Christian Decker: Off-chain Solutions Could Solve Blockchain’s Scalability Issues
Scalability is an issue that has long plagued blockchain developers. It is one of the primary obstacles to a future in which the technology’s potential is realised and adoption becomes widespread. It is a problem that goes right to the core of blockchain and, as such, finding a solution has proved difficult, exposing tremendous divisions in the community.
The ‘scalability trilemma’ is a term coined by Ethereum co-founder Vitalik Buterin. It posits that blockchain systems can only have two out of the three following properties:
Decentralisation – where each participant in the system can access only O(c) resources
Scalability – where the system can process O(n) > O(c) transactions
Security – where the system can prevent an attack with up to O(n) resources.
“Bitcoin supports just seven transactions per second and Ethereum, 20 transactions per second… Visa can handle 24,000 transactions per second – 56,000 at its peak”
The two main blockchains, Bitcoin and Ethereum, both prioritise decentralisation and security at the expense of scalability. As a result, Bitcoin supports just seven transactions per second and Ethereum, 20 transactions per second. For point of reference, Visa can handle 24,000 transactions per second – 56,000 at its peak.
As a result, at the height of last year’s crypto-mania towards the end of 2017, there were numerous reports of Bitcoin transactions taking hours or even days to complete. High traffic also usually means high fees – with reports of BTC transactions that cost upwards of $100 commonplace.
If blockchain solutions are going to achieve anything like Visa’s adoption levels, such slow processing speed will severely hamper its efforts to reach critical mass. The cost and speed will ultimately keep many blockchain solutions on paper and prevent them reaching production. They will continue to do so if we do not see some kind of breakthrough.
Uncovering a Solution
The good news is that a number of excellent projects are being run by talented developers to solve the issue of scalability, working on a variety of different solutions. One way of helping blockchain scale is taking transactions ‘off chain’.
Blockstream core tech engineer, Christian Decker, is one man working on these solutions and his work has received much acclaim.
Christian has been involved in Bitcoin since 2009, and in 2012 he was offered a PhD candidate position in the Distributed Computing Group at ETH Zurich. The goal of his research was to improve the understanding of the underlying consensus mechanisms and to enable the network to scale with the increasing demands. The result was the world’s first PhD dissertation about Bitcoin and the creation of a number of protocols, including PeerCensus and Duplex Micropayment Channels.
Since then, Christian has played a key role in Blockstream’s growth, gaining recognition from the community by making the first full, secure Lightning payment on a non-test network. The company wrote of his achievement that it was also “the first Lightning payment on Litecoin, sending a microscopic payment not normally possible or economic on a blockchain, fully settled in a fraction of a second.”
“[Christian made] ‘the first Lightning payment on Litecoin, sending a microscopic payment not normally possible or economic on a blockchain, fully settled in a fraction of a second.’”
BDJ sat him down at the ‘Off the Chain’ master workshop, where we had more than 25 leading developers focused on solving blockchain’s scalability issues, to discuss how the technology was evolving, his work on off-chain solutions, and the role of governments and industry incumbents in the technology’s development.
Going Off the Chain
The idea behind off-chain solutions is that less valuable transaction activity can be processed off-chain (in separate, private channels) and ultimately settled on-chain at a later time. The theory is that as user adoption of this solution expands, more transactions will move off-chain, thus freeing up space on the main chain.
Christian argues that, “Off-chain solutions are definitely a part of the solution to the scalability problems we are having in blockchains. You see, blockchains are a really nice tool, but we need to add additional layers and additional solutions on top of it to actually reach the full potential of what was promised to us about 10 years ago now.”
And it is not just the scalability problems that they solve, argues Christian. “Off-chain solutions are actually a solution to not only the scalability, but also a number of other tradeoffs as well – like the immediacy of payments and the fast iteration of protocol enhancements.
“Off-chain solutions are actually a solution to not only the scalability, but also a number of other tradeoffs as well – like the immediacy of payments and the fast iteration of protocol enhancements.”
“I think off-chain solutions are both a way to extend out use cases as well as addressing part of the scalability solution. It’s probably not the only solution that we’re going to use, but it’s definitely a big part of it.”
The Lightning Network (LN) is probably the most famous main scaling solution to achieve this and it is an area Christian is familiar with, as him and Blockstream have worked closely alongside their team.
Despite only being in its beta testing stage, the Lightning Network experienced growth of 85% in July, reaching a current network capacity of 97.18 Bitcoin ($612,234.32), up from just 18 BTC – 24 BTC for most of June. Is this evidence that off-chain solutions are gaining traction?
Guaranteeing Security With Off-Chain Solutions
While there are advantages to off-chain solutions, they also add additional layers of complexity – something Christian acknowledges.
“We maintain the issue of needing to secure our private keys. We inherit the need to secure our data, and to take care of our own privacy,” he says. “We reduce some of these issues, but on the other hand we increase others.
“For example, the issue of needing to be watching the blockchain for any nefarious activities and be able to react in time, those are new issues that surface from off-chain protocols and that we add on top of the existing issues that we have with blockchains.
