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DeFi and NFTs Hinder Blockchain Scalability

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Financial Cryptography and Data Security (FC 2023)

Part of the book series: Lecture Notes in Computer Science ((LNCS,volume 13951))

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Abstract

Many classical blockchains are known to have an embarrassingly low transaction throughput, down to Bitcoin’s notorious seven transactions per second limit. Various proposals and implementations for increasing throughput emerged in the first decade of blockchain research. But how much concurrency is possible? In their early days, blockchains were mostly used for simple transfers from user to user. More recently, however, decentralized finance (DeFi) and NFT marketplaces have completely changed what is happening on blockchains. Both are built using smart contracts and have gained significant popularity. Transactions on DeFi and NFT marketplaces often interact with the same smart contracts. We believe this development has transformed blockchain usage. In our work, we perform a historical analysis of Ethereum’s transaction graph. We study how much interaction between transactions there was historically and how much there is now. We find that the rise of DeFi and NFT marketplaces has led to an increase in “centralization” in the transaction graph. More transactions are now interconnected: currently, there are around 200 transactions per block with 4000 interdependencies between them. We further find that the parallelizability of Ethereum’s current interconnected transaction workload is limited. A speedup exceeding a factor of five is currently unrealistic.

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Notes

  1. 1.

    Measured by total fees users are willing to pay to use the blockchain (see https://cryptofees.info) Ethereum is orders of magnitude more popular than other smart contract-enabled blockchains, such as Avalanche and Cardano.

  2. 2.

    Note that the disentanglement does not impact the size of the heaviest transaction, and neither the total gas of a block.

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Authors and Affiliations

  1. ETH Zurich, Zurich, Switzerland

    Lioba Heimbach, Quentin Kniep, Yann Vonlanthen & Roger Wattenhofer

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  1. Lioba Heimbach
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  2. Quentin Kniep
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  3. Yann Vonlanthen
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  4. Roger Wattenhofer
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Correspondence to Lioba Heimbach .

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Editors and Affiliations

  1. George Mason University, Fairfax, VA, USA

    Foteini Baldimtsi

  2. University of Bern, Bern, Switzerland

    Christian Cachin

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See the full version of the paper at https://fc23.ifca.ai/preproceedings/136.pdf.

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Heimbach, L., Kniep, Q., Vonlanthen, Y., Wattenhofer, R. (2024). DeFi and NFTs Hinder Blockchain Scalability. In: Baldimtsi, F., Cachin, C. (eds) Financial Cryptography and Data Security. FC 2023. Lecture Notes in Computer Science, vol 13951. Springer, Cham. https://doi.org/10.1007/978-3-031-47751-5_17

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