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Connor Daly, creator of pangolindex expressed that without compromising on decentralization blockchain can be expanded vertically or horizontally. This improves scalability in short, faster chains or more chains.
Vertical scaling enables quick transactions processing. The bottleneck is about storing smart contract call data. The internal data structures are updated for each block, which requires several non-contiguous writes to disk. Incremental improvements and efficient data structures enforce beefier hardware requirements gradually and it will not lead to 1000x returns.
Horizontal scaling has multiple blockchains in parallel, where unlimited throughput gains is possible. Blockchains do 100 transactions per second (TPS), when 5 run in parallel 500 TPS is possible. This creates self-contained ecosystems as chains should operate independently to work parallel. So, horizontal scaling, it’s not a common approach. Every L1 project runs a single chain.
Subnets are Avalanche’s form of horizontal scaling. They do not copy and paste the same blockchain over and over again. A diverse multi-chain ecosystem with 3 primary block chains. The C-Chain is an EVM chain for smart contracts. The X-Chain is a UTXO-based chain for payments. The P-Chain is a custom chain for platform governance and validator setup.
Most of the Avalanche traffic where DeFi and NFTs thrive runs on the C-Chain. Those who have staked or delegated AVAX, you’ve used P-Chain. Assets can already bridge across chains. Native AVAX will move across all three chains. ERC-20s will move from the X-Chain to C-Chain and back.
As builders create new subnets, this list of chains will grow. Subnets require two things to build: 1. A virtual machine: How to process transactions 2. A validator set: Who can process transactions.
A virtual machine defines the rules for processing transactions. Everyone’s favourite example: The Ethereum Virtual Machine (or EVM). But that’s not the only one! Others are the Bitcoin Script VM, Cardano’s UTXO model, Solana’s transaction engine, etc. An Avalanche subnet can run any of these.
Forks can even bootstrap with old chain state. For example, you could create a Bitcoin subnet and airdrop AVAX-Bitcoin to all existing BTC holders. While the EVM is the present, I’m not convinced it’s the future.
Despite HUGE network effects, we’ve seen changes in every layer of the software stack. Operating systems, programming languages, processor architectures, internet standards. Why should blockchains be any different?
Eventually, someone will create a VM that’s superior to the EVM, and the world will adopt it. That VM can launch on Avalanche without the protocol needing to reinvent itself. This future proofs the network. Next up, the validator set. Validators take part in consensus and are the keepers of the network.
By tweaking the validator set, protocol designers determine the visibility and accessibility of the subnet. Legal validator behaviour determines who can issue transactions as well as who can see the chain and download its blocks.
This means that a subnet can be permissionless and open to the public, private and only visible to a select group, or something in between.
A more complicated example: Let’s say the US government wants to create a digital dollar subnet. They can build a chain that’s publicly visible but restricts validator participation to US citizens.
Ultimately, subnets will support public goods AND enterprise use cases.
But why would anyone choose to build a subnet? If you’ve gone through the work of building a custom VM, you might as well launch your own L1, right?
Well, here’s a few benefits to building a subnet instead. 1. Abstracted low-level complexity 2. Instant access to liquidity 3. Choice of gas token
The Avalanche protocol provides a consensus engine and manages communications between nodes. This simplifies what you need to build. AND you get the best part of Avalanche, Avalanche consensus, for free. This means high TPS and fast time to finality by default.
At Ava Labs, we know a thing or two about bridging. That’s why subnets will also provide frameworks for interoperability and cross-chain communication. Subnets work best when you can seamlessly import and export assets across chains. Building on Avalanche will connect you to existing ecosystem liquidity from day one.
