Everyone agrees that blockchain needs to expand. What they disagree on is the method. This is the “modular” vs. “monolithic” debate playing out across the industry, and it’s one of the most interesting and sometimes controversial debates.
Modular scaling requires moving microtransactions to a layered system at Layer 2, or even Layer 3, anchoring them on the main chain. This approach adopted by the Ethereum (ETH) community has a major drawback. This leads to network fragmentation and poor user experience.
Monolithic scaling, best exemplified by Solana (SOL), requires keeping all transactions on the same chain and optimizing the network through hardware, software, and consensus upgrades to provide more throughput. The main benefit of this approach is a better user experience. The biggest drawback is that it cannot work without sacrificing the features that make blockchains attractive in the first place: decentralization and elasticity.
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Proponents of the monolithic approach often misunderstand the basic services that permissionless chains provide. Not like that Transaction Processing — That’s what centralized networks do. Decentralized networks offer the following scarce assets: Safe block space. Think of it as fuel. But it is for a decentralized economy. Like all scarce assets, secure blockspace is in limited supply. But because demand fluctuates, the final determinant of who gets to use it is price.
There is an old joke in the commodities industry: “The best cure for high oil prices is high oil prices.” Higher prices could potentially increase supply in the long run. But it’s not always possible to extract more product. More importantly, higher prices now reduce demand. They force everyone to use their goods more efficiently and set prices for smaller users.
It may seem unfair, but the goal is efficiency, not fairness. The alternative is for a third party, such as the government, to ration or subsidize the fuel. Neither works as intended. Rationing leads to long lines, and subsidies lead to waste. Think: children having fun playing and factories not working.
Welcome to the current state of Solana. The monolithic chain has experienced high transaction failure rates in recent months due to a surge in demand during the memecoin craze. Users continue to try to submit transactions, making the problem worse. Solana does not have network mempools, but now has de facto queues.
This is expected when the price of secure block space is too cheap.
Modular chains provide different layers of secure block space to different users. A transaction in ETH costs $20, but only $2. cent I use Arbitrum. But Solana wants to provide as much security for a $1 transaction as a $1 million transfer. Even if it’s not necessary for a dollar transaction like children playing.
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To be fair, one of the upgrades Solana developers are working on is a better fee market that is more responsive to demand. However, if these upgrades work, smaller traders will be priced out of peak times. Unlike modular chains, there is nowhere to go.
Other solutions Developers are working on ways to expand networks with upgraded software and faster hardware. What they don’t realize is that doing so will only result in more small transfers of value. If you price a scarce product low, there is no limit to its demand. enough. When the Soviet Union subsidized bread, people fed bread to their animals.
Meanwhile, core network infrastructure is becoming more centralized and less reliable. Chains that are optimized to always run at peak performance are more likely to go down, as Solana has done periodically.
The intent of a monolithic approach to scaling may be laudable, but the results are not. Not if you value decentralization and resilience.
Omid Malekan Adjunct Professor at Columbia Business School Rebuilding Trust: The Curse of History and the Cryptocurrency Cure for Money, Markets, and Platforms.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.