Scaling is one of the most interesting areas of innovation for blockchain. In this survey we took a first pass at a market landscape survey. We would love any edits/suggestions you may nave.

1.
Scaling Enterprise Blockchain
A Market Survey (v1)
Written By: Gayatri Khot (MState), Morgan Poloton (Comcast Ventures)
& Rob Bailey (MState)
$7B in VC capital and ICOs. That is how much blockchain companies have raised through
VC funding and ICOs. (Sources: Crunchbase, CB Insights, Coindesk). An astounding number
of use cases are being tested with blockchain, from crypto kitties to interbank monetary
transfers. For many of these use cases to be successful however, private and public
blockchain technology needs to be made more scalable to succeed in mainstream use
cases. This means solving the challenge of maintaining fast throughput at escalating
volumes in production scenarios.
The enterprise blockchain market is expected to grow to more than $8B by 2021. (Source:
IDC) The companies that solve scalability will get a good chunk of that. Not surprisingly,
some of the best teams (and biggest investor checks) are chasing solving this problem.

2.
During the past few months the MState team in coordination with Comcast Ventures has
dived deep into the scaling companies and protocols to try and evaluate the merits of the
different approaches. While these solutions are varied and technically intricate, in this blog
post we attempt to cover a wide range of solutions. Out of scope for this first version of the
survey are “full stack” companies like Ripple that offer improved scalability as part of their
solution that also includes a DApp layer offering.
We hope this will serve as a source of discussions and welcome feedback on anything we
missed.
Why Is Scalability So Important?
There is an wide range of enterprise use cases that are being tried with blockchain
technology. Many of them including customer identity, trading infrastructure, trade finance
and consumer financial payments will require infrastructure that can handle a high volume
of transactions, especially at peak processing times. Some of the unique characteristics of
blockchain technology like decentralization, replicated data stores, and consensus
mechanisms also cause architectural limitations to scaling. This means that protocols like
Hyperledger and Ethereum top out at less than 5,000 TPS (transactions per second) for
enterprise use cases; compare this with VISA network that can handle 24,000 TPS at peak.
For blockchain to achieve a mainstream state in the enterprise, a higher throughput and
faster confirmation times is a prerequisite. Full decentralization with a self-regulating
consensus based protocol and high throughput is almost has been difficult to achieve.
There are various ongoing projects that are trying to scale up the public blockchains.
Some will argue that moves towards centralization give rise to technologies that “aren’t truly
blockchain”. We believe that arguments about what is or isn’t truly blockchain are
counterproductive and distract smart people from focusing on the important question: How
can blockchain (broadly defined) be used to define business problems?
Approach #1: On-Chain Scaling
On-chain scaling projects aim to modify the existing blockchain structure via new
consensus mechanisms, relaxing the full de-centralization requirement or by introducing
parallel processing.
Sharding

3. This is one of the most popular approaches and currently a big focus for the Ethereum
community. Sharding is a database scaling and load balancing technique used to
horizontally partition databases. The same idea is applied to blockchains by splitting the
blockchain into multiple chains and the blocks are connected by cross-chain atomic
exchange.
The biggest issue for using sharding based scaling techniques in blockchains are the
complexities for maintaining multi-state systems at scale. Moreover it also introduces
security issues where attack on one shard compromises the entire network and introduces
a single point of failure. While a number of projects are experimenting with developing a
scaling solution using sharding, the direction is largely unsettled.
Vitalik Buterin has focused considerable resources and mentions around resolving
Ethereum scalability issues through sharding. While we believe this has tremendous
potential, with all of the changes we are seeing in Ethereum, including the change from
Proof of Work to Proof of Stake consensus (Casper), we believe that it may be a while
before Ethereum applications will be impacted by scaling improvements made possible by
sharding. Vitalik has so far only shown a series of proof of concepts. It is unclear how
effective sharding will be at scale in production.
Proof of Stake (PoS)
There have been countless stories about the hazards of the Proof of Work (PoW) consensus
protocol, including its ridiculous consumption of power to operate and tendency towards
miner processing power consolidation. No surprise then that lots of teams are focusing on
replacing PoS with a new, theoretically more efficient protocol called Proof of Stake.
This approach is based on the notion that a person can mine or validate block transactions
according to how many coins a miner holds. This means that the more Bitcoin or altcoin
owned by a miner, the more mining power he or she has. Critics claim that PoS is akin to
oligopoly; that users’ “power” in block building is proportional to the money they own in the
system or put in escrow. They argue that a pure PoS consensus introduces issues around
concentration-of-power problem and the problem with honest users going offline
en-masse.
Algorand a new protocol company founded by MIT Professor and Turing Award Winner
Silvio Micali addresses these inherent issues with pure PoS-based consensus mechanisms
by designing a hybrid approach that uses PoS protocol but reaches byzantine agreement.
This hybrid approach addresses the blockchain’s scaling challenges through fast and
efficient consensus. We are impressed with the Algorand team and consider them a hot
company to watch in scaling.
Proof of Work - Fast

