A scaling solution is a method of enable a system to expand.
A scaling solution is fundamentally a method of enabling a system’s expansion, such as improving its efficiency and output, without hurting the existing operations. In the blockchain space, a scaling solution typically takes the form of second-layer protocols like sidechains and off-chain layers, that are built on top of a main chain and designed to increase transaction throughput.
Second-layer scaling solutions involve state channels, rollups, blockchain interoperability, sharding and alternative cryptographic functions.
State channels, also known as payment channels, improve a decentralized network’s efficiency and output by allowing multiple individuals to create a direct communication link when sending cryptocurrencies. Despite the number of transactions that take place on a given channel, only the initiating and closing transactions are reflected on the underlying blockchain. Examples of state channel implementations include Lightning Network, Raiden Network and Trinity for the Bitcoin, Ethereum and the Neo networks, respectively.
Sidechains take a different approach as they interconnect two or more blockchain platforms, each of them retaining an independent consensus mechanism. As such, the vulnerability of one blockchain is not transferable to the other. Examples of sidechains include Plasma for Ethereum and Liquid for Bitcoin.
The most promising short and mid-term scaling solution for Ethereum appears to be rollups, particularly optimistic rollups, with Optimism as the prime candidate, which is set to be deployed on Uniswap V3 sometime in 2021.
Sharding is the ultimate scaling solution for Ethereum and other proof-of-stake (PoS) blockchains, which involves splitting the network into different partitions called shards, which are then assigned different tasks. Sharding enhances the efficiency and output of the network since it increases the transaction load capacity. In this setting, network nodes are grouped and assigned to specific shards.
Another scaling solution comes in the form of alternative cryptographic systems that minimize the amount of transactional data that is recorded on a blockchain, which include ring signatures, multisigs, Schnorr and Threshold signatures.