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#L2Show: Rollups and sharding — welcome to the world of blockchain scaling

#L2Show had a pleasure talking to David Mihal from L2fees!

David is a smart contract engineer and has been working in Ethereum and blockchain development since mid-2017, and has worked on different wallets and DeFi protocols. David started a website cryptofees.info and has also thought that creating an informative website about fees on Layer 2, L2fees.info, would be helpful for the ecosystem.

It all started with cryptofees.info, which is quite a popular source that is often being quoted on Twitter. The idea to do cryptofees.info started when David heard Hayden Adams saying that Uniswap is doing half as many fees as Bitcoin. David found this comparison interesting, as you would not put things like blockchain and a DeFi protocol in the same category, but you can still use fees and the amount of revenue generated to compare these protocols.

David has put together a rather simple website to show the fees of Bitcoin, Ethereum, Uniswap, and a few other Ethereum projects. Around a month later, the Uniswap fees were very high and getting close to Ethereum and Bitcoin, so David has tweeted this interesting fact- the community really liked this and started sharing the cryptofees.info website.

Part of why they shared it a lot is that the information provided with the metrics that people can resonate with. They already had in their head what people are using- Ethereum, Bitcoin, or, at that time, Bitcoin Cash. The metrics showed that Uniswap was doing really well and that Bitcoin and Ethereum were at the top, while some other overhyped projects were a little down. Since cryptofees.info has received so much attention, David kept developing the website and wanted to create info sites that have other underreported metrics showing interesting real-world value, and this is how L2fees.info came up.

L2BEAT and L2fees

David is friends with the founders of L2BEAT and thought of bringing together the two projects- cryptofees.info and L2BEAT. This is how the new info site L2fees.info was born.

Cryptofees.info shows total revenues- all the fees that were paid in the previous counter day. The current version of L2fees shows per-transaction fees. A lot of people are complaining that they can not use Ethereum because of the fees being too high. Therefore, David wanted to show that when you are using Ethereum Layer 2, you still use Ethereum but are paying much lower fees.

Security or low fees- a dilemma?

David uses Polygon, he was using xDai for years before everyone else was using it. He thinks that there will be always room for the very-low-fees-chains, which maybe make some trade-offs in terms of decentralization, but for a lot of applications, you don’t need the full level of Ethereum security.

People don’t care about decentralization until they do, until they need it.” — said David.

David mentioned seeing Solana go down for almost a full day a few days ago: this is what you get when the chain goes down, and your money is locked in, the low fees are great but when your money disappears it is not so great anymore.

We also saw Arbitrum going down- this happens when the sequencer goes down, but you can still use Arbitrum, only that you have to pay Ethereum fees rather than Arbitrum fees.

These are the cases when people realize the tradeoffs that they are making on some of these lower-cost chains. It is important for the projects like L2BEAT and L2fees to make these distinctions because these are technical distinctions and a lot of the users might not understand the differences.

Also, David highlighted that he is not against Polygon, for instance. He considers Polygon as being awesome, but it is a different product than Arbitrum, Optimism or zkSync. He believes that those two different types of things are going to attract different applications. For instance, games and applications that involve really small transactions are perfect for Polygon. For people who just want to experiment, Polygon allows deploying your smart contracts for cheap. With something like Arbitrum, you can do the same DeFi like on Ethereum, and have the guarantees that if you are moving large amounts of money, you are comfortable with it.

David finds that NFTs are part of the reason why the fees are so high on Ethereum, however, the fees have been high already in May 2021. Fees are always high when the market is moving up: when assets are high and people are making money, they are willing to pay more.

NFTs are different types of assets, however. Today, there are people trading ETH and other cryptos on Uniswap, and there are people trading NFTs on OpenSea. There are two different markets of economic value moving around.

What does the future hold?

David believes that we will definitely see some staying power of these low-fee side chains like Polygon and monolithic chains like Solana — they are not going to go away. The questions are: where do developers want to build and feel comfortable building? According to David, developers want to build on a sturdy foundation and they want to build where other people are. Moreover, developers tend to be ideologically minded — but not all of them.

For instance, David wants to build on a really decentralized system, which means building on Ethereum or on a decentralized Layer 2.

If I want to build like a really big project, I am less interested in using Polygon or using a competing Layer 1 that has a completely different ecosystem. Developers are going to be deploying on Layer2s and this will bring the users.” — said David

Scaling of blockchains

As David mentioned, if you look at the fees at Arbitrum or Optimism right now, they are around $1 for a transaction, and these fees will keep getting low as more people use it and more restrictions and caps are removed. But Layer2s will never have Polygon fees, which is a fraction of a cent; in fact, David is not sure whether even Polygon will stay at such a level of fees, as they have increased the prices recently.

David said: “Scaling is the problem in blockchains right now, anyone who claims to have a solution is probably lying or exaggerating. Everyone is trying to figure out how to scale.”

According to David, the best solution seems to be isolating different rollups or chains and having some kind of shared security and data availability. Some people are looking at framing this around the data availability problem because that is the constraint resource now. If you have a lot of different rollups, the execution cost is negligible, the consensus kind of changes, but you need a place to put all these transactions.

This is what Ethereum 2.0 says it is going to bring us — the Ethereum 2.0 data shards will have a lot of data available for rollups to post their data.” — mentioned David.

David stays optimistic: “ From a high level it seems that if they can create data shards and keep expanding them to meet the demand, then theoretically, you can have infinite scaling to that direction.” According to David, another underappreciated fact is that we are talking about the Ethereum scaling strategy. However, it looks a lot like some other blockchains are approaching scaling in the same way.

Rollups and sharding are similar to Polkadot and their parachain strategy of having shared security, shared data availability, but lots of different parachains. It is also similar to how Cosmos is approaching things: Cosmos has separate zones — they don’t share security at the moment, but shared security and data availability is among future development plans.Tezos has also said that they will be using Ethereum style rollup system.

Therefore, we can see that all these smart contract projects have a similar approach to scaling. The only different approach is the Solana approach, where they have very big nodes. However, there are doubts whether this approach can scale to the level of the whole world using blockchain. David is definitely on the Ethereum side.

Check out L2fees.info!

WATCH the discussion with David on #L2Show on YouTube.

About #L2Show

#L2Show is a YouTube show dedicated to the developments of Layer 2 and projects building on it.

#L2Show is brought to the ecosystem by DeGate, an orderbook-centric Layer 2 DEX, and hosted by Agne K, @agnecrypto.

Watch all episodes of #L2Show on DeGate DEX YouTube channel

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DeGate Team

A DAO-centric, decentralised limit trading protocol built on Ethereum. 🚀