As blockchains are being implemented in an increasing number of pilots for real-world use cases – from cross-border financial transactions to supply chain management – the classic ‘trilemma’ of achieving scalability, security, and decentralization persists. The ‘trilemma’ refers to the notion that scalability, security, and decentralization cannot be achieved simultaneously. For instance, the average TPS (transaction per second) of Bitcoin is only 5 compared to the average TPS of centralized networks like VISA, which has an average TPS of around 1500-2000. While Bitcoin is a highly decentralized payments solution, Visa’s processes are governed by its central organization. 

Blockchain tech needs to find common ground for providing the three elements all at once now that it is moving toward mainstream adoption. The ongoing innovation in the blockchain sphere is heavily concentrated on finding solutions to the classic trilemma. The developers have come up with a number of solutions, like Layer-1 and Layer-2 scaling solutions, ZK rollups, Sharding, Plasma chains, etc. 

Sharding is one of several popular methods developers are experimenting with to increase a blockchain’s transactional throughput and overall scalability. But what exactly is sharding, and why is it so important in the crypto world? Let’s find out.

What Exactly is Sharding?

The idea behind ‘sharding’ is to distribute the processing power horizontally rather than continuously adding it to a single blockchain. Sharding is a database partitioning technique used by blockchain companies to increase scalability by processing more transactions per second. Sharding can divide a blockchain’s entire network into smaller partitions known as ‘shards.’ Each shard has its own set of data. This distinguishes it and sets it apart from other shards.

A peer-to-peer (P2P) network, such as a blockchain, consists of multiple full nodes (computers), each of which records a copy of the blockchain’s history. Sharding allows nodes to function without having to maintain all of that data at once. Splitting a blockchain network into separate shards can help reduce network latency or slowness. This enables the network to process a greater volume of transactions at a faster rate. 

How Does Sharding Work?

The distributed ledger of blockchain technology makes it appealing because it enables transactions to be shared consensually across multiple nodes spread across geographies. As transactions are recorded, copies are immediately sent to the shared network, creating public witnesses. However, in order to fully utilize blockchain technology, we must reduce the amount of computing power required by each node to maintain a steady flow of operations.

As a result, most blockchains, including Ethereum, are shifting to the more environment-friendly and energy-efficient Proof-of-Stake (Pos) consensus mechanism. Unlike the PoW system, PoS only requires nodes to stake the blockchain’s native cryptocurrency on the network. The blockchain recognizes these stakers as contributors and makes them network transaction validators. This reduces the amount of computing power required. Sharding is most commonly done on Proof-of-Stake (PoS) networks rather than Proof-of-Work (POW) networks.

It is accomplished by horizontally partitioning databases and dividing them into rows. Shards are sub-chains that are built on top of the main blockchain. They can be compared to tree branches; the tree grows larger each time a new branch is added. Each shard functions as a mini-blockchain with its own processing power and set of nodes. One shard, for example, could be in charge of storing the state and transaction history for a specific type of address. Additionally, shards may be divided based on the type of digital asset stored in them. Transactions involving that digital asset could be made possible by combining shards.

Consequently, a ‘sharded’ blockchain declutters and runs all underlying protocols more efficiently and acts as a decentralized distributed ledger. This happens as the data from the main chain is fragmented and distributed among the shards. Because nodes no longer need to access all of the data on the main chain, the required computing power is reduced even further. This increases the processing speed of each shard.

The data on each shard can still be shared with the other shards. It will ensure the preservation of a key aspect of blockchain technology—the decentralized ledger. In other words, users can still access the ledger and view all the transactions.

Conclusion

Sharding is a good way to scale if you want to keep things decentralized, as the alternative is to increase the size of the existing database. Increasing the size of the database requires validators to possess expensive ASICs requiring a large amount of energy to function. Along with addressing scalability, some argue that sharding preserves the native security of a blockchain by retaining ‘most of the desired decentralization and security properties of a blockchain.’ 

With sharding, validators are no longer required to store all of this data themselves but can instead use data techniques to confirm that the data has been made available by the network. This significantly reduces the cost of storing data on layer 1 by reducing hardware requirements.

Sharding is gradually gaining popularity due to its potential contributions to the advancement of the crypto world. Ethereum is testing sharding as a potential solution to latency and scalability issues. After ‘The Merge,’ in which the Ethereum Mainnet ‘merges’ with the Beacon Chain proof-of-stake system, Ethereum intends to launch 64 new shard chains. Shardeum, an initiative by WazirX CEO Nischal Shetty and Omar Syed, is expected to achieve ‘infinite scalability, true decentralization, and solid security’ by using sharding. 

Did you find sharding a cool concept that could solve many of blockchain’s current issues? If yes, remain hooked for more such concepts and ideas from the blockchain world. Stay tuned!

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.