4.
This is an interesting approach developed off of Bitcoin’s protocol but improves transaction
throughput by removing the transaction limit per block. Bitcoin-NG uses the same PoW as
Bitcoin classic but increases TPS by separating key blocks from the payload/microblocks.
In Bitcoin, a block is generated that encases the transactions that took place in the
preceding 10 minutes. In Bitcoin-NG, the protocol is, instead, looks forward. Every 10
minutes, NG elects a leader, who then vets future transactions as soon as they happen. The
former is necessarily limited by the blocksize and block interval, while the latter approach
can run as fast as the network will allow. There is a strict improvement of 1000X in the
throughput versus Bitcoin. This approach has been commercialized by the Waves platform,
a Moscow-based company with less than 50 people with a current market cap of $650M.
Approach #2: Off-Chain Scaling
Off-chain projects keep the blockchain structure intact but introduce a new, second layer
network on top of the existing protocols
Vertical Scaling - Layer 2
The Internet is a system of layered protocols, where each layer specializes in a different job.
It’s possible to scale blockchains in a similar way. The idea is to move computation off-chain
to so-called Layer 2 protocols, anchored by the security of the Layer 1 chain.
One approach to vertically scaling is to layer protocols ‘above’ the Layer 1 blockchain. We
call these Layer 2 protocols. An example of a Layer 2 protocol is the Lightning Network, a
p2p payments protocol layered on top of the Bitcoin blockchain.off The Lightning Network
works by allowing users to create payment channels between each other. These channels
are off-chain in the sense that transactions within the payment channel never hit the main
Bitcoin blockchain. Only two on-chain Bitcoin transactions are required - to open the
channel and to close the channel. This allows for theoretically infinite scaling of
peer-to-peer payments, that get settled occasionally onto Bitcoin.
Vertical Scaling - Layer 0
Another approach to vertical scaling is to move transactions ‘below’ the Layer 1 blockchain.
You can think of these as Layer 0 scaling solutions. Plasma is a scaling solution for
Ethereum that does exactly this. Plasma allows so-called ‘child’ blockchains that process
transactions separate from the main Ethereum blockchain. If the parent Ethereum chain
uses Plasma to spawn two child blockchains, the network has effectively doubled its
throughput. If each Plasma child-chain spawns two more children, you’ve 4x’d throughput,
and so on. The attractiveness of this approach is that each child chain anchors
cryptographically back to the parent Ethereum blockchain.

5. Vertical scaling approaches aren’t just for p2p currency transactions. They can also be used
to enable complex, processor-heavy computation (e.g., machine learning, visual rendering)
that would be prohibitively expensive to run on a blockchain. Truebit is an example of this.
We believe that vertical approach is one of the most important approaches for resolving
scaling issues and a very interesting area for investment. For example, we are seeing
interesting payments and financial services companies like Stronghold building and using
Lightning network.
Horizontal Scaling - Protocol Interoperability
Horizontal scaling protocols intend to scale blockchains by making multiple chains
interoperable and thus effectively load balance the blockchain network - the idea is to
create an internet of blockchain protocols. There are various projects implementing
interoperability protocols and use different approaches. Polkadot, an interoperability
protocol being built by Ethereum co-founder Gavin Wood is attempting to develop a
mechanism where a relay chain coordinates transactions between multiple chains - akin to
sharding in Ethereum. Cosmos, yet another protocol, uses a hub and spoke model where
multiple chains can connect via the Cosmos hub. Aion is developing a interchain
transaction protocol that can translate transactions from one blockchain protocol to
another. While we do believe in the internet-of-blockchains vision, technically
implementing interoperability protocols might turn out to be very challenging. All these
projects are in early stages of development and we look forward to seeing how this unfolds.
Vertical / Horizontal Hybrids
Some companies have already begun to combine a combination of horizontal and
vertical approaches. Most notable is EOS. founded by Dan Larimer who is credited with
inventing delegated proof-of-stake EOS is creating an operating system protocol that
applications can be built on top of. EOS provides accounts, authentication, databases
and the coordination of applications across hundreds of CPU cores or clusters. EOS is
scheduled to launch in June 2018 and has a market cap of it token over $11B.
Expectations are obviously incredibly high.
Approach #3: Network Layer Scaling
Network layer scaling techniques like Cut-through routing attempt to speed up block
propagation by building a network of backbone nodes to achieve faster block
dissemination. Faster block dissemination achieves reduced orphan rates, faster block
discovery, and faster network consensus. ​Falcon Project at Cornell Tech IC3 team​ was the
first at scale implementation of this cut-through routing technique; ​BloXRouter ​is a startup

6. founded by a subset of Falcon Project team members and aim to commercialize
cut-through routing technique with the goal to be the ‘Akamai’ for blockchains.
Approach #4: Directed Acyclic Graphs (DAG)
This approach has generated a huge amount of attention because of the companies that
have built new protocols employing DAG including DAGLabs (Spectre & Phantom
protocols), Swirlds/Hashgraph, IOTA and Constellation Labs. It is generally agreed by both
DAG founder and its critics that DAG isn’t even really blockchain. We’ve included DAG in
this survey since companies built on it they are frequently in the considerations set for
companies evaluating more traditional blockchain protocols like Hyperledger and
Ethereum.
Protocols based on DAG implement a permission-less distributed ledger; instead of a
list-based data structure, a DAG of blocks defines the ledger. A chain selection rule is used
to determine the longest chain. The parallel creation and addition of block to the DAG
speeds up confirmation times at the cost of state synchronization between nodes. Block
creation rate is low and there are fewer forks in the network. The ability of a DAG to confirm
transactions as they arrive causes it to become more sensitive to transaction propagation
latency and the order in which transactions arrive at a node which might be an issue under
load. The DAG approach does not use miners.
Looking Forward
Blockchain scaling is a fascinating focus for innovation and investment and we spend a lot
of time monitoring companies and research in this area. It is most likely that the blockchain
companies overcome the blockchain scaling issue will be a combination of these
approaches rather than one clean, clear solution. The likelihood of multiple solutions to
scaling also means that companies should consider cross protocol infrastructure
technology partners for deployment (Blockdaemon) and monitoring like (Amberdata).