Popular Science | What is on-chain expansion and off-chain expansion? -

Understand the difference between on-chain and off-chain scaling in one article.

Among blockchain projects, many people are most familiar with Bitcoin (BTC). However, the Bitcoin network can only process up to 7 transactions per second, and transactions exceeding this limit can only wait in line.

At its peak, there were more than 150,000 Bitcoin transactions waiting to be processed (Note 1). Perhaps you are wondering: how can Bitcoin with this performance compete with WeChat and Alipay?

Indeed, this issue - capacity expansion - has long become the key optimization direction of blockchain (not just Bitcoin).

01So how high a performance blockchain do we need?

Many people would take Visa or Taobao’s peak transaction processing speed during Double 11 as the performance optimization target of blockchain.

In fact, in some special scenarios, this performance may not be enough. For example, when blockchain is applied to the Internet of Things, the real-time access control requirements for terminals and devices require extremely high data transmission and processing rates.

Therefore, if blockchain is to be used to build a value transfer network, some people believe that its performance should at least be based on the current real-time data processing speed of the entire Internet information (including 2 million emails per second, 65,000 Google searches, 72,000 YouTube videos, and 53TB of data flow. See Note 2 for data source). This is by no means a simple requirement of only processing volume per second (TPS).

How can we improve on the current limited processing power of blockchain?

There are huge challenges and opportunities. In recent years, many expansion plans have come on stage. Generally speaking, they come from two major camps: on-chain expansion and off-chain expansion.

02On-chain expansion

The first to come on stage were the on-chain expansion faction, also often referred to as layer-1 expansion.

The so-called on-chain, as the name suggests, is to operate directly on the blockchain and modify the basic rules of the blockchain, including block size, consensus mechanism, etc. Take road construction as an example. If there are too many cars and the road is blocked, the most direct way is to expand the original two-way two-lane lane to four lanes. If it is still not enough, change it to six or eight lanes.

Bitcoin can currently only process 7 transactions per second. The direct reason is that the block generation is slow and the block capacity is small. So the speed of block generation should be increased and the block size should be increased.

For example, Litecoin (LTC), based on the Bitcoin code, has increased the block speed from an average of about 10 minutes to 4 times every 2.5 minutes; and Bitcoin Cash (BCH), also based on Bitcoin, has increased the block size from 1M to 32M, increasing the processing power by 32 times; there is also a relatively complex sharding solution, which optimizes the original whole network to process each transaction together into multiple groups operating in parallel, so that more work can be done in the same amount of time, and so on.

The on-chain expansion method is relatively direct, but just like the direct expansion of roads, it is a bit troublesome, or it is difficult to achieve it in one step. After finally achieving expansion, application scenarios with higher performance requirements have emerged, and we need to constantly surpass ourselves. Moreover, because all transactions still need to synchronize data in the distributed system of blockchain, the performance bottleneck of the entire network will depend on the processing performance of a single server.

Therefore, it is generally believed that on-chain expansion solutions will have an insurmountable ceiling in performance.

03 Off-chain expansion

Therefore, starting from 2018, more and more off-chain scaling solutions have emerged, also often referred to as Layer-2 scaling solutions.

Off-chain expansion is relative to on-chain expansion. The off-chain expansion camp has changed its thinking. Instead of directly changing the rules of the blockchain itself (block size, consensus mechanism, etc.), they build another layer on top of it to do specific work, and only interact and transmit information with the blockchain when necessary information or consensus participation is required (such as data errors or disputes). Because expansion does not essentially occur on the blockchain, this type of solution is intuitively called off-chain expansion.

If we continue to use the analogy of road expansion, off-chain expansion does not involve expanding on the original roads, but building an elevated road or tunnel on the existing routes that can connect in all directions. Ordinary cars can drive there, and the original roads should not be used unless absolutely necessary.

In the off-chain expansion solution, a large number of transactions are usually only traded directly between participating nodes, and will not be broadcast to the entire network. The efficiency directly depends on the network performance between nodes, which is obviously more efficient. In addition, because there is no full network broadcast, the information cannot be publicly checked, and the privacy is usually higher.

Therefore, the performance of off-chain transactions is not affected by the performance of the original blockchain, and there is no highest performance target for off-chain expansion, only higher.

Off-chain expansion mainly includes solutions such as state channels and side chains. The Lightning Network is one of the representatives of off-chain expansion.

In the Lightning Network, the two parties to a transaction can directly build a channel, and then they can implement any number of zero-confirmation transactions point-to-point within the channel. They only need to "say hello" to the blockchain when the channel is opened and closed, and the confirmation will be transmitted throughout the network.

It does not require modifying Bitcoin's consensus algorithm. The Bitcoin network can step back from being the processor of every transaction and only process a small number of key transactions or handle disputes to "preside over justice". Such workload can be met with existing performance.

Of course, off-chain expansion is not perfect, and its solution is also accompanied by concerns such as whether it will lead to centralization or that data may be modified.

However, as ordinary users, they usually do not consider which specific solution is adopted. With the implementation of blockchain commercial application scenarios, the solutions that can better solve the problem and do not affect the user experience are likely to win in the expansion plan.