The challenge of blockchain towards popularization and application

By the end of 2021, Ethereum (Ethereum) has developed to support thousands of applications, including decentralized finance (DeFi), NFT, games, etc., the entire network settles trillions of dollars in transactions every year, locked on the platform of more than $170 billion in funding.

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

As Ethereum’s popularity far exceeds the 15 transactions per second load, there are long wait times and fees of up to $200 per transaction.

Ultimately, that price drove many users away from Ethereum and limited the types of applications the network can currently handle.

If smart contract-based blockchains are to grow to support financial and Web3 applications for billions of users, scalable solutions are needed, and fortunately, many proposed solutions are coming online recently.

Competitive or Complementary?

The goal of these solutions is to help open smart contract platforms increase the number of transactions that can be processed while retaining sufficient decentralization.

Remember, scaling a smart contract platform with a centralized solution managed by a single entity is easy to achieve (Visa can handle 45,000 transactions per second), but that brings us back to where we started: a A world owned by a few powerful centralized players.

There are two parts to the approach taken to solve this problem: build a whole new network that can handle more activity to compete with Ethereum, or build a complementary network that can handle the excess capacity of Ethereum, which roughly fall into a few categories:

1. Layer1block chains: Competing with Ethereum

2. Sidechains: Complementary to Ethereum

3. Layer2 network works: Complementary to Ethereum

While each differs in architecture and approach, the goal is to allow users to actually use the web.

For example: interact with DeFi, NFT without paying high fees or experiencing long wait times.

The challenge of blockchain towards popularization and application

The first layer of blockchain (Layer1)

Ethereum is considered a layer 1 blockchain, an independent network that keeps user funds safe and executes transactions in one place, wants to use a DeFi app like Uniswap (UNI) to exchange 1000 USDC for another Is it a stable currency DAI? Ethereum is the place where all of this can be achieved.

Other competing layer 1 blockchains do everything Ethereum can with a whole new network, differentiated from Ethereum by a new system design that enables higher throughput and thus lower transaction fees, but usually The price will be increased centralization.

Over the past 10 months, new Layer 1s have come online, and the combined value of these networks has soared from $0 to about $75 billion over the same period.

This space is currently led by Solana (SOL), Avalanche (AVAX), Terra (LUNA), and Binance Smart Chain (Binance Smart Chain), each of which is growing and has reached a value of over $10 billion.

The challenge of blockchain towards popularization and application

Total Locked Value (TVL) of Leading Non-Ethereum Layer1 Projects

All Layer 1 are competing, it is difficult to develop without any Ethereum tools and infrastructure to allow developers and users to easily build and use applications, to bridge this gap, many Layer 1 blockchains adopt developed a strategy called “EVM Compatibility”.

EVM is short for Ethereum Virtual Machine, which is basically a brain that performs computations to make transactions by making their network compatible with EVM.

Ethereum developers can easily deploy their existing Ethereum applications to the new layer 1 network by basically copying and pasting their code, and users can easily access it with their existing wallets EVM compliant Layer 1 networking makes their migration easy.

Take Binance Smart Chain (BSC) as an example, by launching an EVM-compatible network and tweaking the consensus design to achieve higher throughput and cheaper transactions.

Last summer, BSC exploded in usage from dozens of DeFi apps, all similar to popular Ethereum apps like Uniswap and Curve (CRV), Avalanche, Fantom (FTM), Tron (TRX), and Celo ( CELO) took the same approach, in contrast, Terra and Solana do not currently support EVM compatibility.

The challenge of blockchain towards popularization and application

TVL Comparison of EVM Compatible Layer 1 Blockchain and Non-EVM Compliant Layer 1 Blockchain

Interoperable Blockchain

In a slightly different Layer 1, there are blockchain ecosystems like Cosmos (ATOM) and Polkadot (DOT), these projects did not create new independent blockchains, but established standards that allow developers to create intercommunication application-specific blockchain.

For example: allowing a game blockchain token to be used in an application on another independent social network blockchain.

There are currently more than $100 billion in blockchains built using the Cosmos standard that are finally interoperable, and Polkadot recently reached a milestone that will similarly assemble its ecosystem of blockchains.

In short, there are all sorts of direct competitors to Ethereum, and there will be more in the future.

side chain

The distinction between sidechains and the new Layer1 is admittedly vague, sidechains are very similar to the EVM-compatible Layer1, except that sidechains were built to deal with Ethereum’s excess capacity, not to compete with Ethereum as a whole, these The ecosystem is tightly integrated with the Ethereum community to host Ethereum applications in a complementary manner.

A prime example is the Ronin sidechain of Axie Infinity (AXS), an NFT game originally built on Ethereum.

