Gas fee worries (1): Who is the ultimate winner in the future of multi-chain, side-chain and Layer 2 solutions?

By the end of 2021, Ethernet Square has been developed to support thousands of Dapps from the field DeFi, NFT, games and the like.

The entire network settles trillions of dollars in transactions every year, and more than 170 billion dollars are locked in various agreements.

But as the saying goes, more money means more problems. Ethereum’s decentralized design ultimately limits the amount of transactions it can handle to 15 transactions per second.

But because the popularity of Ethereum far exceeds the original setting of 15 transactions per second, the result is a long wait for users and a fee of up to $200 per transaction.

In the end this will discourage many users and limit the types of Dapps that Ethereum can handle today.

If smart contract-based blockchains continue to evolve to support the financial needs of billions of users and Web 3 applications, more scaling solutions are needed.

Fortunately, many of the solutions developed to this day really make our eyes shine.

Competitive or complementary?

The common goal and vision of everyone is to increase the number of transactions that a publicly accessible smart contract platform can handle while maintaining sufficient decentralization.

Remember, it is trivial to scale the smart contract platform with a centralized solution managed by a single entity (Visa can process 45,000 transactions per second), and what we want is: a powerful center of the world owned by a few people Participants.

There are two ways to solve this problem:

(1) Establish a new network that competes with Ethereum, which can handle more on-chain transactions.

(2) Establish a supplementary network that can handle the excess transaction volume of Ethereum.

Broadly speaking, they are divided into several categories:

  • Layer 1 blockchain (competing with Ethereum)
  • Side chain (some additions to Ethereum)
  • Layer 2 network (complementary to Ethereum)

Although each architecture and method is different, their goals are the same:

When allowing users to use the network (for example, interacting with DeFi, NFT, etc.), there is no need to pay high fees or experience long waiting times.

Gas fee worries (1): Who is the ultimate winner in the future of multi-chain, side-chain and Layer 2 solutions?

Layer1 block connection

Ethereum is considered the most classic Layer 1 blockchain: an independent network that can protect user funds and execute transactions in one place.

Want to use DeFi applications such as Uniswap to change your 100USDC to DAI ? Ethereum is the initial cradle for all this.

Competing Layer 1 can accomplish everything that Ethereum does, but in a brand new network, this is actually hard to say.

The difference between them is that the new system design can achieve higher throughput, thereby reducing transaction costs, but usually at the cost of increased centralization.

In the past 10 months, new Layer 1 have been online in droves, and the total value of these networks has soared from $0 to around $75B during the same period.

This field is currently dominated by Solana, Avalanche, Terra, and Binance Smart Chain , each with its own growing ecosystem, with a total value of more than 10 billion U.S. dollars.

Gas fee worries (1): Who is the ultimate winner in the future of multi-chain, side-chain and Layer 2 solutions?

TVL change diagram of Layer1

All Layer 1 chains are competing fiercely to attract developers and users. It is very difficult to build and use brand new Dapps without any Ethereum tools and infrastructure.

To solve this problem, many Layer 1 chains adopt a strategy called EVM compatibility.

EVM stands for Ethereum Virtual Machine, which is essentially the “brain” that performs calculations to make transactions happen.

By making their network compatible with EVM, Ethereum developers can easily deploy their existing Ethereum applications to the new Layer 1 chain by copying and pasting their code.

Users can also use existing wallets to easily access Layer1 chains that are compatible with EVM, making migration easier.

Take BINANCE Smart Chain (BSC) as an example. By launching an EVM-compatible network and adjusting the consensus design to achieve higher throughput and cheaper transactions, BSC witnessed a surge in the usage of dozens of DeFi applications last summer. These applications are similar to popular ones such as Uniswap and Curve. Ethereum application.

Avalanche, Fantom, Tron, and Celo all took the same approach.

In contrast, Terra and Solana currently do not support EVM compatibility.

Gas fee worries (1): Who is the ultimate winner in the future of multi-chain, side-chain and Layer 2 solutions?

EVM compatible and non-EVM compatible Layer 1 TVL comparison

Interoperability chain

What is slightly different in Layer 1 is the blockchain ecosystem-such as Cosmos and Polkadot.

Instead of building a new independent blockchain, they are building a brand new standard that allows developers to create application-specific blockchains that can communicate with each other.

For example: This can allow tokens from the gaming blockchain to be used in applications built on a separate blockchain for social networks.

At present, there are more than 100B USD on the chain built using the Cosmos standard; at the same time, Polkadot has recently reached a milestone and will also unify its blockchain ecosystem.

In short, Ethereum’s direct competitors are now showing a diverse pattern, and there will be more possibilities in the future.

Side chain

The difference between side chains and the new Layer 1 chains is undoubtedly blurry. The sidechain is very similar to the EVM-compatible Layer1, the difference is that the sidechain is dedicated to handling the excess capacity of Ethereum, rather than competing with the entire Ethereum.

These ecosystems are closely integrated with the Ethereum community and host Ethereum applications in a complementary manner.

Axie Infinity’s Ronin sidechain is a good example: Axie Infinity is an NFT game originally built on Ethereum.

Since Ethereum’s high fees make playing games very expensive, the Ronin sidechain aims to allow users to transfer their NFT and tokens from Ethereum to a low-cost environment.

This makes the game more affordable for more users.

Gas fee worries (1): Who is the ultimate winner in the future of multi-chain, side-chain and Layer 2 solutions?

At the time of writing, users have transferred more than $7.5B of funds from Ethereum to Ronin to play Axie Infinity.

Posted by:CoinYuppie,Reprinted with attribution to:
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