Sharding: A Panacea for Blockchain Scalability Challenges?#

Innovation & Ideation

Key Insights

  • Sharding is a promising scaling technique for blockchains, dividing the network into smaller partitions called shards to process transactions in parallel, thus increasing throughput.

  • Sharding approaches in blockchain systems vary, with solutions like Ethereum 2.0 using multiple shard chains coordinated by a beacon chain, and others, such as Near Protocol’s Nightshade, opting for processing data chunks in a single blockchain with different validator sets.

  • Sharding implementation faces challenges in security, cross-shard communication, and data availability. These require solutions like random validator assignment, transaction receipts, and erasure coding.

  • While sharding offers potential scalability improvements, layer 2 solutions like ZK-Rollups and Optimistic Rollups remain the preferred short-term scaling methods until sharding proves its ability to handle high transaction volumes.

As the adoption of blockchain technology increases, scalability remains the central challenge and a major obstacle for blockchain to be adopted by mainstream industries. Bitcoin can only process 7 transactions per second (TPS), while the Ethereum blockchain can only process 15 TPS. Although after the Merge of Ethereum 1.0 into Ethereum 2.0, the TPS of Ethereum 2.0 is expected to reach 100,000 TPS, gas fees remain a major issue. Ethereum has been relying on ZK-rollups to scale the network, but rollups are only a short-term solution because of interoperability issues with other blockchains since they are mainly Ethereum-focussed. Therefore, the blockchain community is actively looking for a solution to the scalability problem.

What is Sharding?#

Sharding, originally a database design principle, is now being considered a promising solution to overcome the scalability challenges of blockchain systems. This scaling technique divides the blockchain network into smaller partitions called shards, each responsible for processing a subset of transactions. This allows the blockchain to process more transactions in parallel, thereby increasing the throughput of the system.

There are 2 common techniques blockchains implement to improve throughput:

  • Delegate all the computation to a small set of powerful nodes; (e.g., Algorand, Solana)

  • Each node in the network only does a subset of the total work (Sharding). Ethereum, Near, Hedera use this technique.


Sharding in Blockchains vs Traditional Databases

The sharding techniques used in traditional databases cannot be directly applied to blockchains because of the following reasons:

  • Blockchains rely on Byzantine Fault Tolerance (BFT) consensus protocols which are a scalability bottleneck.

  • Distributed databases depend on highly available transaction coordinators for atomicity and isolation assurance; however, blockchain coordinators could exhibit malicious behaviour.

  • In a distributed database, any node can belong to any shard, but a blockchain must assign nodes to shards in a secure manner to ensure that no shard can be compromised by the attacker.

Different Sharding Approaches#

Huang et al. [HPZ+22] proposed a new cross-shard blockchain protocol called BrokerChain that aims to address the issue of hot shards and reduce the number of cross-shard transactions. They showed this protocol outperforms other state-of-the-art sharding methods in terms of transaction throughput, confirmation latency and queue size of the transaction pool. Tennakoon et al. [TG22] propose a blockchain sharding protocol with dynamic sharding where smart contract invocations stored in blocks reconfigure the sharding. This protocol is effective because it improves the efficiency of the blockchain, preventing resource wasting by closing the shards that are not processing as many transactions or are idle. There have been a few proposed sharded blockchains such as Elastico [LNZ+16], OmniLedger [KKJG+18] and RapidChain [ZMR18]. Nonetheless, such systems are predominantly constrained to cryptocurrency use cases in open (or permissionless) environments. Due to their reliance on the unspent transaction output (UTXO) model—a simplistic data structure—, these methods lack generalisability for applications beyond Bitcoin [DDL+19]. So we will focus on more general-purpose blockchains such as Ethereum and Near Blockchain.


Fig. 24 Sharding in Ethereum vs Near Blockchain#

Sharding in Ethereum#

In Ethereum, data is distributed among several “shard chains” ([Fig. 24]). Each of these shard chains submits a record of transactions to the “beacon chain” or “coordinating layer”, which coordinates and manages the shards by maintaining synchronisation and ensuring a common ledger. The shards receive sets of transactions from the mempool. Under the Ethereum 2.0 proposal, these TXs are split based on their transaction types: Token transfers and Smart contract interactions. Validators then use an EVM to process shards’ data into a block and update the Merkle tree’s state on the beacon chain [KTTI22].

