Microsoft Favors Layer-Two Blockchain Scaling Solutions Over Block Size Increases

There have been a lot of interesting discussions regarding the scaling of blockchain technology. So far, a lot of progress has been made in this regard, even though it seems there is no perfect solution in place. According to research by Microsoft, on-chain scaling is best seen as a temporary solution, but in the long run, it will not be enough. To tackle real-world use cases, a different approach will need to be taken.

The Future of Blockchain Scaling

In an ideal world, blockchain technology would disrupt any business model one can think of right now. To do so, however, we need proper scaling solutions for this innovative technology. In its current state, there is no such thing as a scalable public blockchain. Private chains, on the other hand, seem to achieve great success in this regard. Microsoft is not too keen on using private chains for real-world use cases, though, which comes as a bit of a surprise.

Over the past few months, the company has conducted some internal research on how things will need to evolve when it comes to blockchain technology as a whole. Rather than on-chain scaling solutions such as a block size increase, Microsoft seemingly leans toward layer-two solutions. This is a rather surprising disclosure, even though they seem to have some solid evidence to back it up.

Their recent blog post on the topic explains how an increase in on-chain transaction capacity degrades the decentralized state of the network. To some people, such a comment may not make a lot of sense, even though it is technically correct. A higher block size means some players will be able to support bigger blocks, whereas others will not. As such, those supporting the increase will account for more transactions over time, leading to a degree of centralization.

Moreover, unless infrastructure and internet bandwidth become equal all over the world at the same time, it is only normal that there will be some inequality to contend with. As a result, the network will become less decentralized over time. Microsoft is also concerned that an on-chain scaling solution will be incapable of achieving millions of transactions per second or per minute in the future. World-scale use cases for blockchain will require a one million TPS throughput or better, and on-chain scaling will not provide that.

Instead, Microsoft sees a bright future ahead for layer-two scaling solutions. The tech giant will collaborate on such protocols which run on top of existing public blockchains to achieve global scaling results. These new solutions should not interfere with the day-to-day operations of those blockchains or their decentralized aspects. It will be interesting to see what the future holds in this regard, as no further details have been announced so far.

Whether or not the company is correct in its assessment also remains to be determined. Bitcoin Cash has seen great success with on-chain scaling relative to Bitcoin’s SegWit implementation. When the Lightning Network comes to market in the future, we will see how well layer-two solutions hold up when it comes to blockchain scaling. There is a lot more information to be processed on a blockchain than just transaction details, though.