queued, and inactive validators, and supporting Ethereum block-by-block consensus and the finality gadget.

One of the key functions of the Beacon Chain is to manage the Proof of Stake (PoS) protocol, as well as the other shard chains.

It also carries out other notable tasks, such as organizing validators into groups so that they can vote on the block that needs changing, nominating the selected block proposer for each shard, and allocating rewards and penalties to validators.

Additionally, it serves as the anchor point for shards to register their states and enables cross-shard transactions.

The Beacon Chain demonstrates how sharding can efficiently address scalability challenges in blockchain networks, and its various functions highlight the versatility of this technique in supporting decentralized systems.

NEAR sharding

NEAR is a sharded Proof of Stake blockchain that enables real-time cross-shard transactions while maintaining a light load on its users. The NEAR network has been simplified so low-end devices can run a node on the network and help process transactions.

Sharding the network allows access to multiple additional devices, ultimately improving the blockchain’s speed.

However, sharding does come with some challenges. For instance, the NEAR blockchain must deal with data availability and validity issues. To ensure the validity of blocks, validators are responsible for ensuring the availability of proof.

Additionally, it can be challenging to prove message delivery failure without on-chain transfer of the message.

Polkadot Parachain

Polkadot Parachain is another exciting example of sharding in blockchain projects. It provides a more straightforward approach to distributed database sharding and is based on the concept of a “parachain.” A parachain is a simpler blockchain version secured by a relay chain.

One of the significant advantages of parachains is that they operate independently of each other, preventing issues between transactions in Turing-complete smart contracts. By clearly defining the boundaries between different parachains, they can all run smoothly without interference.

Blockchain sharding on Polkadot with specialized parachains can also help to address other significant challenges.

For example, specialized parachains can resolve specific transaction operations and efficiently store data for a particular problem. This approach could result in a more scalable and efficient blockchain system that can handle various use cases across multiple industries.

Also read: What does it mean to burn Crypto?

The Ethereum Use Case

The developers of Ethereum envisioned a new ecosystem that could support decentralized apps across various industries. This required the platform to have the resources and capacity to develop and make use of these Applications.

However, Ethereum currently needs more infrastructure to store and secure vast amounts of data. This is where sharding comes in as a potential solution to the problem of scalability, providing Ethereum with an opportunity to develop a practical solution to this issue.

How does sharding work?

When data gets too much for a system to handle, the processing is slower. Imagine your laptop’s storage is full; your laptop will become slow and unable to process your prompt faster.

To make it faster, you can either buy an external drive and transfer your files to free space or delete them entirely from the system. This process makes the laptop quick. This is the same principle with which sharding works.

Here are 3 ways sharding can be used in a P2P network by you, a developer, or anyone interested in it.

Blockchain Nodes

In a blockchain, each transaction is stored on every node, which ensures security but slows down transaction processing. This can be a problem as blockchain technology is expected to handle millions of transactions in the future.

Sharding can help by dividing the workload into sections or shards so that each node doesn’t have to process the entire workload, leading to more efficient processing.

Horizontal Partitioning

Horizontally partitioning databases can achieve sharding. This involves dividing the rows into shards based on their features, such as a particular address category or digital asset.

Each shard has the ability to store past data and also the current transaction that has been assigned to it. Combining different shards can make processing transactions involving a specific digital asset possible.

Shard Sharing

You can also decentralize your shards. Even though the workload is divided into shards, it can still be shared by the networks among the other shards.

This maintains the decentralized nature of blockchain technology, which means that every user can view all the ledger transactions.

Also read: What is a DAO?

Why is blockchain sharding important?

When it comes to blockchain networks like Ethereum and Bitcoin, there’s a limit to how many transactions they can handle at once. This is because every node on the network has to agree on whether a transaction is legitimate before it can go through.

Each node also stores the complete history of the blockchain and processes every transaction. This is what makes these networks “decentralized.”

However, with the massive amount of data that is required for this to happen, there is a need for these networks to use sharding.

Here are four main reasons why sharding is essential.

Data Compression

Data compression is an essential aspect of blockchain technology. Since every full node has a copy of the network’s complete history, it is difficult for hackers to control and change transactions.

This is a great way to maintain the decentralization and security of the blockchain. However, this feature comes at a cost – scalability.


To improve scalability, a network must utilize a sharded blockchain. This prevents nodes from downloading the entire blockchain history and validating every transaction.

This helps improve network performance, enabling blockchains to handle more users.

Decentralized System

Sharding is especially beneficial for industries such as fintech that rely on quick and secure transactions. With sharding, transactions carried out in the network happen faster, making it easier for blockchain businesses to compete with centralized payment systems.

The sharding mechanism helps to lessen the number of hardware required to run a network, making it possible to use blockchain technology on personal computers or mobile phones.

This means more people will be able to participate in the network.

Is sharding secure?

When it comes to network upgrades, security is a significant concern. Sharding, which is used to split Ethereum into smaller networks, can cause some problems. One of these concerns is cross-shard attacks, where a malicious actor can target multiple shards and harm the overall network.

However, the Ethereum protocol has built-in measures to tackle such issues. It uses random sampling for validators and also adds a way to ensure invalid transactions don’t happen.

The Ethereum Foundation and the wider community are constantly researching and developing solutions to potential problems that can come up with sharding. The aim is to create a secure, scalable, and decentralized network for everyone.

If sharding technology is successfully implemented on Ethereum, it could transform businesses and industries. It has the potential to facilitate mass adoption and unlock new use cases for blockchain technology.

The technology can drive efficiency and create new opportunities through shared value networks, global supply chains, and decentralized finance, among other places developers can use it.

Read More:

Frequently Asked Questions

Is sharding in crypto always needed?
No, sharding is not always needed. Sharding can sometimes complicate things, and developers have found alternatives to the scaling problem. Some other options include getting a powerful computer, adding more caches, or replicating your database.
Does ETH 2.0 have sharding?
Experts have said ETH 2.0 will look towards sharding to solve its scaling issues since the network would likely adopt a proof-of-stake consensus mechanism.
Does Cardano have sharding?
Yes, Cardano has a sharding mechanism. In 2020, Cardano (ADA) began using sharding via Hydra.
What is Sharding in cryptocurrency and how does it work?

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What is Sharding in cryptocurrency and how does it work?

By Ehis Ohiwerei - min read
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