If you have heard of cryptocurrencies, you may also have heard words like blockchain, networks or networks, among many others. Networks, or its English translation, networks, are blockchains.
Each network has its own blockchain with different aspects from the other networks. So the networks use blockchain technology, to function, and each one with has its different aspects with respect to other networks.
What Different Networks Exist
Another word you may have heard of is the ethereum network or ethereum. This is currently the largest network with the largest market capitalization. The ethereum network is the best known and the first to appear, so it has been in operation longer than the others.
Even so, the ethereum network has scalability problems, if you have ever used it, you will be able to check the high commissions it has for using its network. For this reason, in the last year many other projects have appeared with other networks that have exploded by solving the problems presented by the ethereum network, sacrificing other aspects. There are many networks or networks, and every little while we see more appearing. We leave you with the main and most used ones below. Where you can find guides on our website about the network and platforms that are in this ecosystem.
The dilemma of the Triangle in Blockchain
Despite being a revolutionary technology, like many early technologies, it still presents problems and challenges that must be overcome in order to be used on a daily basis and have a large-scale adaptation.
The main problem of networks is what is known as the triangle dilemma. This dilemma refers to three concepts, hence the triangle, and in order to increase one of these variables, you have to sacrifice another. These variables are:
Scalability: the ability of a system to handle an increasing number of transactions and low commissions.
Decentralization: creating a blockchain system that does not depend on a central point of control or few points of control of the network.
Security: the ability of the blockchain system to function as expected, defend against attacks, errors and other unforeseen problems.
With current technology, there is no way to increase one of these variables without affecting either of the other two. Although there are solutions or alternatives, which we will see later. An example would be, the ethereum network, where decentralization and security are very high, but scalability is very low. That is why we see such high commissions in this network.
In an opposite case, we have the binance Smart chain, with very low commissions and a large number of transactions per second, but sacrificing decentralization, by having few nodes to secure the network.
Another problem with networks is that they can only interact with information within the network. Therefore, external information, such as the price of a stock, or any variable that the network does not have information on, the network cannot perform transactions. This is very relevant when you want to add aspects that are outside the network, such as financial derivatives, random bets where, for example, bets on which will be the next president of the United States and much more. Luckily, for these kinds of problems, we have what are known as oracles, which allow the network to learn external information and interact with factors outside the network. The main oracle project with the most integrations in different networks, games and platforms is Chainlink, although there are also other oracles more specific to certain networks.
With the advent of multiple different and operational networks, a future cross-chain, which means with compatibility between different networks, has begun to be considered. As we have discussed with oracles, each network is independent, and currently networks cannot interact with each other, beyond using bridges to pass your cryptocurrencies from one network to another. This concept has appeared more this past year, as previously mainly only the ethereum network was used.
This depends on how you think the future will be, if a single network will dominate and be used by all or a large majority of users, or there will be different networks connected to each other, and specific for different functions or sectors. Regarding the problem of blockchain compatibility, we also find projects that are working on solving this kind of problems, where we mainly find Cosmos (ATOM) and Polkadot (DOT) as the most popular projects at the moment, which are starting to create compatibility of different networks.
As we have mentioned above, today we have the triangle dilemma, since the technology and capacity of computers is not powerful enough to increase one variable without harming another. Even so, there are different approaches to solve this problem, and to make networks such as ethereum more scalable while sacrificing the other variables as little as possible.
Rollups are solutions that perform transaction execution outside the Ethereum main chain (main network) but publish transaction data at layer 1. Since the transaction data is at layer 1, rollups are protected by layer 1 and its security. Inheriting Layer 1 security properties while executing outside Layer 1 is a defining characteristic of rollups and allows scaling the number of transactions performed with low fees.
Three simplified properties of rollups are:
- the execution of transactions outside of layer 1
- the data or evidence of the transactions is at layer 1
- a rollup smart contract at layer 1 that can enforce the correct execution of the transaction at layer 2 using the transaction data at layer 1
Rollups require “traders” to bet on a bonus in the rollup contract. This incentivizes traders to verify and execute transactions correctly.
They are useful for:
- reducing commissions for users
- open participation
- speed in the execution of transactions
Layer 2 or layer 2 refers to a network or technology that operates on top of an underlying blockchain protocol to improve its scalability and efficiency. This category of scaling solutions involves moving a portion of the transactional load of a blockchain protocol to an adjacent system architecture, which handles the bulk of the network processing and only subsequently reports back to the main blockchain to finish with the result. This is another way to scale with the security that layer 1 can give you. We have seen this in layers 2 solutions or layer 2 solutions in ethereum, since it is the most popular network and with scalability problems, with polygon/matic, arbitrum or Optimism.
Sidechains: A sidechain is a transactional chain adjacent to the blockchain that is typically used for bulk transactions. Sidechains use an independent consensus mechanism – i.e., separate from the original chain – that can be optimized for speed and scalability. With a sidechain architecture, the main function of the main chain is to maintain overall security, commit batch transaction records and resolve any issues. Sidechains differ from Layer 1 in a number of integral ways. First, transactions on sidechains are not private between participants, but are publicly recorded on the blockchain. In addition, security flaws in sidechains do not affect the main chain or other sidechains, they are completely independent.
These are the main ways currently proposed to solve the problems without having to sacrifice decentralization, security and the ability to scale the different networks, especially focused on the ethereum network as it is the most popular and the one that has more problems in terms of scalability.