Ken Timsit Advocates Crafting Multiple Layer 2 Solutions for Ethereum’s Scalability Dilemma

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CryptoNiche

7 min readApr 2, 2024

How Ethereum gas fees work?

Ethereum gas fees are the costs associated with performing transactions or executing smart contracts on the Ethereum blockchain. These fees are paid by users to compensate miners for the computational resources required to process and validate transactions. Gas fees are measured in units called “gas,” with each operation on the Ethereum network consuming a specific amount of gas.

The cost of a transaction is determined by the gas price, which is set by the sender of the transaction. Gas prices are denoted in Gwei, a denomination of Ether (ETH), where 1 Gwei is equal to 0.000000001 ETH. The total fee for a transaction is calculated by multiplying the gas price by the amount of gas consumed.

The gas limit, on the other hand, represents the maximum amount of gas that a user is willing to spend on a transaction. If a transaction exceeds the specified gas limit, it will fail and any unused gas will be refunded to the sender.

Factors influencing gas fees

✏ Network Congestion: Gas fees rise during times of high network activity when there are many transactions competing to be processed. Increased usage of decentralized applications (dapps), decentralized finance (DeFi) protocols, and other Ethereum-based services can lead to congestion and higher fees.

✏ Gas Price: Gas fees are determined by the gas price, which is set by users when submitting transactions. Miners prioritize transactions with higher gas prices, so users willing to pay more will have their transactions processed faster.

✏ Gas Limit: Each transaction specifies a gas limit, which represents the maximum amount of gas that can be used to execute it. Transactions that exceed this limit will fail, and any unused gas will be refunded. Setting an appropriate gas limit is crucial to ensure transactions are successfully processed without overspending on fees.

✏ Blockchain Upgrades: Upgrades to the Ethereum network, such as protocol improvements or changes to the gas fee structure, can impact gas fees. For example, recent upgrades like EIP-1559 introduced changes to how gas fees are calculated, affecting fee dynamics.

✏ Market Demand: External factors, such as fluctuations in cryptocurrency prices or broader market trends, can influence gas fees. Increased demand for Ethereum and related services may lead to higher fees as more users compete for limited network resources.

Role of DeFi Activity in Gas Fee Surge

Decentralized finance (DeFi) activity plays a significant role in the surge of gas fees on the Ethereum network. DeFi refers to a set of financial services and applications built on blockchain technology, primarily Ethereum, that aim to provide decentralized alternatives to traditional financial systems. The popularity and growth of DeFi protocols have contributed to increased congestion on the Ethereum network, leading to higher gas fees for users.

Several factors contribute to the impact of DeFi activity on gas fees:

Transaction Volume: DeFi platforms facilitate various financial activities like lending, borrowing, trading, and yield farming. Increased user engagement with these protocols leads to more transactions processed on the Ethereum network, causing congestion and higher gas fees.
Smart Contract Complexity: DeFi protocols often use complex smart contracts executing multiple functions and interacting with other protocols. These transactions demand more computational resources, resulting in higher gas consumption and subsequently elevated fees.
Arbitrage Opportunities: DeFi protocols rely on automated market makers (AMMs) and decentralized exchanges (DEXs) for asset trading. Traders and arbitrageurs exploit price differences between these platforms, leading to frequent transactions and increased gas fees.
Yield Farming Incentives: DeFi platforms offer incentives such as liquidity mining and yield farming to attract users and liquidity. These incentives encourage user participation in DeFi activities, increasing transaction volume and gas fees.

Rise of Layer 2 (L2) Chains

The rise of Layer 2 (L2) chains represents a significant development in blockchain technology, particularly in addressing scalability challenges faced by platforms like Ethereum. Layer 2 solutions for ethereum aim to improve the scalability and efficiency of blockchain networks by processing transactions off-chain while still leveraging the security of the underlying mainnet.

Several factors contribute to the rise of Layer 2 chains:

Scalability
Reduced Gas Fee
Enhanced User Experience
Interoperability

Insights from Ken Timsit

Ken Timsit, managing director of Cronos Labs, offers valuable insights into the Dencun upgrade (EIP-4844) and its implications for the Ethereum network. The Dencun upgrade introduces a new fee mechanism aimed at making Layer 2 (L2) transactions more affordable by optimizing the storage of L2 transaction data on the Ethereum mainnet (L1).

