A team of researchers from Microsoft has concluded that On-chain scaling degrades decentralization. Bitcoin Cash and other likewise cryptocurrencies have adopted this very same method. Microsoft says this is in contrast to the decentralization and it will not provide a network to operate at world-scale.
Incompatible On-chain Scaling
In their recent blog post on Monday, Microsoft Identity Division researcher Ankur Patel expressed his views regarding the same. He explained that Microsoft researchers have been researching about blockchain other technologies. They explored how they can create “digital identities” for the billions of people who do not have reliable identification using blockchain and other distributed ledger technologies (DLT). Mr. Patel said that several blockchains like Bitcoin, Ethereum, and Litecoin provide a solid foundation for creating and securing decentralized digital identities. However, he expressed that cryptocurrencies that use On-chain scaling will experience degraded centralization. And thus, will not be able to function on a larger world-scale. Mr. Patel said:
“While some blockchain communities have increased on-chain transaction capacity (e.g. block size increases), this approach generally degrades the decentralized state of the network. And thus cannot reach the millions of transactions per second the system would generate at world-scale.”
The debate over this type of scaling was one the chief disputes that led to the Bitcoin Cash hard fork. This hard fork had taken place last August. Bitcoin Core developers proposed scaling the Bitcoin network through second layer protocols such as Lightning Network. However, Bitcoin Cash supporters argued that on-chain scaling fulfills Satoshi’s original vision of cryptocurrency. And it is also the most effective way to scale the network. Unable to find a common ground, the dispute led to Bitcoin’s most significant blockchain split.
Layer 2 Protocols
According to Microsoft, advocates of Bitcoin blockchain have taken the correct approach. Mr. Patel said that his team believes that second layer protocols are necessary for blockchains to reach global scale. He said:
“To overcome these technical barriers, we are collaborating on decentralized Layer 2 protocols that run atop these public blockchains to achieve global scale, while preserving the attributes of a world-class DID system”.
The Lightning Network is still in its development phase. Meanwhile, some brave, reckless users have begun setting up LN nodes on the Bitcoin mainnet. They are trying to establish payment channels with the limited number of businesses that have begun accepting Lightning payments. As of the time of writing, there were already 663 mainnet LN nodes operating a combined 1,824 open payment channels. Bitcoin Cash, meanwhile, has approximately 1,070 network-connected nodes.