Lately all we hear about in cryptoworld is “layer 2 scaling solutions”. One in particular is Plasma. In this article I will give my personal opinion why I believe that Plasma is the number-one scaling solution that will bring blockchains in everyone’s daily life eventually.

Plasma is a blockchain layer 2 scaling solution to scale blockchain systems to millions or potentially billions of transactions per second (in contrast to, for instance, the current limits of 20–30 transactions per second for Ethereum), while preserving security and decentralization. Why do we want a “layer 2” scaling solution? Can’t we handle everything on the main blockchain (“layer 1”) which is highly secure?

Why Layer 2 Scaling?

Let’s compare the blockchain innovation with the World Wide Web anno 2000. Today the WWW consists of 4.5 billion pages. People all over the world can access those pages simultaneously, and nowadays also very fast. It’s not because those 4.5 billion pages are copied on every single personal computer in the world. It’s rather because successful protocols and systems — such as a DNS or a search engine like Google — are paving our way to our destination. If people would need to make a copy of the whole Internet to their computer every hour of the day, would it be as successful as it is today?

Similarly, blockchains need layer 2 solutions as well. It’s simply not necessary (nor feasible) for everyone to know about every single transaction that occurs on the network. And if we fast forward in time for about 10 years, it will not be necessary to store 90 trillion of transactions on a public blockchain every ms because people are buying coffee, reading a paid article, or streaming an X-rated 3D video when the wife is away from home.

Buying a Coffee

The benefit of Plasma comes from a two-directional observation. Imagine you buy a coffee from your local coffee shop every morning. Two questions rise.

Do you want to make sure your funds are always secure and your transactions to buy those coffees are safe too? The answer is clearly Yes. But is it really necessary for everyone in the network to know about those everyday’s transactions and to pollute the network with that marginal information? The answer is No.

Using your Shop’s Prepaid Mobile Wallet

What if you would deposit some money into your shop’s prepaid mobile wallet so you can buy coffee for the rest of the week (or year)? That would be easier because there’s no reason to let the rest of the world know that you’ve made a payment to the coffee shop. As long as you and the shop agree about your current balance, everything is fine.

One Billion of People Buying a Coffee

And what if your favorite coffee shop was a multinational like Starbucks and 1 billion of other people are also getting coffee from that shop in the morning?

Are we really going to store all those transactions on the main blockchain? Not at all. Your shop could as well be run on a Plasma chain that has its own local “ledger” of transactions made by all those coffee buying maniacs (and maybe other consumer transactions from various merchants). These blockchains (called Plasma chains) will be secured by the root chain. This means that we can safely trust the chain and store funds on it to buy our beloved coffee. It’s also faster and cheaper for the merchant because they don’t have to go through a payment processor every time.

How does it work?

The basic idea here is that we can take assets from one chain and transfer them to another (called the “childchain” or “Plasma chain”) by locking the assets up on the primary chain (or “root chain”) and “creating” them again on the child chain. When you want to go back, you simply need to “destroy” the asset on the child chain and unlock them on the root chain.

From the Plasma whitepaper (plasma.io). Plasma blockchains are a chain within a blockchain. The system is enforced by bonded fraud proofs. This update can represent balances which are not represented on the root blockchain (Alice does not have her ledger balance on the root chain, her ledger is on the Plasma chain, and the balance in the root chain is representing a smart contract enforcing the Plasma chain itself). Gray items are old blocks, black is the most recent block that has been propagated and committed on the root chain

Wait? Are we trusting our money into some coffee smelling Plasma chain now and not using the root chain anymore? Yes, we are. Because as long as the Plasma chain consensus mechanism is functioning properly, your assets are safe. Consensus of the Plasma chain is guaranteed by the OMG validators that are staking their tokens (PoS) to secure the network. In the initial implementation, Proof of Authority (PoA) will be used as consensus mechanism.

And what if something does go wrong?

Then users can safely exit their funds from the Plasma chain into the root chain again. If nothing goes wrong, the root chain doesn’t involve itself with anything going on in the child chain and this point is the core underlying philosophy behind it. If the root chain is going to be the ground truth, then it must remain as devoid of activity and calculations as possible.

Exit of funds in the event of block withholding. The red block (Block #4) is a block which is withheld and committed on the root chain, but Alice is not able to retrieve Plasma block #4. She exits by broadcasting a proof of funds on the root blockchain and her withdrawal is processed after a delay to allow for disputes.

What are the Use Cases?

