Ethereums “Scaling issue” is one of the biggest obstacles to mainstream adoption of the revolutionary cryptocurrency. Once their Blockchain is capable of processing transactions on the same level as some of those larger credit card companies or mainstream financial institutions it will get a real shot at transforming capitalism.
In the future Ethereums “smart contract” infrastructure for “Democratic Autonomous Organizations” could render expensive, slow administrative bureaucracys completely obsolete by replacing their repetitive behavior with a system of democratically elected algorithms.
Smart contracts look something like this, albeit more complex;
When A completes B They get C amount transferred to them from Ds account.
Democratic Autonomous Organizations are essentially made of a chain of these smart contracts agreed upon by their constituent members. In a DAO those members could potentially comprise of a group of shareholders, or even citizens in a country voting for a particular candidate.
The problem is the Ethereum Blockchain only has a maximum capacity of 15 transactions per second. Of course, that is small in comparison to most international financial institutions, such as VISA, which is capable of processing 20 000 tps.
Vitalik Buterin, the founder of Ethereum himself, has warned people about the scaling issue. Stating that if the cryptocurrency cannot raise transaction speeds quickly enough it will be lost to the growing tide of globalization. Especially since financial institutions recently began implementing their own faster version of Blockchain technology in order to match the international flexibility of cryptocurrencies.
Ethereums blockchain currently weighs more then 400 GigaBytes, and is growing larger everyday. The more memory something takes to uphold, the harder it is for websites to maintain the immutable ledger that makes Blockchain what it is. So the cryptocurrency teams reduce how many blocks can be processed at once in order to slow the blockchain down which creates the scaling issue.
That essentially creates a “speed limit” which will increase the time it takes to process each transaction based on the networks total overall traffic. In fact such speed limits are one of the most common complaints that initially turn people off of cryptocurrencies.
For example, when some of the larger initial coin offerings were launched they actually got popular enough to “slow down” the entire network and raise transaction fees. That includes the immensely popular “cryptokitties” on Ethereum, which is probably the best example of this.
Right now, scaling is a catch 22 and Blockchains struggle to scale whilst simultaneously remaining both decentralized and secure is difficult. Cryptocurrencies like Ripple are both scalable and secure, but they are not decentralized. In fact Ripple CEO Brad Garlinghouse briefly became the worlds richest person in the world as XRP reached an immense 320 billion dollar net-worth.
That is because in order scale traditionally – you would need to have one organization or entity controlling the Blockchain so that they can back it up with more storage as need be. Storage that someone needs to pay for with extra liquidity, in this case – Ripple.
Another factor that complicates scaling and de-centralization is that any payment made, or smart contract put forward by an individual must be performed by every single node on the Blockchain simultaneously. That is what creates the monopoly resilient decentralization cryptocurrencies are famous for. Unfortunately, it also means the blockchain cannot process more transactions faster than a single volunteers computer can (node).
“Plasma” was the original solution to this scaling issue proposed by Vitalik and Joseph Poon back in August 2017
It suggested that we start multiplying “child blockchains” from the main Ethereum Blockchain. That means all you’d have to is join the constituent child blockchains you’re interested in. You could then contribute to the fulfillment of smart contracts or verifying transactions taking place on that Blockchain without having to process the entire Ethereum network. The idea being that it would reduce the initial “speed limit” caused by every node having to process every single Ethereum transaction
However the problem is that with each successive ‘split” i.e. multiplication of a Blockchain by two you also split the processing power required to verify transactions on that Blockchain. This makes a “51% takeover” of any group of governing nodes in a smaller child blockchain more likely due to the need for less and less computing power with each subsequent multiplication.
With a 51% takeover comes the ability to forge transactions by exploiting the democratic consensus feature of what is supposed to be many different nodes processing their constituent Blockchain. Of course, being able to forge transactions on one child blockchain would destroy the entire networks integrity.
Plasma cash is a proposed solution to this new scaling problem. With plasma cash every deposit of Ether in to a wallet based on the child Blockchain creates a plasma cash coin worth that exact amount of Ether.
This coins unique ID is then stored on a cryptographic “Merkle Tree” which is basically just a string of code that grows every time the coin is exchanged on the child Blockchain or in other words – an isolated cryptographic history of every transaction the coin was involved in.
For example – instead of exchanging different amounts of “Ether” you would exchange plasma coins, retrieving “change” for a coin worth more then the amount of Ether you’d like to send. It is equivalent to creating a “dollar” for the “cents” of Ethereum. However, in this case – the dollar can be any amount of Ether originally deposited and the plasma coin is only a method for reducing the amount of data required for each node on the child Blockchain to process.
Now instead of every member child blockchain processing every single transaction taking place on the child blockchain users only need to process the history of whatever plasma coins are in their wallet.
However. At first glace, it doesn’t make much sense because you would need to send proof of the coins history along with the coin itself and that would just scale up linearly with each subsequent transaction.
Some of you are correct in assuming this would eventually create more processing requirements due to the growing linear overhead of transaction history. However, Vitalik has come up with another “crypto-trick” for this called “check-pointing” whereby each coin is withdrawn, and immediately re-deposited once a year, clearing the coins subsequent history. In this way all of the.
“Plasma operators,” would function as miners or referees, monitoring for fraud while verifying the legitimacy of transactions on the much smaller blockchain
Any proposal has to have the support of miners, developers, businesses and other stakeholders before it can be enforced — a process which can take months and, even then, end in disagreement.