Sharding in Near Blockchain#

Near’s sharding technique is called “Nightshade” [Nea20a]. Although the full implementation is still in progress, the idea is that instead of having multiple subchains with a single beacon chain, the data is divided into smaller partitions called chunks. Each chunk is processed by a different set of validators. The validators are randomly assigned to chunks, and the assignment is done in a way that the same validator is not assigned to multiple chunks, as shown in [Fig. 24]. At present, the Near blockchain has 4 shards, and the eventual plan is to have 100 shards {cite}`near roadmap.

Sharding Challenges#

The main issue with sharding is that it is extremely complicated to implement, as it opens up possibilities of new attack vectors and security challenges. The following are some of the challenges that need to be addressed before sharding can be implemented in a blockchain system.


In a 10-shard system, each shard’s security is reduced by a factor of 10 due to separate validator sets. Upon hard-forking a non-sharded chain with X validators into a sharded chain, each shard has X/10 validators. Consequently, compromising one shard necessitates corrupting only 5.1% (51% / 10) of the total validators. This is a significant reduction in security. To overcome this challenge, Ethereum uses a beacon chain to randomly assign validators to shards. Blockchains like Near and Algorand use Verifiable Random Functions (VRFs) to assign validators to shards. This ensures that the validators are randomly assigned to shards and the same validator is not assigned to multiple shards.

Hafid et al. [HHS22] propose a Probabilistic Generating Function Analysis (PGFA) approach as an effective and tractable method to analyse the security of sharding-based blockchain protocols. They conclude that an increase in the number of Sybil IDs (unique nodes), network size, and ID Selection Pool (random pool from which nodes are randomly selected to be assigned to shards) size results in a higher failure probability, compromises network security and can lead to shard takeover attacks.

Cross-Shard Communication#

As the network gets divided into multiple shards, it is important to ensure that the shards can communicate with each other to maintain consistency and interoperability. As seen in [Fig. 25], this can be problematic if there is forking within the shards and the block issuing the transaction is not included in the canonical chain. Both Near and Ethereum overcome this challenge by exchanging receipts between the shards. The receipts are used to prove that a transaction has been executed on a shard [Nea20b] and the corresponding transaction can be executed on the other shard. In Hedera Hashgraph, which uses a gossip protocol to exchange information between shards, each shard maintains a queue of outgoing messages for other shards. Messages are sent from one shard to another through nodes randomly contacting each other, along with proof of consensus. The process continues until the receiving shard confirms message processing with an updated sequence number in its shared state [Hed20]. Instead of receipts, Hedera uses sequence numbers which are maintained by a shard for each other shard as proof of the latest execution message.


Fig. 25 Cross-Shard Communication#

Data Availability#

The data availability problem relates to the difficulty of ensuring that all necessary data for verifying a block’s validity is accessible to all participants in the network. For instance, a light client cannot access complete block data and thus cannot verify the validity of data. To overcome this problem, erasure coding is used. If the light client can retrieve a sufficient number of chunks of data, it can reconstruct the original data and verify the block’s validity. Ethereum and Near are currently using this approach.

Sharding in Hedera#

As per Hedera network’s whitepaper [Hed20], it starts as a single shard composed of nodes managed by Governing Council Members. As the council grows, the network will transition to a multi-shard system to enhance performance, enable parallel consensus, and maintain asynchronous Byzantine fault tolerance. Nodes will be randomly assigned to shards by a master shard, balancing hbar distribution and minimising centralisation risks. Shards will trust and collaborate, allowing seamless cross-shard transactions. Nodes will communicate via push messages, maintaining queues for inter-shard messaging. Transactions involving multiple shards will be consistently recorded in each shard’s state, ensuring ledger-wide coherence and integrity. The master shard will be responsible for maintaining the overall state of the network, including the hbar supply and the hbar distribution across shards.


Sharding is the most promising solution to overcome the scalability challenges of blockchain systems. However, although Ethereum and Near have made significant progress in implementing sharding, it is still not time-tested and it remains to be seen whether these blockchains will be able to bear a load of transactions volume when scenarios such as DeFi boom or NFT craze happen again. Until then, layer 2 solutions such as ZK-Rollups and Optimistic Rollups will continue to be the preferred scaling solutions for blockchain systems.

Parshant Singh
May 2023



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