It has to be said that developers and users have long been fed up with the high fees of Ethereum. The latest data shows that the current average transaction fee of Ethereum has reached US$20, which is 8-10 times the peak in 2018.
In such a congested trading environment, almost all participants in the Ethereum ecosystem, such as developers, investors, and users, complained incessantly-except for the Ethereum miners who made a lot of money.
Some people compare Ethereum to the Internet in the mid-1990s. They believe that although the current Ethereum is cumbersome, expensive, and small, the ecosystem of powerful users is still strong, and future visions may be realized faster than imagined. However, the author believes that if the current congestion situation of Ethereum is not improved, it is likely to be caught up by many fast-developing public chain ecology, such as Polkadot and Cardano.
However, as Ethereum Layer 2 gradually gains attention, the current congestion status of Ethereum may be resolved.
So, what is the current development of Layer 2? What are the solutions? When Layer 2 enters the application, what impact will it have on Ethereum itself?
Deposits skyrocketed, handling fees plummeted, and they were well received
At present, the most promising technologies for Ethereum Layer 2 are Optimistic Rollup and ZK Rollup. Although both are in the testing stage, the scale of deposits and application development cannot be ignored.
Take Synthetix, an asset synthesis protocol, for example.
On January 15th, the Optimistic Rollup expansion plan Optimism team opened the trial operation network of the Optimistic Ethereum mainnet. In the following month, the number of tokens pledged by Synthetix in the Optimistic Ethereum network has exceeded 6.62 million, worth more than 150 million US dollars.
Take ZKSwap, which has recently become more popular, as an example.
According to ZKSwap official news, the total Gas cost (the cost of chaining from Layer 2 to Layer 1) to send 9000 transactions in Layer 2 is 1500 USD. In contrast, the cost of completing 9,000 transfers on the Ethereum main network requires a cost of 180,000 US dollars. The transfer cost of Layer 2 on ZKSwap is only about 1% of that of Ethereum.
Regarding the recent progress of Layer 2 of Ethereum, Pan Zhixiong, research director of Lianwen, believes that how to build a Layer 2 ecosystem is worthy of attention, especially in combination with finance. This will not only bring performance improvements, but also new experiences and innovative product trials that were completely unimaginable on Layer 1.
In addition, many applications can also completely solve the previous experience and compatibility issues caused by the old protocol standards when grafting Layer 1 (for example, authorization is required before ERC-20 token transactions). For example, Layer 2 expansion technology ZK Rollup has changed the paradigm of the Ethereum protocol itself, and transformed the relationship between “computing” and “storage”. Through the large-scale off-chain computing power with reasonable data compression techniques, it is expected to be the Ethereum network. Provide a hundredfold expansion solution with almost no security loss, and even this solution may continue to play a role in other blockchain networks in the future.
Pan Zhixiong believes that the possible tipping point: when applications with a large number of users on Layer 1 are actually migrated to Layer 2, more users will quickly influx, such as Uniswap and Synthetix, which are working in this direction.
Loopring’s COO (Chief Operating Officer) tweeted in January this year that all ERC20 should now consider using Layer 2.
So, what are the recent advancements in Layer 2 technology?
Layer 2 technology blooms
Optimistic Rollup and ZK Rollup two technologies are responsible by different teams, and each technology has different branches, and each branch is responsible for different teams.
There are two teams responsible for developing the ZK Rollup solution, namely the Matter Labs team and the StarkWare team. The Matter Labs team is responsible for the development of zkSync technology, and the StarkWare team is responsible for the development of StarkNet technology. The core difference between the two technologies is the use of zero-knowledge proof technology. The former uses zk-SNARK technology and the latter uses zk-STARK technology.
There are also two teams responsible for the Optimistic Rollup program, namely the Optimism team and the Offchain Labs team. The Optimism team is responsible for the development of OVM technology, and the Offchain Labs team is responsible for the development of Arbitrum Rollup technology. The core difference between the two is that the scheme of the fraud proof mechanism is different, which is divided into single-round interaction and multi-round interaction.
Although these technologies are currently in a very early stage, the speed of progress is worthy of attention.
Take the Optimistic Rollup mentioned in the previous article as an example. At present, Optimistic Rollup has been launched on the Ethereum main network. Although it has very limited functions, it has only launched a few functions in cooperation with Synthetix, but there are still a lot of funds gradually migrating to this In the Layer 2 network, the amount of migration in one month has reached 150 million US dollars.
In addition to pure Layer 2 expansion technology, a new concept of “Layer 2 aggregator” has also appeared in the Layer 2 ecosystem.
