Following a year of research detailed in a recent blog post, Microsoft have announced that they believe on-chain solutions to be inferior to layer 2 when it comes to the issue of scaling. Scaling is one of the biggest hurdles facing cryptocurrencies right now, after average Bitcoin fees peaked around $26 during mid December with some transactions taking days to complete!
There are two main schools of thought when it comes to the issue. Firstly, there are on-chain scaling solutions e.g. increasing block sizes. Proponents of this solution advocate hard forks in order to increase block size and reduce fees, the most prominent example being Bitcoin Cash. To contrast, the layer 2 solution involves off-chain technology such as the Lightning Network for Bitcoin and the Raiden Network for Ethereum.
However, Alex Simons, Director of Program Management in the Microsoft Identity Division, believes the on-chain scaling solutions such as those employed by the Bitcoin Cash developers lead to more centralized networks that cannot match the performance of layer 2 protocols.
While some blockchain communities have increased on-chain transaction capacity (e.g. blocksize increases), this approach generally degrades the decentralized state of the network and cannot reach the millions of transactions per second the system would generate at world-scale.
It would appear the future remains uncertain for hard forks like Bitcoin Cash. Although, it should be noted that whilst layer 2 technology could be a better solution for scaling, it fails to take into account the security risks. Critics of the solution point out that adding more layers results in more potential points of failure, so it could leave the network more susceptible to hacks.