Many Plasma blockchains can co-exist with their own business logic and smart contract terms. In theory, anyone could create a Plasma chain for social networking, gaming platforms, micropayment services, decentralized exchanges, messaging services, private blockchains (e.g. private companies, banks, universities, etc.), and so on. OmiseGO comes into play to provide the infrastructure for these 2nd layer blockchains. The OMG network itself is a single Plasma chain (in initial implementations). Other child chains could be built on top of it, but the white label eWallet software OmiseGO is building will allow both merchants/wallet providers and users to transact directly on the OMG Network without the need to create their own chain. OMG tokens are required for participating in the network’s consensus and validation process.

A single OMG Plasma Child Chain with connections to multiple use cases: e-Wallet operator, centralized or decentralized exchange, private ecosystem for education, social network, etc. Each of the use cases have a bunch of users that are enjoying their services. The OMG Plasma Child Chain is secured (backed) by the Ethereum root chain.

Blockchains On Top of Blockchains?

This is what Plasma is all about. In essence, it’s blockchains built on top of blockchains. Think of the main blockchain and the Plasma blockchains as a tree. The main blockchain is the root while the Plasma chain aka child blockchains are the branches. And there is no limit in how big the tree can be.

In an ideal world, Plasma chains could be hierarchy built. Child chain Y consists again out of child chain Y1, whereas child chain Y1 consists again of child chains, etc.

Private Chains without Public Security is “Silly”

By using Plasma we finally have a bridge between open public blockchains (which form the ground truth and deliver public security) and private blockchains that are owned by conglomerates and businesses. As Joseph Poon stated at Deconomy this year, private chains without public security are “silly”, unless they are run on top of a decentralized Plasma chain.

Without public security, it requires coordination and legal costs which have close to no efficiency compared to existing business processes. Marginal back-office improvements are not worth the switching costs.

A Gate to Decentralized Financial Applications Worldwide

The possibility of having Plasma chains that are fully inter-operable with each other opens the gate to an enormous amount of decentralized financial applications worldwide. All kinds of payments and micro transactions can be handled by the blockchain now: digital goods and services (audio and video streaming services), cloud storage services, loyalty and reward points, referral payments, reading online articles / blogs / newspaper articles, charity donations, event ticketing, license subscriptions, electricity consumption, secure location services, automatically ordering beer when your smart fridge detects that it is empty, etc. The list is infinite and beyond our imagination.

The Ethereum root chain serves as absolute ground truth and delivers indisputable security of the network. Layer 2 Plasma chains deliver scalability and scale the network to a significant amount of state updates per second (potentially billions). This opens the gate to an decentralized financial applications worldwide.

OMG World Exchange

Having Plasma chains for scalability reasons is one thing. But being able to exchange various assets for one another in a frictionless environment would be even greater. Going back to the coffee shop example previously mentioned. Imagine the case that you have earned some loyalty because you bought 6 daily coffees for 30 days in a row (you really have a problem then, but that aside). Wouldn’t it be wonderful if you could use this loyalty to get yourself some of your favorite gaming assets or a one month subscription at your favorite music streaming service? As the OMG network will enable systems to be interoperable with each other, users will not need a separate wallet for every merchant they visit nor would they need to deposit funds into a dedicated account in order to spend them at a given merchant.

OmiseGO is building a non-custodial decentralized exchange on top of Plasma. They‘re creating the back-end infrastructure that allows currency-agnostic asset exchange in order to trade any digital asset into any other digital asset.

OmiseGO is building the back-end infrastructure that allows currency-agnostic asset exchange in order to trade any digital asset into any other digital asset.

Tesuji Plasma

OmiseGO recently made its github for Tesuji Plasma open source. Tesuji is an initial Plasma implementation with Proof of Authority (PoA) consensus and OmiseGO as operator.

Tengen

Tesuji Plasma is an intermediate step towards OmiseGO’s final product called Tengen, which is expected to be the “end game” milestone of the OMG network, that is, a fully scalable Proof of Stake (PoS) blockchain and decentralized exchange. By using PoS, stakers will act as validators of the blockchain and receive a return from fees that they charge to network users to cover the cost of validation of transactions carried out over the DEX.

PoS validation should give anyone fair opportunity to participate as validator. Small machines or eventually even mobile apps should be able to do staking (Twitter, Jun Hasegawa — May 18, 2018)

This “end game” will support sufficient transactions per second to compete with traditional financial services and interoperability with different blockchains.