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Sergey Ivliev
Main Sequence of the Blockchain Scalability
Workshop on the Systemic Impact of Digitalization
on Finance, Zurich, December 20, 2019
Perm State University | Lykke
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2
“For now, virtual currencies such as
Bitcoin pose little or no challenge to
the existing order of fiat currencies
and central banks. Why? Because
they are too volatile, too risky, too
energy intensive, and because the
underlying technologies are not yet
scalable. But many of these
are technological challenges that
could be addressed over time.”
https://www.imf.org/en/News/Articles/
2017/09/28/sp092917-central-banking-
and-fintech-a-brave-new-world
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3
▪ 3% daily volatility of BTC/USD (57% annualized)
▪ 10x compared to EUR/USD and 5x compared to Gold
https://www.buybitcoinworldwide.com/volatility-index/
Too volatile
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Top-5 hacks >$1.2 bln
Recent large hacks:
• Coincheck $534m
• BitGrail $195m
• Coinrail $37m
• Bithumb $30m
Too risky
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Too energy intensive
70-80 TWh annual energy consumption, $2-4 bln cost, 35 Mt CO2 footprint
https://www.cbeci.org/
https://digiconomist.net/bitcoin-energy-consumption
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~4 tps transaction rate (max 10-12 tps)
53k(2013)
Not (yet) scalable
226k(2016)
https://blockchain.info/charts/n-transactions?timespan=all
285k
3.3 tps(2017)
Max=425k
4.9 tpsWU 9 tps (2016)
SWIFT 130 tps (2016)
Paypal 200 tps (2016)
Visa 4470 tps (2017)
222k
2.6 tps(2018)
329k
3.8 tps(2019)
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Scaling strategies
Layer-2 (Vertical):
• Payment channels
• Sidechains
Layer-1 (Horizontal):
• Bigger blocks
• Sharding
• PoS
• DAG
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Vertical scaling (Layer-2)
Advantages:
• The transactions are carried out in milliseconds
• Scalability is up to 1 million per second or more
• Safety is guaranteed by blockchain
• Does not require trust between the participants
• Low transaction costs
• The possibility to carry out micro-transactions (<$1)
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Vertical scaling (Layer-2)
Disadvantages:
• Opening and re-opening channels requires transaction costs
• The average amount of collateral in the channels is small ($20),
payments over $5 can be a problem
• The hub needs to keep the frozen capital in the channels
https://www.trustnodes.com/2019/08/20/guy-makes-20-a-month-
for-locking-5-million-worth-of-bitcoin-on-the-lightning-network
• Lykke stats (Dec’17): 6200 channels, $8 mln frozen in the channels,
$400k in fees to close the channels
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Vertical scaling (Layer-2)
https://bitcoinvisuals.com/lightning
Lightning network: <$7 mln capacity
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Scaling strategies
Layer-1 (Horizontal):
• Big blocks: e.g. Bitcoin Cash, Bitcoin SV
• Sharding: e.g. Zilliqa, NEAR, Polkadot
• PoS committee: e.g. Algorand, Ethereum 2.0
• DAG: e.g. Hashgraph, Perlin
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Important Metrics
Throughput:
• peak tps
• finality
Decentralization:
• # of independent writing nodes
• # of full listening nodes
Security:
• attack surface
• cost of attack
Throughput Decentralization
Security
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Topology
Centralized Federated Decentralized
1 101-102 102-104
Ripple, Stellar, EOS; Corda; Libra Bitcoin, Ethereum, LitecoinVISA, PayPal, WeChat Pay
103-105 tps 102-103 tps 101-102 tps
Byzantine Agreement / BFT / DPoS PoW Nakamoto
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Scalability Sequence
PoW Nakamoto
Federated / BA
(Dec 2019)
Scaling by nodes (decentralization)
Scaling by
transactions (throughput)
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Collusion
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https://btc.com/stats/pool?pool_mode=month
Mining concentration
https://etherscan.io/stat/miner?blocktype=blocks
Bitcoin Ethereum
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Wealth concentration
https://news.earn.com/quantifying-decentralization-e39db233c28e
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Root cause
• Proof-of-Work and Proof-of-
Stake are based on capital =>
Pareto distribution
• Larger players enjoy economy
of scale and adopt anti-
competitive practices/collusion
• Smaller players vanish, the rich
get richer
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Proof-of-Person
• Human-centric blockchain
• Proof-of-Person consensus
• Collective AI-resistant Turing test
• 1-person-1-vote / unique-human
• Use cases: DAO governance,
decentralized oracles, prediction
markets, p2p economies
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Proof-of-Person
• “Flip Challenge” Turing test
• Time-synchronized
• Common sense based
• Human accuracy ~95.6%
• AI accuracy <70%
• Prize for AI teams to break 80%
https://idena.io/?view=flip_challenge
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• Bitcoin is a great experiment for p2p
global censorship resistant internet
money, but it is not scalable
• Trade-off between scalability and
decentralization
• Inherent centralization in permissionless
systems
• New generation of protocols is coming
to ensure both decentralization and
throughput
Summary
Perm Winter School 2020
People and money in the
digital era
1-2 Feb 2020
permwinterschool.ru