What is Blockchain Sharding? (How it Works, Why We Need It, Pros, & Cons)

Introduction

With the highly anticipated Ethereum Upgrade coming up just around the corner – there are many new things to look forward to. On the one hand, we could potentially be seeing the unlocking of staked ether to the ETH 2.0 deposit contract on the other hand, there are proposals in line to improve the scalability of the network and also newer design developments to the Ethereum Virtual Machine (EVM).

In fact, we saw a detailed meeting go underway on 24 November 2020 regarding the Ethereum Upgrade, developers on the project decided to consider a total of eight Ethereum Improvement Proposals (EIPs) for inclusion in the blockchain network’s upcoming hardfork titled ‘Shanghai’. Some proposals like the EIP 4895 were picked up for definitive addition into the schedule for the Shanghai Upgrade and can be expected to be a definite part of the hardfork. EIP 4895 is essentially the unlocking of the staked ETH that had taken place ahead of the Ethereum Merge.

According to Dune Analytics, a little over 16.6 million ETH tokens have currently been staked to the ETH 2.0 contract – which amounts to a total of over $26 billion worth of Ether could be unlocked, as of the value of ETH on 15 February 2023. According to data from Staking Rewards, this amounts to about 14.4% of all ETH tokens in existence. The Shanghai upgrade could potentially enable validators to finally withdraw these assets, should they choose to do so.

Read More: What is ETH Shanghai Upgrade

Another major development that is expected to take place on the Ethereum network in the Shanghai Upgrade is what is being called as ‘proto-danksharding’ by Ethereum co-founder Vitalik Buterin.

Thread summarizing amazing progress on EIP-4844 (proto-danksharding).

This is a crucial first step to massively lower fees on L2, helping to make it affordable for much larger numbers of users to directly use on-chain applications instead of relying on cefi intermediaries. https://t.co/cMeIAV5aN5

— vitalik.eth (@VitalikButerin) November 24, 2022

Thus, sharding – which becomes a major part of this upgrade is something that you should know about too. So let’s get to it, shall we?

What is Blockchain Sharding?

So by official definitions, sharding is essentially a partitioning technique that is used to distribute the computational and storage effort across a peer-to-peer (P2P) network (such as Ethereum in our case here) so that each node on the network isn’t tasked with handling the transactional load for the entire network. Instead, each node is only responsible for the data about its division, also called a ‘shard’. And thus, ‘sharding’ is a process that divides the whole network of a blockchain into multiple smaller network called ‘shards’.

However, it must be noted that a piece of data on a shard of the network may still be shared with other nodes, to keep the ledger safe and decentralized because every node can still view every ledger entry. The only thing that is different is that except the respective node, all the other nodes on the network don’t process and retain every piece of data, as is the case with any other usual blockchain network like Bitcoin. Thus, in the context of blockchain projects – sharding is nothing but the chopping up of enormous amounts of data into manageable chunks called shards. Since each of these shards have their own data entries, they are distinctly different from the other shards and completely unique. Thus sharding has the potential to reduce latency on the chain and prevent excess data.

Read more: Guide to Ethereum Layer 2 Scaling Solutions

How does Blockchain Sharding work?

Before we get to sharding, let us understand how a usual blockchain works. Whenever a transaction on a blockchain network is processed, it means that the data in entered into a block, which is then cryptographically encoded and attached to a larger chain. This chain is nothing but a global, interconnected web of computing devices which are plugged in to provide security to the network. Thus, whenever a transaction is processed, the data is immediately shared with each and every one of the nodes or computers plugged into the network.

This is where sharding comes into the picture. Sharding divides this whole network into a predetermined number of ‘shards’ that are individually managed by different groups of nodes. To keep the blockchain secure, data is shared with all the nodes, however, the primary workload of each shard is managed by the allocated nodes only, thus reducing that part of the workload on the others, bringing down transaction fees and improving network efficiency.

Sharding enables the safe distribution of data storage requirements, which in turn helps to make rollups on a network more cost effective and simplifies the operation of nodes. Sharding makes it possible for layer-2 scaling solutions to use the security offered by Ethereum yet maintaining significantly lower transaction fees. We have more than three thousand decentralized applications (dApps) running on the Ethereum blockchain and thus there is a need for improved scalability via sharding.

Thus, since currently, all nodes contain all the data that is processed through the network – there is a huge data and transactional load that is put on each of the nodes on the Ethereum network. This is where, sharding comes in. Sharding essentially distributes all the workload in a systematic manner so that each of the nodes are dealing with specific amounts of information only and thus there is greater room for scalability and reduce the transaction fees involved for processing transactions on the chain.

Read more: Layer 1 vs Layer 2 Scaling Solutions

Benefits of Sharding

There are a number of benefits of sharding, most of which have been already covered in the article above, but we’ll list it out for a quick glance.

• Improve scalability
• Reduce transaction fees
• Reduce workload on individual nodes
• Sharding will also bring about greater network participation

Pros and Cons of Sharding

Is Sharding Secure?

As mentioned in the table above, while sharding is proposed to be a secure method to make a PoS network more scalable in the long term, it must be understood that this is essentially an untested technology and it is yet to be tested out in the field. Live testing tends to bring about a discovery of the actual vulnerabilities a solution may hold. One factor that has been proposed is that sharding can result in the loss of decentralization and give rise to the problem of single-point-of-failure in a network – as it is easier to compromise a smaller section of a blockchain network instead of a larger more decentralized network – thus defeating the whole purpose. But it is yet to be seen as to how this issue is going to be tackled by Ethereum, which is expected to be one of the first sharding blockchain projects.

Conclusion

Thus in conclusion – sharding is a feature that has been in the works for Ethereum for quite some time now. Especially because, the Ethereum Merge which went into effect last year on 15 September 2022. This transitioned the Ethereum from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus. That was the first step in the direction to improve the scalability of the second largest crypto by market capitalization.

Read more: What is Polygon zkEVM?