There is a widespread consensus that blockchains need to scale, but there is an ongoing debate about the best approach to achieve this. The industry is divided between the “modular” and “monolithic” scaling strategies, and this debate can sometimes become contentious.
Modular scaling involves moving small-value transactions to a tiered system of layer-2s and even layer-3s, which eventually settle on a base chain. This approach, favored by the Ethereum (ETH) community, has a major drawback: it leads to network fragmentation and a subpar user experience.
On the other hand, monolithic scaling, exemplified by Solana (SOL), advocates for keeping all transactions on the same chain and optimizing the network through hardware, software, and consensus upgrades to increase throughput. The primary advantage of this approach is a better user experience. However, the main downside is that it is not feasible without sacrificing the key features that make a blockchain attractive: decentralization and resilience.
Supporters of the monolithic approach often misunderstand the essential service provided by a permissionless chain. It is not just transaction processing, which centralized networks handle. Decentralized networks offer a scarce asset called secure blockspace, which can be thought of as fuel for a decentralized economy. Like any scarce asset, secure blockspace has a limited supply, and its usage is ultimately determined by price.
In commodities, there is a saying that “the best cure for high oil prices is high oil prices.” Higher prices can potentially lead to increased supply in the long run, although there may not always be more product available. More importantly, higher prices will certainly reduce demand immediately. They compel everyone to use the commodity more efficiently and price out smaller users.
This pursuit of efficiency, rather than fairness, is the goal. The alternative would be for a third party like the government to either ration fuel or subsidize it, but neither approach works as intended. Rationing leads to long lines, while subsidies result in waste.
This is the current situation with Solana. The monolithic chain experienced a surge in demand during the memecoin frenzy in recent months, leading to high transaction failure rates. Users attempted to submit their transactions repeatedly, exacerbating the problem. Solana does not have a network mempool, but it now effectively has a queue.
This is exactly what one would expect when secure blockspace is priced too cheaply. Modular chains provide different tiers of secure block space for different users, with transactions on Ethereum costing $20 but only 2 cents on Arbitrum. However, Solana aims to provide the same level of security for a $1 trade as it does for a $1 million transfer, even though the $1 trade does not require it, similar to joyriding kids.
To be fair, Solana developers are working on upgrades to improve fee markets and make them more responsive to demand. However, if these upgrades are successful, smaller traders will simply be priced out during peak times. Unlike a modular chain, they won’t have an alternative.
Developers are also exploring ways to scale the network through upgraded software and faster hardware. However, they fail to realize that this will only invite more small value transfers. There is no limit to demand if you price a scarce good cheaply enough. In the past, when the Soviet Union subsidized bread, people would feed it to their animals.
Meanwhile, 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, as Solana has.
While the intentions behind the monolithic approach to scaling may be commendable, the outcomes are not desirable if we value decentralization and resilience.
Omid Malekan, an adjunct professor at Columbia Business School and author of “Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms,” wrote this article. It is important to note that this article is for general information purposes only and should not be considered legal or investment advice. The views expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.