In every crisis, there is an opportunity. Ethereum’s scalability issues have their fair share of coverage in crypto media. This crisis has provided opportunities for scalability solutions that deploy tools like sidechains and rollups to improve the transaction speed of Ethereum. These solutions can help increase the speed of Ethereum transactions. Additionally, they can help lower Ethereum gas fees which can be ridiculously high.
Online gambling enthusiasts on BC.GAME who transact ETH and related tokens know the pain of high gas fees. Scaling solutions seek to ease the burden on the Ethereum blockchain and eventually provide faster and cheaper ETH transactions. Therefore, crypto gambling and the broader Ethereum ecosystem benefit from scaling solutions’ success. Their role became more important after the explosive rise of the Decentralised Finance (DeFi) sector. This sector highlighted Ethereum’s soft underbelly, scalability and unsuitable throughput. Two of the scaling solutions that have emerged are sidechains and rollups.
The term ‘sidechains’ connotes the existence of the main chain. That is the precise setup of sidechains that bolsters the capacity of blockchains like Ethereum and Bitcoin. They operate as an interoperability solution that allows two blockchains to verify information about each other. Sidechains achieve this utility without trusting a centralised intermediary and can still preserve the security and decentralisation of the mother blockchain. Most sidechains are independent blockchains that have a relationship with another blockchain network. They typically implement a bridge contract that facilitates asset movement across the blockchains.
The three most common bridge contracts are the single organisational, the multi-organisational, and the crypto-economic bridge contracts. In their respective order, the first is where a single party has custody of funds that form the basis of a bridge contract. The second type signifies an arrangement whereby a specific set of independent parties has custody of the funds. For crypto-economic bridge contracts, a dynamic set of parties have custody of the funds, depending on their weight in assets.
The Wrapped Bitcoin (wBTC) bridge, part of the Ethereum ecosystem, is an excellent example of a single organisational bridge contract. BitGo is the custodian of funds in this arrangement and authorises funds movement from one blockchain to another. Polygon is an example of a crypto-economic bridge because it relies on a specific stake formula to appoint validators. All these bridge contracts have thresholds and incentives to provide a financial incentive for validators to remain honest and secure user funds.
‘Rollups’ is a term that refers to an independent blockchain network that also relies on bridge contracts for security. Notably, the transacted assets reside on the Ethereum blockchain. The reliance on rollups means that the main blockchain must have constant reassurance that the rollup network is safe and that funds are not at risk. When there is such a compromise, the rollup network will bypass the main chain and allow users to unwind and withdraw their funds. The rollup network has excellent security by solving the following problems:
- Data availability: The setup encodes data availability to the public anytime. This factor promotes security and transparency. The posting of all data on the Ethereum network (rolling up data) gives this technology its name.
- State transition integrity: The bridge contract ensures that all state transitions are valid.
- Censorship resistance: The bridge contract can enforce transaction inclusion to ensure that users withdraw funds without centralised sanction if the network suffers an attack.
Notably, rollups incur some costs. The network must constantly provide evidence of state transition integrity and security. This requirement consumes resources from Ethereum and places a ceiling on the scalability rollups can provide. In the meantime, they have a proper function in reducing transaction costs. An example of a rollup network is Arbitrum, which vastly reduces gas fees.
Differences between Sidechains and Rollups
These solutions have pretty many similar functions. Regardless, subtle differences in their structure give them their unique roles. The most glaring difference between sidechains and rollups is the nature of the bridge contracts that lock funds from the main chain to the other network. The bridge contract may receive information about the main or side chain in sidechains but does not validate its correctness. The parties that govern the bridge ensure that the other network is secure and attesting this fact. Therefore, the bridge contract in sidechains relies on a trusted set of parties to authenticate each other’s integrity.
In contrast, the respective parties must provide evidence of the security of each to the bridge contract. The bridge contract validates this evidence to verify that each network is secure and uncompromised. Accordingly, the bridge contract is a self-enforcing mechanism in rollups. The downside is that this mechanism consumes more resources and is costlier to implement. From a security perspective, rollups are better but come at a premium. The choice of which to implement is up to the specific considerations that developers have in mind.
The Big Picture
Scalability solutions have a vital role in the immediate future of the Ethereum blockchain. Their ability to take some load off the Ethereum blockchain is immense. Sidechains like Polygon are making a name for themselves over and above their scalability role. Nonetheless, this function gives them a prominent role in the crypto landscape. The rise of DeFi platforms has made scalability an even more pressing problem for Ethereum. Solutions like Arbitrum can help lower gas fees, which is crucial for the broader adoption of financial products. Crypto gambling fans on BC.GAME transacting using ETH and ERC-20 tokens should get a reprieve as more scaling solutions come on board and Ethereum implements proposals to mitigate this problem.