What should you know about blockchain scalability before making investment decisions?

What should you know about blockchain scalability before making investment decisions?

You may not even think about blockchain’s ability to scale, but regardless, it will affect your business or investment. That is why BeFund experts offer a brief introduction to the very concept of scaling, the division of blockchains into the first and second levels, as well as the mechanisms and technologies inherent in each of them. After all, all this together affects the performance of the blockchain, its security, the time and cost of transactions performed in it.

Blockchain trilemma

Everyone knows the concept of “dilemma” — a choice involving two possible options. Blockchain is a complex technology, so the main choice here is complicated by three options: the choice between a high level of decentralization, security and scalability. In practice, it is almost impossible to achieve high high indicators in all three directions, so one always has to sacrifice something. However, they are actively working on solving the blockchain trilemma at both its levels, and currently some developments have quite optimistic results.

Today we will focus on one specific area — scaling. This is the ability of the system to grow and at the same time satisfy the increase in demand from users. In any centralized system, this problem is solved by two methods:

  •     Software improvements;
  •     Increasing the number or capacity of hardware, such as adding additional servers to the system for data calculation.

But in a decentralized system, this does not work, because here everything happens a little differently. The performance of complex algorithms cannot be improved by purely extensive methods, but requires advanced solutions aimed at increasing the main criterion for scaling success – the number of transactions per second (TPS). If this indicator does not meet customer demand, two negative consequences occur at once:

  •     The performance of the blockchain decreases, which increases the time for the execution of transactions or may even lead to a collapse;
  •     The gas fee is increasing: the algorithms of most blockchains will be the first to process those of them with the largest gas supply. In turn, this will lead to an increase in the rate for other transactions, otherwise the system will take care of their execution last.

Also, don’t forget that a high transaction speed is a reliable defense against criminals hunting for data. And the longer the operation remains unprocessed, the higher the probability that someone will manage to take advantage of this “gift of fate” and get something that does not belong to him.

First level blockchains

Those blockchains that are self-sufficient, have their own cryptocurrency, which is used for internal settlement of tasks, and do not depend on anyone, are considered basic, or first-level. The TPS indicator is critically important for them, because it is at the first level that data processing and writing to distributed registers takes place. Our favorites Bitcoin, Ethereum and BSC are the first level blockchains. Experienced users and traders may have noticed sharp jumps in fees during peak periods, and this is just a clear indication of the importance of blockchain bandwidth.

On the example of Ethereum, one can also see an attempt to scale the network to a qualitatively new level in September 2022, namely the transition from the Proof of Stake mechanism to Proof of Work. This significantly reduced the network’s need for incredibly complex cryptological calculations, which freed up resources to increase the number of operations over a period of time. However, the world community is still ambiguous in its conclusion about the reliability of Proof of Stake, which is based mostly on the consensus of the conclusions of authoritative nodes. But the transition did its job in terms of stabilizing the cost of the commission — it really does not grow exponentially. Although miners all over the world have lost a good income.

To solve the scaling problem in first-level blockchains, a hard fork is used. It was due to this that the size of the Bitcoin block was once increased to 8 megabytes, which it is today. Another effective method is called sharding — the horizontal distribution of transactions to simultaneously process each of the parts, instead of sequentially processing the entire flow.

Second-level blockchains

As already clear from the context, the “second level” is blockchains, the architecture of which is built on top of the first. Also, the second level (L2) includes any off-chains, systems and technologies that use the resources of the basic blockchain to solve their own tasks. All this can work either in parallel or independently of each other. Of course, no second-level blockchain can surpass the capabilities of the basic one, but that does not mean that there is no work to improve scalability. The most common solutions are:

  •     Rollups are zero-publicity solutions that aggregate off-chain transactions before sending them to the main network. Confirmation of data authenticity in this case is provided by a smart contract;
  •     Sidechains are separate networks with their own list of validators. The decision is quite controversial, but many users choose a sidechain based on their own convictions and entrust their assets to it;
  •     State channels are an isolated environment where various transactions take place without immediate data transfer to the underlying blockchain. Writing to the distributed list takes place in a certain period of time, when the required amount of information is collected in the status channel;
  •     Nested blockchains are essentially separate blockchains that operate independently from the parent, but according to its rules. They refer to the main one only to resolve serious disputes and send the already processed results for storage.

In general, the second level offers more variety of scaling options, but some of them have the potential to weaken security. Therefore, it is not uncommon for first-level blockchains to refuse to cooperate with L2 until critical misunderstandings are resolved. After all, users love and respect the same Bitcoin and Ethereum, first of all, for reliability and security.


Blockchain technologies are developing at a rapid pace, so the trilemma will change every day. New blockchains usually appear already with a well-thought-out supply of resources for scaling and rethought approaches to the issue. Existing blockchains are also constantly working on improvements, but creating hard forks takes a lot of time and resources. In any case, if you need to choose a blockchain for your own business, pay attention to its level and capabilities. At least learn about the possibilities of sharding, which is becoming more and more relevant in the work of any network. But it’s better to find out such things in consultation with a professional, so contact BeFund — it’s free with us, as we hope for a long-term and fruitful cooperation for the benefit of your business!