IS4302_week_9_Fall 2024

IS4228: Information Technology and Financial Services
IS4302
Blockchain and Distributed
Ledger Technologies
Week 9
© Copyright National University of Singapore. All Rights Reserved.

Intended Learning Outcomes
1. Understand Scalability
Importance of scalability in blockchain networks
2. Explain the Scalability Trilemma
Balancing scalability, security, and decentralization
3. Identify Scalability Solutions
Layer 1 and Layer 2 approaches
4. Explore Key Data Structures
GHOST, BlockDAG, Segregated Witness
5. Discuss Cross-Chain Interoperability
Tools and protocols for multi-chain communication
2
Overview
• Scalability Importance: Ensures blockchain networks can

handle increased transaction volumes without compromising
performance.
• Scalability Trilemma: Balancing scalability, security, and
decentralization.
• Types of Scalability Solutions: Layer 1 and Layer 2
approaches, sharding, sidechains, and off-chain solutions.
3
Scalability Blockchain Trilemma
4
Overview
• Layer 1 Data Structures for Scalability

• Layer 2 Solutions
5
Scope Summary
• Public Blockchain: Best for transparency and open

participation.
• Consortium Blockchain: Ideal for collaboration between

trusted partners.
• Private Blockchain: Most suitable for secure, internal use

within a single organization.
6
Layer 1 Scalability Solutions
Consensus Mechanism Protocol Enhancements

Improvements • Increasing block size
• Proof of Stake (PoS) • Reducing block time
• Delegated Proof of Stake
(DPoS) Data Structures
• Practical Byzantine Fault • Optimized block structures
Tolerance (PBFT)
• Efficient state management
7
Blockchain – Original Design
• Consensus Guaranteed by Longest Chain heuristic
8
Data Structures
• Blockchains
• GHOST
• BlockDAG
• Segregated Witness
9
Greedy Heaviest-Observed Sub-Tree (GHOST)
• Allows concurrent work to be performed, allowing shorter

inter-block times, thus increasing throughput
• Each block refers to 1-2 “uncle blocks”
• The “heaviest” branch is considered valid
10
Block Directed Acyclic Graph (DAG)
• Allows non-conflicting transactions from uncle blocks to be

incorporated into the main chain.
• Selection rules can decide to use heaviest subtree or longest
chain
11
• Allows more concurrent processing and asynchronous

processing, increasing the throughput as more
miners/validators join.
12
• Hedera hashgraph is one of the popular example of DAG

which uses gossip protocol which ensure the highest
standard of security to prevent any malicious attacks.
13
• Hedera hashgraph is one of the popular example of DAG which uses

gossip protocol which ensure the highest standard of security to prevent
any malicious attacks.
• Gossip protocol: when an event occurs, the node transmits data to it to two
other random nodes, which transmit them to two other nodes (in the total
already four), and so on. This leads to an exponential spread of
information throughout the network.
• “Gossip about Gossip” consensus algorithm:
• Each node on the network shares all of its information about which
node, when and with whom it communicated
• Gets around the problem of asynchronous execution discussed in
FT5003 discussion on Distributed Systems.
14
Segregated Witness (SegWit)
• Signatures (witnesses) were separated from the input fields

of the blocks
15
Segregated Witness (SegWit)
• Signatures (witnesses) were separated from the input

fields of the blocks
• The first part of a transaction contains the wallet
addresses of the sender and receiver and the second
part contains the “witness data” containing transaction
signatures. SegWit removes the “witness data” from
the main block, therefore notably reducing transaction
size.
• This allows more transactions per block
• Implemented as an upgrade to Bitcoin

• First implemented in Litecoin, and later Bitcoin
• Disagreements about such upgrades also pushed the
hard fork of Bitcoin Cash in 2018
16
Summary: Scalability Importance
Scalability Trilemma
Scalability: Ability to process a large number of transactions.
Security: Protecting against attacks and ensuring data integrity.
Decentralization: Maintaining a distributed network without central control.
Types of Scalability Solutions

