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Truly Crypto 101

What will Happen to Layer 2 Solutions After the Ethereum’s Merge?

The Ethereum’s Merge is undoubtedly the hottest topic in the crypto world recently. As reported by Blockworks, the Ethereum blockchain’s co-founder, Vitalik Buterin, said that in a post-Merge era when rollups will be introduced in due course, gas fees can be as low as $0.002-$0.05. Ethereum’s final testnet merge went live on Goerli on August 11, and the mainnet Merge is expected to occur on September 19.

Source: altcoinbuzz.io

A number of project teams and exchanges have taken sides in the run-up to Ethereum’s major upgrade and voiced their opinions about the Merge. But first thing first, what is the Merge? And how will layer 2 solutions be impacted after the Merge? In this article, Truly will walk you through everything you need to know about the Merge so that you can get a clear sense of this highly anticipated event!

What is Ethereum 2.0?

Since its inception in 2014, the Ethereum project has been divided into four stages of development: Frontier, Homestead, Metropolis, and Serenity. The first three stages adopt the PoW mode whereas the last phase of Ethereum development “Serenity”, also known as Ethereum 2.0, will transition to the PoS mechanism.

To date, Ethereum has completed the upgrade in the first three stages and is working on the development of the last stage during which it will move from proof-of-work (PoW) to proof-of-stake (PoS), namely the “Merge”. A crucial upgrade to Ethereum’s consensus mechanism, the Merge is termed to represent the joining of the existing execution layer of Ethereum with its new proof-of-stake consensus layer — the Beacon Chain, and Ethereum 2.0 will come out once the PoW system is shed from the execution layer and the Merge is fully realized.

Why does the Merge have to happen?

To answer this question, it boils down to why the Ethereum network is switching to PoS.

Users of Ethereum have long complained about network congestion and high gas fees. To address these issues, Ethereum’s co-founder Vitalik Buterin proposed sharing as a solution to improve the network’s performance, but the technology runs counter to the PoW mechanism, so the transition to PoS is inevitable.

According to Vitalik Buterin, PoS is superior to PoW in securing blockchain networks: under the same conditions, PoS not only provides better security but also shows greater resilience after being attacked. And PoS is more decentralized compared to mining with ASIC machines since anyone can become a validator by staking 32 ETH tokens on Ethereum’s PoS network.

Now that the Ethereum network will see dramatic performance improvement after the Merge, is there still a case for layer 2 solutions, which are dedicated to alleviating network congestion, to continue to exist? Before we offer an answer, let’s first look at the definition of layer 2.

What is Layer 2?

Layer 2 (L2) is a comprehensive solution to enhance the performance of layer 1 (L1) networks like Ethereum. As any exchange of data on Ethereum requires all the nodes to complete computation and verification, the network gets congested, and the gas price keeps rising. To tackle the problems, L2 solutions came into being. Built upon the Ethereum MainNet (L1), L2 solutions collect transaction data and periodically send bundles of data back to layer 1 for storage and verification. As a result, the layer 2 solution has greatly increased the throughput of Ethereum and decreased the gas price while inheriting the high-security level of L1.

The most popular L2 solutions are State Channels, Sidechains, Plasma, and Rollups. Rollups are currently the preferred L2 solutions for scaling Ethereum. There are two different approaches to rollups: Optimistic and Zero-Knowledge (ZK).

Source: aicoin.cn

What will be the impact of the Merge on L2?

Many may argue that L2 will become much less popular after the Merge; however, Truly believes L2 will coexist with Ethereum 2.0, and both will empower Ethereum from different perspectives.

Firstly, the Merge will not happen overnight. According to the schedule, it is a staged process with the completion of each stage time-consuming. After the Merge has been fully accomplished, there is still a long time for PoW to be entirely replaced by PoS. Therefore, L2 is still in demand before the realization of Ethereum 2.0.

Secondly, even when the speed of L1 has been massively increased due to the Merge, who would say no to a speed even faster? As Harold Hyatt, Product Manager of DAO & DeFi at Trusttoken, explains, “Ethereum-based scaling solutions (L2) scale with Ethereum, so if Ethereum scales in the future (sharding), L2s also scale. If Optimism is 10x faster than L1, then Ethereum is 10x after sharding, Optimism is 100x.”

Alan Chiu, CEO/Founder of Boba Network, a Layer 2 Optimistic Rollup scaling solution, is optimistic about the future of layer 2: “As Ethereum L1 becomes more efficient, L2’s will simply become that much more efficient right alongside, all while maintaining their current added benefits.”

TUSD also attaches great importance to layer 2. It has been live on L2 public chains including Polygon, Arbitrum, and Optimism and has been playing an active role in the development of DeFi ecosystems. Therefore, TUSD users not only enjoy the faster transaction speed and reduced gas fees provided by L2 networks but also deeply experience different scenarios brought by various ecosystems such as innovative AMMs, lending protocols, and yield aggregators. Meanwhile, these deployments have also boosted the adoption of TUSD and enriched its use cases.

To sum up, Ethereum 2.0 and L2 are not mutually exclusive: in fact, they support each other. As more bridges are built across different L2s, the interaction and liquidity issues of L2 will be solved. Truly believes that L2 will support an increasing number of more complicated DeFi projects and DApps and progress together with Ethereum 2.0.

Will Ethereum 2.0 eventually become a reality? Will the gas fee be reduced as expected? How will Ethereum 2.0 impact other cryptocurrencies? Let us stay tuned for what comes next. If you want to share your opinions on the Merge with us, please do leave a comment. See you next time!

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Reference: https://cryptonews.net/news/ethereum/7354731

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