Fred Ehrsam, former Goldman Sachs trader and co-founder of the bln dollar Bitcoin startup Coinbase, laid out several scaling issues of Ethereum and the necessity of off-chain scaling solutions to scale the Ethereum network.
According to Ehrsam, seven major scaling solutions exist that are being developed by Ethereum developers, which will be launched by late 2018. The migration from Bitcoin’s proof of work consensus protocol to proof of stake protocol is the largest alteration to the Ethereum network Ethereum co-founder Vitalik Buterin has revealed to date.
Although the Ethereum network prioritizes flexibility to provide an efficient ecosystem for decentralized applications (Dapps) and decentralized autonomous organizations (DAOs), Ehrsam noted that in order for Ethereum to support large-scale Dapps with one to 10 million users, it will need a scaling solution that will demonstrate a 100x improvement in the Ethereum protocol by 2018.
More to that, Facebook handles more than 175,000 requests per second to run applications within its network. Ehrsam explained that the Ethereum network is 25,000x off from being able to handle Facebook on-chain and scaling solutions are needed to support large-scale Dapps.
Not all decentralized apps can run on-chain.
Ethereum is a decentralized Blockchain network like Bitcoin, and by nature, it is significantly harder to scale than centralized networks like Facebook. Hence, the seven above-mentioned scaling solutions must be deployed securely and efficiently to scale Ethereum proportionally.
Ehrsam explained that the successful implementation of the seven scaling solutions including PoS would bring Ethereum closer to being able to handle billions of users. However, even then, he noted that it would be impractical and inefficient to run all decentralized applications on-chain.
Similar to how Bitcoin developers are looking into two-layer solutions such as Lightning to handle small transactions and prevent the Bitcoin network from being clogged by microtransactions, Ehrsam explained that large apps can’t run solely on-chain.
“These are hard computer science and game theory problems. Most of them have never been solved before. Estimating completion can be hard and can be far off. Large apps can’t run solely on-chain and likely never will. They need off-chain scaling solutions. While it’s tricky to make accurate estimates when combining scaling improvements, it’s conceivable we could see a 100x improvement by the end of 2018, which would allow a 1–10m user app.”
On June 19, Blockchain pioneer Nick Szabo explained that even the Bitcoin network couldn’t settle all of its transactions on-chain, on a premium global Blockchain. It needs a peripheral financial network that settles on top of the Bitcoin Blockchain to avoid Blockchain congestion and to scale more efficiently.
Who is working on a scaling solution
Ethereum has an active development community that collaborates on the development of both on-chain and off-chain solutions. However, Ehrsam expressed his concerns over the limited number of developers working to implement necessary scaling solutions.
“These projects have very few people working on them — in most cases less than five people. The people currently working on them are exceptionally talented, so that is not at all a knock on their efforts,” wrote Ehrsam.