The Blockchain Scalability Problem

If you have ever sent an Ethereum transaction during a busy period, you have felt the scalability problem in your wallet. A simple ERC-20 transfer that normally costs a few dollars can suddenly cost fifty. A single Uniswap swap during a hot launch can cost more than the trade itself. This is not a bug. It is the predictable result of how Bitcoin and Ethereum were designed. Vitalik Buterin formalized the underlying constraint as the scalability trilemma: a blockchain optimizes for at most two of three properties at the base layer. The properties are decentralization (the network can be run on consumer hardware by anyone, anywhere, without permission), security (the network resists attacks, censorship, and reorganization at economic cost dramatically larger than the value of the attack), and scalability (the network can process meaningfully large numbers of transactions per second at low cost). Bitcoin and Ethereum chose decentralization and security. The result is throughput that, by traditional finance standards, is small. This was not an accident. The designers believed that a blockchain optimized for throughput at the expense of decentralization would not be a blockchain in the meaningful sense — it would be a faster database operated by a small set of trusted parties, which is what we already have in traditional finance. The trilemma is the framing on which the rest of this module rests. Every Layer 2 design we will discuss is, at its core, an answer to the question: how do we get scalability without giving up the decentralization and security of the underlying layer? The answer is to build additional infrastructure on top of the base chain, rather than redesign the base chain itself. Importantly, the trilemma applies to a single layer. A multi-layer system can collectively achieve all three properties: a base layer that is decentralized and secure but slow, plus higher layers that are fast and cheap, anchored to the base layer for security. This is the "rollup-centric roadmap" Vitalik articulated in 2020 and the framework Ethereum has organized around since.