Quick Recap of the Problem: Scaling

For a full recap of the scaling issues facing Ethereum and other censorship-resistant blockchains, see the first post in our series. For a 30,000-foot view of scaling solutions on the Ethereum blockchain, see our scaling post. Elevator pitch? Theoretically, blockchains can only choose two of the following: security, decentralization, and scalability. Ethereum started off with security and decentralization, and now developers around the world are tackling scaling solutions.

OmiseGO and Plasma as a Scaling Solution

OmiseGO is a decentralized payment platform built off the Ethereum blockchain. Launched in 2017, OmiseGO is a project by the company Omise, an Asia-based payment processor operating in much of Southeast Asia. Using blockchain technology, OmiseGO solves the fundamental issue of different entities (banks, people, companies) coordinating transactions of various assets with each other in a trustless society (i.e. “I’ll pay you, I promise” won’t cut it). Currently, these entities spend exorbitant amounts of money, time, and energy covering for the liability that rises from an inability to coordinate. For these companies, therefore, profit becomes more important than consumer financial security. They charge high fees at the whim of the few people in control and rarely innovate unless forced to by competition. This additionally causes a high financial barrier to entry for people to access institutional financial services, leaving millions of people un- or underbanked.

To circumvent the coordination problems endemic to incumbent financial institutions, OmiseGO is developing the OMG Network, built on Plasma architecture to enable scalability on Ethereum. Plasma enables “child chains” to be rooted to the Ethereum blockchain via a smart contract where users can deposit and withdraw funds. Transactions will be processed on the Plasma chain, and will appeal to the root chain for either withdrawal and transaction finality, or dispute resolution.

Plasma was conceived by Vitalik Buterin and Joseph Poon (creator of Lightning Network, a scaling solution designed for Bitcoin and other blockchains), Plasma secures the creation of “child chains” that run on top of a “root chain” (Ethereum). Computation mostly happens on the child chains, which frequently export snapshots of state from the child chain to the root chain. This architecture allows for multiple child chains that are all processing information at the same time granting increased transaction throughput. Should anyone paying attention to the child chain notice it’s consensus mechanism is acting maliciously, the snapshots of state on the root chain allow users to restore the the child chain’s last stored state on the root chain.

The decentralized exchange (DEX) being built by OmiseGO will also allow for transactions to occur seamlessly and instantly. By reducing the time, energy, and cost of transacting, OmiseGO solves the coordination problem of today’s payment industry. OmiseGO’s vision is to enable the tokenization and exchange of any kind of asset, anytime, anywhere. Practically, this means that if there are markets for different assets and Alice wants to pay with her Starbucks loyalty points and Bob wants to receive in Thai Baht, they can exchange in whichever currency they choose. By enabling currency-agnostic exchange, OmiseGO hopes to better reach disenfranchised people across the globe.

Through its open-source, eWallet SDK (software developer kit) OmiseGO also opens up the doors for millions of un- and underbanked people to engage with global commerce and financial institutions. Anybody with access to a mobile phone and an internet connection will be able to secure their assets and transact on the OMG Network. The open source and permissionless platform will allow anyone (service provider or private user) to create a wallet and interact with the network. This means that in addition to service providers being able to leverage the platform’s capabilities, an end user who wants to “be their own bank” will also have the option to create a private wallet and interact directly with the OMG network entirely on their own terms.

In its official guide, OmiseGO notes that Omise will use the blockchain platform for its transactions, but that neither Omise or OmiseGO will own or control the network when it is released. Will those companies make money off the transactions, though? OmiseGO specifically promises that: “At no time will Omise or OmiseGO charge rent on the network or impose mandatory fees on network users other than those earned in the same way as anyone else — as validators on the network.” The cost of using the network will never be more than the cost of maintaining it.

The OmiseGO team’s goal is ambitious — to build a decentralized, asset-agnostic exchange capable of instantly processing global transactions of any size. Their goal, clearly, requires tremendous scalability solutions to handle that breadth of transactions.

The OMG token was launched as an ERC20 token on the Ethereum blockchain. Operating with Ethereum’s current ~15 transactions/second, however, would not allow OmiseGO to scale to international transactions. Instead of forming their own separate blockchain, however, OmiseGO recognized the opportunity to build a layer two scaling solution on top of Ethereum while still relying on its core security and decentralization.

The OmiseGO team aims to release an initial Plasma implementation during Q3 2018, with no specific launch date yet announced. Recognized as global leaders in the realm of financial tech, the team at OmiseGO has an ambitious task ahead, but the benefits for financial participants, the unbanked, and the Ethereum blockchain are far more than enough for us to celebrate them and cheer them towards their goal.