• Layer 1 Approaches: Enhancements to the base protocol (e.g., Proof of Stake,
sharding).
• Layer 2 Approaches: Off-chain solutions (e.g., state channels, sidechains, rollups).
• Sharding: Partitioning the blockchain into smaller segments for parallel
processing.
• Sidechains: Independent blockchains linked to the main chain for asset transfers.
• Off-Chain Solutions: Transactions conducted outside the main blockchain to
reduce load.
17
Overview
• Layer 1 Data Structures for Scalability

• Layer 2 Solutions
18
• State Channels
• Sidechains
• Rollups
19
Layer 2 Scalability Solutions: State Channels
• Off-chain transaction channels

• Instant transactions with
minimal fees
20
• Off-chain transaction
channels
• Instant transactions with
minimal fees
• Especially useful for
small payments and
micropayments
• The most well-known example
of a payment channel network
is the Lightning Network for
Bitcoin
21
Layer 2 Scalability Solutions: State Channels
• Off-chain transaction channels • Challenges

• Instant transactions with • Need for Locked Funds:
minimal fees can be inefficient if needed
elsewhere.
• Centralization Risk: well-
connected nodes facilitate
most transactions.
22
Layer 2 Scalability Solutions: Sidechains
• Independent blockchains linked to the main chain

• Facilitates asset transfers and interoperability
23
• Independent blockchains linked to the main chain

• Facilitates asset transfers and interoperability
24
• Examples
• Liquid Network: A Bitcoin sidechain designed to facilitate fast and
private transactions between businesses, such as exchanges and
financial service providers.
• Polygon (formerly Matic Network): A scalability platform for
Ethereum using sidechains to offer high-speed, low-cost
transactions.
• Ronin: A sidechain specifically designed for the blockchain game
Axie Infinity, enabling transactions and asset management within the
game more efficiently.
25
• Challenges
• Security: depends on their own consensus mechanism and the
robustness of their connection to the main chain.
• Integration Complexity: Establishing and maintaining
interoperability between the main chain and sidechains can be
technically challenging.
• User Adoption and Liquidity: it needs to develop its own
ecosystem of users and applications, which may require
significant time and effort.
26
Layer 2 Scalability Solutions: Rollups
• Aggregating multiple
transactions into a single batch
• State changes are computed
off-chain and are then proven
as valid on-chain using zero-
knowledge proofs.
• Enhances throughput while
maintaining security
27
Sharding
• Concept:
• Partitioning the blockchain into smaller, manageable
segments (shards)
• Benefits
• Parallel transaction processing
• Increased throughput and scalability
• Challenges
• Ensuring cross-shard communication
• Maintaining security across shards
28
Thank you!
29

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IS4228: Information Technology and Financial Services

© Copyright National University of Singapore. All Rights Reserved.

• Scalability Importance: Ensures blockchain networks can

• Layer 1 Data Structures for Scalability

• Public Blockchain: Best for transparency and open

• Consortium Blockchain: Ideal for collaboration between

• Private Blockchain: Most suitable for secure, internal use

Consensus Mechanism Protocol Enhancements

• Consensus Guaranteed by Longest Chain heuristic

• Allows concurrent work to be performed, allowing shorter

• Allows non-conflicting transactions from uncle blocks to be

• Allows more concurrent processing and asynchronous

• Hedera hashgraph is one of the popular example of DAG

• Hedera hashgraph is one of the popular example of DAG which uses

• Signatures (witnesses) were separated from the input fields

• Signatures (witnesses) were separated from the input

• Implemented as an upgrade to Bitcoin

Types of Scalability Solutions

• Layer 1 Data Structures for Scalability

• Off-chain transaction channels

• Off-chain transaction channels • Challenges

• Independent blockchains linked to the main chain

• Independent blockchains linked to the main chain

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