Polygon is defined as the first structured and easy-to-use Ethereum expansion and infrastructure development platform. In addition to the currently completed Plasma chains, Polygon will also support other Layer 2 expansion solutions in the future, such as Optimistic Rollups, zkRollups, Validium, etc., which will make Polygo the first “Layer 2 aggregator” on the Ethereum chain.
The core component of Polygon is Polygon SDK, which is a modular and flexible development framework that supports the construction and connection of two mainstream expansion paths:
Secured chains: This type of path can rely on the security of the Ethereum network without the need to establish its own verification mechanism. In addition to the currently completed Plasma chains, Polygon will also support other Layer 2 expansion solutions in the future, such as Optimistic Rollups, zkRollups, Validium, etc., which will make Polygon the first Layer 2 aggregator on the Ethereum chain. In terms of use cases, this direction is more suitable for applications that require the highest level of security and emerging projects that are difficult to build a verification mechanism on their own.
Stand-alone chains (ie side chains): This type of path can build side chains independent of Ethereum. The side chain network has its own verification mechanism and will be fully responsible for its own network security, but it can also provide better independence and flexibility. From the point of view of use cases, this direction is more suitable for projects that do not require the highest level of security (such as games) and projects with strong community power (the ability to establish a sufficiently decentralized and secure verification mechanism by itself).
The above is the general development direction of the current Layer 2 technology. The following introduces some possible problems of Layer 2.
After Layer 2, possible problems
Does this mean that Ethereum Layer 2 is omnipotent and has no flaws?
actually not.
The first is the issue of adaptability between different projects.
For example, in December 2020, Aleksander L. Larsen, co-founder of Axie Infinity, published his views on the relationship between Ethereum Layer 2 and blockchain game development, saying that a startup company based on another startup’s product is actually quite risky of.
Aleksander L. Larsen said that they have been paying attention to the impact of Ethereum scalability on applications long ago. They have also been tested on the Loom network before, but the entire industry is still at a very early stage. A startup company The product based on another startup is actually quite risky, because everyone may adjust product positioning and direction at any time. We will use our own solutions to solve our own problems and gradually improve decentralization.
The second is the interaction between different Layer 2.
The so-called interaction problem is the composability between different DeFi applications based on Rollup. Simply put, if there are different DeFi applications on different Rollup chains, the information exchange between different Rollup chains will be better than that of the Ethereum main chain. Information exchange on the Internet is more difficult.
Finally, in my opinion, Layer 2 itself will also have a negative impact on Layer 1 (Ethereum itself), which is directly related to the operating mechanism of Layer 2.
Simply understand, the operating logic of Layer 2 is to transfer the “transactions” (ETH transfer, ETC-20 transfer, DeFi interaction) that should have been processed on Layer 1 (Ethereum itself) to Layer 2. Because the operating efficiency of Layer 2 is Hundreds of times as much as Layer 1, so as long as Layer 2 is officially launched, Layer 1 will be “freed” from the current congestion. Both Optimistic Rollup and ZK Rollup can achieve this effect.
Layer 2 looks beautiful, but everything has its two sides. As we all know, the idea of Layer 2 to solve problems is not based on improving its own (Ethereum, or what we call Layer 1) performance, but relocating a large number of businesses. The consequence of doing this is that the frequency of using Layer 1 drops drastically.
The sharp drop in the frequency of use of Layer 1 means that in the future ETH1.x will become a role similar to “People’s Bank of China” or “Federal Reserve”, and can only issue currency in accordance with a certain monetary policy, although the number of ETH issued in the future will be There are fewer, but we know that ETH is an application-type smart contract project. Once the use value drops, regardless of the monetary policy, the currency price will no longer receive effective application support. Because the price increase logic of ETH is different from that of BTC, the former relies on application and the latter relies on consensus. When the app is not there, it is only a matter of time before the currency price collapses.
In addition, we have seen many strange phenomena on Ethereum, which will soon become history, such as high miner fees.
Around February 10th, Ethereum miners earned 4 million U.S. dollars in one hour, setting a new record again (the last time it was 3.5 million U.S. dollars/h). This year, under the premise of significant progress in Rollup technology, a considerable part of the Ethereum DeFi project will be migrated to Layer 2. The high and expensive situation will be greatly eased, and the high miner fees will become history.
Perhaps with the development of Layer 2 technology, the following situation will appear: the price increase of ETH will be greatly restricted. The fundamental reason is that the frequency of use of ETH has decreased, and the project tokens based on Optimistic Rollup and ZK Rollup will skyrocket. The number of tokens for such projects also exploded.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.