“On the other hand, we also have a number of solutions for the existing problems that we have on blockchains – like privacy, like the immediacy problem, like the ‘is this payment now confirmed or isn’t it?’ – because payments on off-chain channels are final right at the time when we finalise them and we don’t need to wait for confirmations.
“So, I think, on some parts we are adding complexity, but on the other hand we are also addressing quite a few of the issues that we have with just on-chain protocols.”
The Dangers of Hype
For blockchain to reach its full potential, it is not just scalability issues that need to be dealt with. “Blockchain currently has a number of issues that we need to address sooner rather than later,” says Christian. “And those are both on the technical side as well as the educational side.
“There is a lot of hype in the ecosystem, which may endanger quite a few of the users (hinting at ICOs of course). That’s one of the educational issues that we need to address sooner rather than later.”
ICOs have become a problem for the blockchain community. The lack of oversight and the proliferance of scams has caused many to become skeptical of ICOs, and such a reputation is tarnishing the entire ecosystem. The need to hype up the solutions being touted in order to drum up investment also brings unrealistic expectations, which will eventually lead to disillusionment.
This hype also leads people to apply the technology where it is not really needed, which, when it doesn’t work, again drives disillusionment.
“On the technical side, I think there’s a lot of applications that are being pitched that are not really that applicable to blockchains”
“On the technical side, I think there’s a lot of applications that are being pitched that are not really that applicable to blockchains,” notes Christian. “So I think that while blockchains are a really useful tool, I think we still need to hone in on a set of use cases that are really sensible to build on a blockchain. And then to cut out everything else that is better suited for other systems.”
The Role of Governments
Another issue is the role of governments, who have traditionally been slow when it comes to their response to emerging technologies. With a decentralised technology that many believe has the potential to put power back in the hands of the people, what is the role of governments?
Christian believes that the government has a major role to play in all of this.
“On the one side,” he says, “it’s encouraging to see that various sandbox systems are being created, where this innovation and this evolution can take place. And on the other side, I think there should also be a focus on consumer protection, especially when it comes to these overhyped and just scammy projects that are being pitched.
“We should definitely allow for innovation to happen, but we shouldn’t expose people to the risks that are involved when trading cryptocurrencies or ICOs or tokens. Governments, so far, have done a really good job at it – maybe being a bit on the more lenient side, but I definitely welcome some open discussions with regulators.
“I’m actually also advising the Swiss government on regulation, so hopefully we can steer it in a direction that is both beneficial in terms of innovation, but also beneficial in terms of consumer protection.”
Is Crypto a Threat to Incumbent Financial Institutions?
Many believe that financial institutions, like governments, should fear blockchain’s transformative potential. Christian acknowledges that “there is this general vision of cryptocurrencies as the enemy of banks, and that banks either need to adapt or they will die.”
“Just because the underlying infrastructure changes, it doesn’t make the whole business model of banks obsolete”
However, he does not believe such a view is necessarily correct. “Just because the underlying infrastructure changes, it doesn’t make the whole business model of banks obsolete,” he argues. “Very few banks are actually in the business of transferring money or facilitating money transfers. It’s more that they build services on top of it. So, the big banks are all about putting investors and investees in contact and sort of negotiating the investment, rather than trying to get money from A to B.
“And whether we talk about cryptocurrencies or US dollars, I don’t see much of a difference. They will get rid of the pesky little problem of having to be a money transmitter in order to build these services on top.
“At the same time though, they might also get some new competition from this, because suddenly you have a much easier system to build these services on top of, and you lose a bit of the exclusivity of being a bank. So, I think us, as consumers, will definitely gain from it. Banks will be able to monetise on this as well, but they might need to innovate in order to do so.”
So, given the issues with scalability and education, how long before the general public actively engages with blockchain? “That’s a hard question,” says Christian. “It will definitely take a long, long time before we see grandmothers and granddads actively using cryptocurrencies or crypto systems in general.
“I think it’s going to be a gradual process. We see a lot of activity, currently, both with Lightning and Bitcoin, from the community. But it has not yet reached the level where it is self-sustaining.
“We’re still sort of in the ‘chicken and egg’ phase where, for us to become useful, my favourite kiosk needs to accept it, and for them to become useful I need to have cryptocurrency in my pocket so that they can actually pay for the costly infrastructure to run it.
“What we can definitely do is reduce this onboarding cost and make it easier for users to actually use the technology. I think we’ll get there eventually and actually make it easy for everybody to use”
“What we can definitely do is reduce this onboarding cost and make it easier for users to actually use the technology. I think we’ll get there eventually and actually make it easy for everybody to use.
“And that’s the first step. Whether that then succeeds or not... that’s basically markets at play and I’m really bad at predicting markets.”
If, perhaps, unlike Christian, you do think that you’re pretty good at predicting markets, there is already a Bitcoin product out there. Predictious offers a prediction market platform based on Bitcoin that allows you to bet on Bitcoin and other cryptocurrency prices, sports, politics, and entertainment events.
Alternatively, you could just do what the rest of us do and go for the one in the middle.
Illustrations by Kseniya Forbender
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]