Since Ethereum fees are prohibitive for players, the Ronin sidechain was built to allow users to transfer their NFTs and tokens from Ethereum to a low-fee environment, making the game affordable for more users and allowing the The game was a huge hit.

The challenge of blockchain towards popularization and application

At the time of writing, users had transferred over $7.5 billion from Ethereum to the Ronin sidechain to play Axie Infinity.

Polygon POS Sidechain

Sidechains like Ronin are application specific, while others are for more general applications.

Currently, Polygon’s (MATIC) Proof-of-Stake (POS) sidechain is the industry leader, deploying nearly $5 billion worth of value across 100+ DeFi and gaming applications, including familiar ones like Aave (AAVE) and Sushiswap (SUSHI) , and a Quickswap (QUICK) similar to Uniswap.

Likewise, Polygon POS looks no different to EVM-compatible Layer 1, however, it does so as part of the Ethereum extension framework rather than competing with Ethereum.

The Polygon team believes that Ethereum will remain the dominant blockchain for high-value transactions and stores of value in the future , with day-to-day transactions moving to Polygon’s low-cost blockchain.

(Polygon POS also maintains a special connection to Ethereum through a process known as “check pointing”).

With transaction fees below 1 cent, Polygon’s vision for the future looks feasible, and with the help of the incentive program, users have flocked to Polygon POS, with daily transaction volumes surpassing Ethereum’s (despite some pointless transaction inflation) this number).

The challenge of blockchain towards popularization and application

Layer 2 network (Layer2)

Both Layer 1 and sidechains have one obvious challenge: securing their blockchains.

To do this, they must pay a new batch of miners or proof-of-stake validators to validate and secure transactions, usually in the form of inflation in the underlying token (like Polygon’s MATIC and Avalanche’s AVAX).

However, this comes with significant downsides:

Having a base token naturally makes your ecosystem more competitive, not just a complement to Ethereum.

Verifying and securing transactions is a complex and challenging task that your network is responsible for indefinitely.

Wouldn’t it be great if we could create a scalable ecosystem with the help of Ethereum’s security? Join the second layer of networking, especially “Rollup”.

In short, Layer2 is an independent ecosystem built on Ethereum, relying on the Ethereum network for security.

The key point is that this means that Layer 2 expansion schemes do not require native tokens, so they are not only complementary to Ethereum, but are essentially part of Ethereum, and the Ethereum roadmap even states that Ethereum 2.0 will be “rollup as the Center”, a tribute to this project.

How does Rollup work?

Layer 2 are often referred to as Rollups because they “roll” or bundle transactions together and execute them in a new environment, then send the latest transaction data back to Ethereum, rather than letting the Ethereum network process 1,000 Uniswap transactions alone (expensive!), it is better to offload the computation on a layer 2 Rollup (cheaper!) before submitting the result back to Ethereum.

However, how does Ethereum know the data is correct and valid when the results are posted back to Ethereum? And how does Ethereum prevent anyone from posting incorrect information?

These are the key issues that distinguish two kinds of rollups: Optimistic rollups and Zero Knowledge rollups (ZK rollups).

Optimistic rollups

When submitting results back to Ethereum, Optimistic rollups “optimistically” assume the results are valid, in other words, they let the operators of the Rollup publish whatever data they want (including potentially incorrect/fraudulent) data), and assuming it’s correct – an Optimistic prospect, no doubt!

However, there are ways to combat fraud, as a check and balance, after any withdrawal there is a time window where any observer can view the fraud (remember, blockchains are transparent, Anyone can observe what is happening).

If one of the observers can mathematically prove that the fraud occurred (by submitting a fraud proof), then Rollup reverts any fraudulent transactions, punishes the bad actors and rewards the observers (a clever incentive system !).

The downside is that when you move funds between Rollup and Ethereum, there is a short delay waiting to see if any of the scams are spotted by observers.

In some cases, this can be as long as a week, but we expect these delays to decrease over time.

The key point is that Optimistic rollups are intrinsically tied to Ethereum and are now ready to help Ethereum scale.

As a result, we have seen strong nascent growth, with many leading DeFi projects moving to leading Optimistic rollups projects – Arbitrum and Optimistic Ethereum.

  • Arbitrum and Optimistic Ethereum

Arbitrum by Off-chainLabs and Optimistic Ethereum by Optimism are the two main projects currently implementing Optimistic rollups, it is worth noting that these two projects are still in their early stages and both companies maintain a level of centralized control , but both plan to decentralize over time.

According to estimates, Optimistic rollups can provide 10 to 100x scalability improvements once the project matures, and even in the early days, DeFi applications on Arbitrum and Optimism have amassed billions of network value.

