Introduction
Ethereum continues to lead the cryptocurrency industry in being the hub for innovation in all spaces, from DeFi to metaverses, NFTs and beyond, Ethereum and her ecosystem stand above the rest. With that being said, the rise of the ‘fee-memes’ and the general complaints around Ethereum’s transaction times and rather onerous fees has led to a swelling in popularity of other chains as potential alternatives to Ethereum: Solana, AVAX, BSC, Polkadot, you name it. The primary selling point for these chains is that they’re faster and cheaper than Ethereum, though all of them don’t even come close to the communities that exist on Ethereum which have been cultivated over the span of many years, they are all providing as many incentives as possible to siphon projects, developers and liquidity over to their chains so as to make their own projects stronger.
This brings us to the current and coming state of Ethereum, with competitors eager to chip away at Ethereum’s success and capitalize on its current shortcomings, the Ethereum developer community has coalesced around a series of proposals and fixes to Ethereum that should bring it up to speed with its current competition. The rest of this article discusses these solutions as well as the downstream effects these different options proffer for Ethereum and how L2PAD is leveraging their scalability solutions to evolve the launchpad scene into brand new territory fixing many of the problems plaguing the centralized VC industry today.
Etherem2.0
Ethereum2.0 has been in the making essentially since the inception of Ethereum and her original PoW model and is intended to solve the scalability problems plaguing Ethereum as well as the more recent, and hypocritical, worry about energy consumption. With Ethereum2.0 the first innovation to Ethereum is the move away from the Proof-Of-Work model and onto that of the Proof-Of-Stake. Within the context of Etheruem, rather than having miners validate transactions occurring on the blockchain, transactions will be validated by people who operate nodes and stake Eth to those nodes. “Validators are selected based on how much crypto they hold and how long they have kept it. For each successful block proposition, validators receive a reward. This process is known as ‘forging’ or ‘minting.’’ This move to PoS also solves the perceived problem of Ethereum being a detriment to the environment as the chain will no longer need miners to validate a block and can rely solely on agents operating these software-based nodes.
In addition to PoS, Ethereum2.0 also signals the introduction of sharding and shard chains; individual blocks that can run alongside the main chain known as the beacon chain. These shard chains split the responsibility of validating and appending new blocks to the main chain, sharding the load per se, and significantly increasing the TX processing rate at the current ~30 TX/sec to potentially 100,000 TX/sec in the best-case scenario. This effort is already underway with the initial phase being the rollout of the Beacon Chain in full effect and the next step the ‘merging’ of the current Ethereum mainnet with the Beacon Chain and the initialization of PoS. With respect to Ethereum2.0, these phases are expected to conclude sometime in 2025 giving Ethereum the full capabilities of PoS and shard chains and ideally alleviating a significant portion of the current troubles faced by the blockchain. Keeping all of that in mind, it’s easy to write “Ethereum2.0 will be here by 2025 it’ll take some developer sweat and then boom finished product” when the reality is far from the massive undertaking that is actually happening. We must all understand that Ethereum is a decentralized public blockchain that has multiple billions worth of value locked up inside of it and spread across many dozens of protocols. And the migration from 1.0 to 2.0 entails the movement of all of this value and all of these projects to a completely new and different chain. The task at hand is potentially one of the most complex software undertakings in the history of man and Ethereum has started it a little bit over a year ago and is working on it as we speak, Ethereum’s sheer power is on full display right now and many of these projects that seek to mimic could never succeed at this decentralized transfer happening before our very eyes.
Sharding
The concept of sharding is often thrown around without the full understanding of it: “sharding is the process of splitting a database horizontally to spread the load — it’s a common concept in computer science. In an Ethereum context, sharding will reduce network congestion and increase transactions per second by creating new chains, known as ‘shards’.” Sharding allows Ethereum to move closer to its core principles of decentralization as other agents can join in the validation of the blockchain without large upfront costs for hardware. When it comes to sharding and shard chains, validators only need to store and run the data for the current shard they’re validating rather than the entire network. This reduces the hardware necessary to run a node as well as speeds up the overall process.
This then leads to people being able to run Ethereum on laptops, phones, and other mobile devices which in turn increases decentralization and security of the network. The current phase plan for Ethereum 2.0 features two phases, the Data Availability phase, and the Code Execution phase. In the Data Availability phase the shard chains will be utilized to simply provide more data to the overall network, they won’t handle transactions or smart contracts but their increased data provisions will allow for more transactions per second when paired with rollups like Optimism and Arbitrum. The second phase, Code Execution, will add increased functionality to the shard chains, making them similar to the Ethereum Mainnet and allow them to execute smart contracts and manage the results on affected accounts.
Rollups
Rollups are essentially sidechains that run in tandem with the main Ethereum chain and alleviate a lot of the burden placed on the Ethereum layer one by performing the bulky and computationally intensive portions of the transactions on the sidechains and then taking the final value and having it validated on the Ethereum main chain. This process drastically reduces the amount of data the Ethereum main chain has to interact with thus allowing increased transaction throughput and significantly cheaper transactions costs on these sidechains. In Vitalik’s blog post on rollups he gives some estimates as well: “an Ethereum base-layer ERC20 token transfer costs ~45000 gas, an ERC20 token transfer in a rollup takes up 16 bytes of on-chain space and costs under 300 gas.”
