How Second-Layer Solutions Enable Private Transactions and Help Ethereum To Scale

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Since early 2017, the developers behind most leading public blockchain networks such as Bitcoin and Ethereum have begun to actively develop second-layer solutions mainly for scalability purposes. Most notably, in Bitcoin, the Bitcoin Core development team has integrated Segregated WItness (SegWit), a scaling and transaction malleability solution which decreases the size of transactions by removing unnecessary data.

Recently, the Byzantium hard fork led by the Ethereum Foundation and its open-source development community featured a scalability solution similar to SegWit, which removes the root of the transaction state tree, leading to faster transaction processing and overall network scaling.

Despite these advancements, Ethereum is still only able to process approximately seven transactions per second, an amount which isn’t sufficient for powering large-scale decentralized applications. At the time of reporting, the only practical, commercialized, and successful decentralized application on the Ethereum protocol is EtherDelta, a decentralized cryptocurrency exchange, and it accounts for 14 percent of Ethereum’s transactions. Still, the vast majority of the community finds the exchange inefficient and slow, due to its decentralized nature.

Earlier this year, Ethereum co-founder Vitalik Buterin and Lightning Network Joseph Poon introduced a second-layer solution called Plasma, which would allow for the processing of billions of data points per second by creating an ecosystem of interconnected blockchains and integrating privacy-focused cryptographic systems such as anonymous cryptocurrency Zcash’s ZK-SNARKs. By integrating ZK-SNARKs, Ethereum developers have discovered that it is possible to hide certain transactional data, providing improved privacy measures and optimized scaling simultaneously.

“Further benefits include proofs of computation which allow for faster syncing and verifying of chains themselves. Note that zk-SNARKs does not solve the issue around data availability, just reduces the amount of data requirements and computation. This is especially useful as a replacement or complement for any assert/challenge time-based mechanisms,” reads the Plasma whitepaper

Dr Christian Reitwiessner, the team lead for Ethereum’s Solidity and Ethereum C++ implementation further emphasized that Plasma is especially useful because it solves the underlying scalability issues of public blockchains, specifically the Ethereum network. In a research paper, Reitwiessner emphasized that true scalability can only be reached if users do not have to verify every transaction sent to the main Ethereum blockchain. He wrote:

“The plasma system defines a structure of interconnected blockchains arranged in a tree structure that promises scalable smart contracts. One of the key ideas there is that each of the blockchains regularly store their current block hash in their parent chain so that users can challenge potentially invalid child state transitions in the parent chain.”

By allowing smart contracts to operate alternative and interconnected blockchain networks, Reitwiessner noted that Plasma prevents users from being forced to handle every single piece of information that is sent to the Ethereum blockchain, which is highly impractical and inefficient.

“Scalability does not come from the fact that blockchains are relieved from their load by creating a big number of smaller chains and moving the transactions there. Scalability is only achieved once a user does not have to verify every single transaction that is sent to the system,” he explained.

Private or anonymous transactions and the implementation interconnected blockchains in Ethereum are still concepts that need to be executed and tested. But, second-layer solutions like Plasma hold significant potential in scaling and optimizing the Ethereum blockchain network, which could allow large-scale decentralized applications to emerge in the long-term.