The topic of scaling blockchains has sparked a lively debate within the industry, with proponents of the “modular” approach and the “monolithic” approach offering differing perspectives. The modular approach, favored by the Ethereum community, involves moving small-value transactions to secondary and tertiary layers that eventually settle on a base chain. However, this approach can lead to network fragmentation and a subpar user experience. On the other hand, the monolithic approach, exemplified by Solana, advocates for keeping all transactions on the same chain and optimizing the network to increase throughput. While this approach offers a better user experience, it sacrifices the decentralized and resilient features that make blockchains appealing.
It is important to note that the fundamental service offered by a permissionless chain is not transaction processing, which is what centralized networks do. Instead, decentralized networks provide a scarce asset called secure blockspace, which functions as fuel for a decentralized economy. Like any scarce asset, the supply of secure blockspace is limited, while demand fluctuates. Consequently, the price of secure blockspace serves as the determining factor for its allocation.
An analogy to commodities can help illustrate this concept. When oil prices are high, it incentivizes increased supply, but it also reduces demand. Similarly, higher prices for secure blockspace encourage more efficient utilization and discourage smaller users from participating. While this might seem unfair, the goal is efficiency rather than fairness. Rationing or subsidizing fuel, as done by governments, leads to long lines or wasteful consumption.
Solana’s recent network crashes are a result of spiking demand during the memecoin craze, leading to high transaction failure rates. Users attempting to submit transactions repeatedly exacerbated the problem. This situation is a consequence of secure blockspace being priced too cheaply.
Modular chains offer different tiers of secure blockspace for different users, with Ethereum charging $20 for transactions compared to Arbitrum’s 2 cents. Solana, however, aims to provide the same level of security for a $1 trade as it does for a $1 million transfer, even though the former does not require such security measures.
While Solana developers are working on upgrades to improve fee markets and scalability, these solutions may simply price out smaller traders during peak times. Unlike modular chains, there is no alternative for them to turn to. Scaling the network through software and hardware upgrades will only invite more small value transfers, as there is no limit to demand when a scarce good is priced cheaply enough.
Moreover, as the core network infrastructure becomes more centralized and less stable, a chain optimized for peak performance at all times is more likely to experience periodic crashes, like Solana has.
While the monolithic approach to scaling blockchains may have good intentions, the outcomes do not align with the values of decentralization and resilience.
In conclusion, the debate between modular and monolithic scaling approaches continues to unfold in the blockchain industry. The modular approach offers tiered secure blockspace but leads to network fragmentation, while the monolithic approach optimizes the network but sacrifices decentralization and resilience. Understanding the fundamental service of a permissionless chain and the importance of pricing scarce blockspace appropriately is crucial in addressing scalability challenges.