Optimism has an early adoption curve, deploying over $300 million in TVL (Total Locked Value) across 7 DeFi applications, most notably Uniswap, Synthetix (SNX), and 1inch (1INCH).

The challenge of blockchain towards popularization and application

Arbitrum goes a step further, with around $2.5 billion in TVL across more than 60 applications, including familiar DeFi protocols like Curve, Sushiswap, and Balancer (BAL).

The challenge of blockchain towards popularization and application

Arbitrum was also selected as the scaling solution for social media platform Reddit, which has 500 million monthly active users, for their long-awaited move to tokenize community points.

ZK Rollups

Whereas Optimistic rollups assume the transaction is valid and leave room for fraud proofs for others, ZK Rollups actually prove to the Ethereum network that the transaction is valid.

With the result of the bundled transaction, they submit what is called a validity proof to the Ethereum smart contract, which, as the name suggests, allows the Ethereum network to verify that the transaction is valid, making it impossible for relayers to cheat the system, which eliminates the need for This eliminates the need for a proof-of-fraud window, so moving funds between Ethereum and ZK-rollups is effectively an instant operation.

While instant settlement and no withdrawal time sounds great, ZK Rollups are not without cost.

First, generating proofs of validity is computationally intensive, so you need efficient mechanisms to make them run, and second, the complexities surrounding proofs of validity make supporting EVM compatibility more difficult, limiting the intelligence that can be deployed to ZK-rollups Contract type.

So Optimistic rollups have been first to market and are more capable of solving Ethereum’s scaling problems today, but ZK Rollups may become a better technical solution in the long run.

Adoption of ZK Rollup

ZKrollup has a wide range of applications, with multiple teams and implementations underway and in development, some notable players include Starkware, Matter Labs, Hermez, and Aztec.

Today, ZK-rollup mainly supports relatively simple applications , such as payment or trading (due to the limitation of the types of applications that ZK-rollup can support today), for example: the derivatives exchange dYdX adopts the ZK Rollup solution of Starkware (StarkEx), which supports Nearly 5 million transactions per week and over $1 billion in TVL.

The challenge of blockchain towards popularization and application

What’s really worth fighting for, however, is a fully EVM-compatible ZK Rollup solution capable of supporting popular general-purpose applications (like DeFi’s full suite) without the withdrawal delays of Optimistic rollups.

The major players in this space are MatterLab’s zkSync 2.0, Starkware’s Starknet, Polygon Hermez’s zkEVM, and Polygon Miden.

They are both currently working towards a mainnet launch (Meanwhile, Aztec is focused on applying zero-knowledge proofs to privacy).

Many in the industry are combining ZK rollups with Ethereum 2.0 as a long-term solution to scaling Ethereum, including Vitalik, mainly due to their ability to fundamentally process hundreds of thousands of transactions per second without compromising security or decentralization ‘s transaction.

The imminent launch of a fully EVM-compatible ZKRollup project will be one of the key things to watch as the quest for an Ethereum scaling solution progresses.

a divided world

These scaling solutions are necessary if the smart contract platform is to scale to billions of users in the long run.

In the near term, however, these solutions may present significant challenges for users and cryptocurrency operators, and sailing from Ethereum to these networks requires the use of cross-chain bridges.

This is complicated for users and potentially risky.

For example: several cross-chain bridges have been targeted by breaches worth over $100 million.

More importantly, the multi-chain world divides composability and liquidity. Considering that Sushiswap is currently implemented on Ethereum, Binance Smart Chain, Avalanche, Polygon and Arbitrum, Sushiswap’s liquidity was once concentrated on one network (Ethernet). Square), is now spread across five different networks.

Ethereum applications have long benefited from composability , i.e. Sushiswap on Ethereum is plug-and-play with other Ethereum applications such as Aave or Compound (COMP).

As applications expand to new networks, applications implemented on Layer1, sidechains, and Layer2 are no longer compatible with applications implemented on another layer of the network, limiting usability and creating challenges for users and developers.

an uncertain future

Will new Layer 1 blockchains like Avalanche or Solana that compete with Ethereum continue to develop?

Will blockchain ecosystems like Cosmos or Polkadot proliferate?

Will sidechains continue to operate in harmony with Ethereum, taking on its excess capacity?

Or will Rollup combined with Ethereum 2.0 win? No one can say for sure.

While the future is uncertain, everyone can take comfort in the fact that there are so many smart teams working on solving the most challenging problems facing the open, permissionless web.

Just as Broadband ultimately helped the Internet power a series of breakthrough applications like YouTube and Uber, we believe that we will ultimately see the winning scaling solutions in the same light.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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