Public Blockchain On-Chain Scaling ‘Degrades Decentralization’: Microsoft Researcher

A team of Microsoft blockchain researchers has concluded that on-chain scaling — a method employed by Bitcoin Cash and other cryptocurrencies — is antithetical to decentralization and will not provide a network with the ability to operate at “world-scale.”

On-Chain Scaling Not Compatible with Decentralization: Microsoft
For the past year, Microsoft researchers have explored how blockchain and other distributed ledger technologies (DLT) can be leveraged to create “digital identities” for the billions of people who do not have reliable identification.

In a notable divergence from the oft-repeated “blockchain not Bitcoin” refrain, Microsoft Identity Division researcher Ankur Patel wrote in a Monday blog post that several public blockchains, including Bitcoin, Ethereum, and Litecoin, “provide a solid foundation” for creating and securing decentralized digital identities (DIDs).

However, Patel said that blockchains that increase network capacity through on-chain scaling, which involves raising the blocksize, will eventually experience degraded centralization and will not be able to function on a “world-scale.”

Patel wrote:

“While some blockchain communities have increased on-chain transaction capacity (e.g. blocksize increases), this approach generally degrades the decentralized state of the network and cannot reach the millions of transactions per second the system would generate at world-scale.”

The debate over on-chain scaling, of course, was one of the chief disputes that led to the Bitcoin Cash hard fork last August.

While Bitcoin Core developers proposed scaling the Bitcoin network through second-layer protocols such as the Lightning Network (LN), Bitcoin Cash proponents argued that on-chain scaling not only fulfills Satoshi Nakamoto’s original vision for cryptocurrency but is also the most effective way to scale the network.

Unable to find common ground, the dispute led to Bitcoin’s most significant blockchain split.

Microsoft Exploring Layer 2 Protocols for Global Identity Project
According to Microsoft, proponents of the main Bitcoin blockchain have taken the correct approach, and Patel said that his team believes second-layer protocols are necessary for blockchains to reach a truly global scale.

“To overcome these technical barriers, we are collaborating on decentralized Layer 2 protocols that run atop these public blockchains to achieve global scale, while preserving the attributes of a world class DID system,” he said.

As CCN has reported, the Lightning Network is still in development, but brave — some would say reckless — users have begun setting up LN nodes on the Bitcoin mainnet and establishing payment channels with the limited number of businesses that have begun accepting Lightning payments.

As of the time of writing, there were already 663 mainnet LN nodes operating a combined 1,824 open payment channels. Bitcoin Cash, meanwhile, has approximately 1,070 network-connected nodes.

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