Key insights from Ken Timsit regarding the Dencun upgrade include:

Reduced Transaction Fees: The Dencun upgrade significantly reduces the transaction fees associated with Layer 2 roll-up networks by introducing a more cost-effective fee mechanism for storing L2 transaction data on the Ethereum L1. This reduction in fees enhances the accessibility and affordability of L2 transactions for users.
Impact on Gas Fees: The introduction of the Dencun upgrade has led to a notable decrease in gas fees for Layer 2 roll-up networks, with some networks experiencing fee reductions of over 90%. This reduction in gas fees alleviates the financial burden on users and encourages greater participation in Ethereum-based applications and DeFi protocols.
Mid to Long-term Implications: While the Dencun upgrade has resulted in immediate improvements in gas fees for Layer 2 networks, its mid to long-term impact on the Ethereum ecosystem remains uncertain. Timsit emphasizes the need for further observation and analysis to fully understand the implications of the upgrade on network scalability, efficiency, and user experience over time.

Short-term Impact of Dencun Upgrade

➟Immediate reduction in gas fees for Layer 2 (L2) transactions.

➟Increased affordability and accessibility of Ethereum-based applications.

➟Alleviation of network congestion and smoother transaction processing.

➟Stimulated adoption of Layer 2 scaling solutions.

Long-term Implications of Dencun Upgrade

➟Sustainable scalability and network growth.

➟Enhanced user experience and ecosystem development.

➟Increased resilience against congestion-related disruptions.

➟Encouragement of innovation and new decentralized applications.

Vitalik Buterin’s Proposal

Vitalik Buterin, co-founder of Ethereum, proposed a significant change to the Ethereum network, advocating for a 33% increase in the gas limit. The gas limit refers to the maximum amount of computational power available to process transactions within a single block on the Ethereum blockchain.

Key points of Vitalik Buterin’s proposal:

Network Throughput: Increasing the gas limit would enhance the network’s throughput, allowing for more transactions to be processed within each block. This would result in higher transaction capacity and potentially faster confirmation times for transactions.
Scalability Improvement: By raising the gas limit, Ethereum could better accommodate the growing demand for transactions, particularly during periods of high network activity. This would address scalability concerns and support the continued growth of decentralized applications (dapps) and the broader Ethereum ecosystem.
Continued Progress: Vitalik’s proposal reflects Ethereum’s commitment to ongoing improvement and optimization of its protocol. Adjusting the gas limit in response to changing network dynamics demonstrates a proactive approach to addressing scalability challenges and ensuring the network’s long-term viability.

Enhancing Scalability with zkEVM

Enhancing scalability with zkEVM (zero-knowledge Ethereum Virtual Machine) represents a significant advancement in blockchain technology, particularly in addressing the scalability challenges faced by platforms like Ethereum. zkEVM utilizes zero-knowledge proofs to provide efficient and scalable transaction processing while maintaining the security and decentralization of the Ethereum network.

Key aspects of enhancing scalability with zkEVM include:

➤ Zero-Knowledge Proofs: zkEVM leverages zero-knowledge proofs, a cryptographic technique that allows verifiers to confirm the validity of transactions without revealing sensitive information. This enables zkEVM to process transactions off-chain while ensuring the integrity and confidentiality of transaction data.

➤ Layer 2 Scaling Solution: zkEVM operates as a Layer 2 scaling solution built on top of the Ethereum mainnet, offering faster transaction throughput and lower transaction costs compared to on-chain transactions. By processing transactions off-chain and settling them periodically on the mainnet, zkEVM alleviates congestion and improves scalability.

➤ Improved Efficiency: The use of zero-knowledge proofs in zkEVM enhances transaction efficiency by reducing the computational overhead associated with transaction processing. This results in faster transaction confirmation times and lower gas fees for users, making Ethereum-based applications more accessible and cost-effective.

➤ Security and Decentralization: Despite processing transactions off-chain, zkEVM maintains the security and decentralization of the Ethereum network by anchoring transaction data to the mainnet through cryptographic proofs. This ensures that transactions are secure and tamper-proof, mitigating the risk of fraudulent activities or attacks.

PARTNER WITH ETHEREUM LAYER 2 SCALING SOLUTIONS

Collaborating with Ethereum layer 2 scaling solutions presents a promising opportunity to address the platform’s scalability limitations. By leveraging layer 2 technologies such as rollups, sidechains, and state channels, developers can significantly enhance Ethereum’s transaction throughput and reduce congestion on the main network. Through collaboration, projects can tap into the expertise of various teams working on different layer 2 solutions, fostering innovation and accelerating the deployment of scalable applications.

Final Thoughts

In conclusion, Ken Timsit’s insights shed light on the current challenges and future prospects of Ethereum gas fees and scalability. Timsit highlights the positive impact of initiatives such as the Dencun upgrade and proposals for gas limit increases in improving transaction affordability and network throughput. However, Timsit also emphasizes the importance of long-term scalability solutions, such as Layer 2 adoption, in addressing Ethereum’s scalability challenges sustainably. By embracing both short-term optimizations and long-term scalability solutions, Ethereum can pave the way for a more efficient, accessible, and sustainable blockchain ecosystem.