Rollups can accomplish their task of increasing the scalability of Ethereum via the use of Zero-Knowledge Rollups and Optimistic Rollups among many other options. ZK-Rollups solve the scalability issue by introducing on and off-chain processes. One of the main components of zk-rollups is Merkle Trees which are mathematical structures that allow blockchains to ensure fake data does not make its way into the on-chain records. Zk-rollups usually feature two Merkle Trees, one to store accounts the other to store all the balances, the rest of the data generated is then stored off-chain. The power of zk-rollups is that their Merkle Trees only store the most important data relevant to a smart contract which saves large amounts of processing time and power for the Ethereum blockchain as the rest of the data that would normally be stored on-chain is sent to off-chain storage (potentially a decentralized storage protocol). Zk-rollups essentially increase the amount of space available to a blockchain for important transactions resulting in gas fees decreasing and overall transaction throughput increasing.
Optimistic rollups (ORs) are another major type of rollup being built on top of Ethereum’s layer 1 and enable smart contracts to run at scale while still being secured by the network. ORs resemble another layer 2 scaling solution known as Plasma which trades the near-infinite scalability of Plasma to run an EVM-compatible virtual machine known as Optimistic Virtual Machine which allows any OR to run anything that Ethereum can, making it, in essence, a near duplicate of the base EVM. The name OR is derived from how the information is dealt with, aggregators publish the bare minimum of information needed with no proofs, (optimistically) assuming the aggregators run without committing frauds and only providing proofs in case of fraud, basically the best case scenario.
With the two most popular, and public, solutions in mind, Arbitrum, and Optimism their differences are manifold between them. Arbitrum is more complex, ambitious, and plans to implement a fair sequencing service (FSS) to deal with the constant MEV problems. Arbitrum’s FSS uses Chainlink’s Distributed Oracle Networks (DONs) to submit encrypted orders which maintain the decentralized nature of the Layer 2 and provide a counter to the historical role of MEV and front running that has plagued Ethereum 1.0. Optimism approaches it differently by developing a system known as MEV Auction (MEVA) which “doesn’t [necessarily] solve any economic motives behind bad and catastrophic MEVs.” Optimism and Arbitrum also differ in their dispute resolution mechanisms, Optimism’s resolution system sends the challenge someone raises about a problematic transaction through the EVM which is a simpler and faster means of resolving disputes. For Arbitrum, the dispute resolution occurs off-chain to reduce disputes to a single step in a transaction, this one step is then set to the EVM for final verification, this is cheaper in terms of Ethereum spent to process the dispute and results in significantly less gas as it is merely a single item that needs to be adjusted rather than a chain of transactions. Both Optimism and Arbitrum provide significant scaling solutions to Ethereum’s layer 1 and while they have their minor different peculiarities at the end of the day they will be able to solve many of the problems affecting Ethereum currently and begin drawing back in the masses who’ve departed from Ethereum over the past years.
Sidechains And Child chains
Another important piece to this Ethereum2.0 scaling puzzle is the concept of sidechains, and we’ll briefly cover two main pieces that fall under the designations side and child chain. Plasma chains are separate blockchains that are anchored to the Ethereum main chain and essentially act as smaller Ethereum chains, hence the name Child chain, and use fraud proofs, similar to that of ORs, to arbitrate disputes, and have their own methods of block validation. Thousands of transactions are able to be processed on these plasma chains as they allow the creation of multilayer chains where multiple plasma chains can be layered on top of each other. The downside to using plasma chains is that they can only handle basic functions, swaps transfers, etc, and cannot handle smart contract transactions. Plasma chains aren’t necessarily completely safe either as they require that users constantly check the network to ensure the continued security of one’s funds, this is also one of the reasons why they’re no longer looked at as one of the best solutions.
As we’ve discussed, child chains are basically just miniature Ethereum chains running simplified operations for Ethereum to reduce network congestion and at the end of the day, they all resolve back to Ethereum and relies upon its security mechanism. Sidechains can be understood as a separate blockchain from Ethereum but one that runs in conjunction with Ethereum and constantly communicates with it. It has its own validation and security mechanisms but has a bridge that can be traversed with its own native token. These solutions offer stable and reliable scaling solutions but with a large caveat, its not a trustless environment because users must transfer their funds between Ethereum and these side chains. These sidechains are also not as refined as Ethereum and therefore lack the strong governance and security features inherent to Ethereum and tend to be significantly more centralized than Layer 1 Ethereum. Lastly, these sidechains generally have their own token which must be swapped with Ethereum and incur fees and the like thus adding an additional layer of complexity to transactions as users will not only have to contend with Ethereum’s tokenomics but another chain’s as well. While plasma chains may have fallen in popularity in recent months the development of sidechains is at full speed as chains like Polygon, continue to make headway in the development of their solution.
Conclusion
Ethereum’s recent spike in gas fees and transaction times has opened a torrent of competition to temporarily take Ethereum’s lunch, as projects like Avalanche, Solana, Polkadot, and Binance Smart Chain compete for developers, liquidity, and overall users. But this respite is temporary, with Ethereum2.0 getting closer and closer every month and Layer 2 solutions being deployed and refining themselves, the variety of reasons projects and users may have used to migrate to other chains will eventually lead them back to Ethereum. Eth’s first mover advantage, as well as sheer popularity, make it one of the most desirable long-term plays for developers and projects in a space that is rapidly evolving, Ethereum may have temporarily fallen behind but it is gradually catching up and is getting prepared to once again assume the lead in the smart-contract platform space, and L2PAD will be at the forefront of it all leading the way in the democratization of venture funding and the insurance that protocols of tomorrow being built on layer 2 are for and by the people.
https://messari.io/article/ecosystem-of-ethereum-scaling-solutions
