Why the Blockchain Struggles to Grow and How to Fix It

:::info Authors:

(1) Cayo Fletcher-Smith, Bournemouth University;

(2) Frazer Chard.

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Abstract and I. Introduction

II. Background

III. Related Works

IV. Comparative Analysis

V. Findings and Evaluation

VI. Conclusion and References

\ Abstract—This research critically analyses blockchain scaling solutions based on their ability to realistically balance properties of the blockchain trilemma. We’ve concluded this research by outlining a gap in the current body of literature, and implementation of scalability solutions. An extended-UTXO transaction model is proposed to overcome challenges associated with implementing both layer-one and layer-two scaling solutions in a blockchain system. The examination of industry approaches is used to justify this direction, and puts forth a basis for future work.

Blockchain technology was first introduced by Satoshi Nakamoto in the Bitcoin whitepaper, in which they proposed a distributed ledger of transactions stored across a peerto-peer (p2p) network of nodes. Transactions facilitate the transmission of digital assets over the blockchain network and store a record of that transaction in blocks using cryptographic trust to verify data validity, circumventing the need for a trusted central authority. Each block can be visualised as a single page, while the entire blockchain would be a full book [1]. Blockchain use has been growing exponentially since Bitcoin’s rise in 2013, and Ethereum’s in 2017. Smart contract projects like Solana and Cardano are pushing the boundaries encompassed in Web2, shifting design away from centralised infrastructure, by providing disruptive solutions to business sectors globally. The magnitude of this shift in thinking has accelerated a domain of decentralized financial services, applications and industry solutions due to the inherent benefits blockchain technology has across various use cases. Despite significant advancements since the days of primitive input output ledger systems like Bitcoin, the industry still struggles to correctly balance the coexistence of features fundamental to a comprehensive blockchain solution.

\ A. Blockchain Trillema

\ Three fundamental properties of blockchain technology: decentralisation, security and scalability are regularly observed in research to have a challenging relationship. Generally to achieve two properties in-full projects sacrifice the third in some form. Zhou et al exemplifies the trilemma by explaining that, an introduction of centralised coordination can increase transaction speed by reducing computation costs, resulting in the sacrifice of complete decentralisation [2].

\ B. Research Objectives

\ In this research, we will be exploring recent technological developments in scaling at different layers of the blockchain stack and perform a comparative analysis to review how effectively the blockchain trilemma can be balanced with these solutions.

\ Observations will be made throughout about the feasibility of certain scaling solutions occurring harmoniously with the layer-one transaction models implemented across an array of projects. The necessity and support for smart contracts will be demonstrated where appropriate, both in transactional model support and automated scalability requirements.

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:::info This paper is available on arxiv under CC0 1.0 DEED license.

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