How the layer 2 race is scaling Ethereum before ETH 2.0

By June 11, 2021Ethereum
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In the blockchain world, all eyes are on Ethereum and the roll-out of ETH 2.0 — which is expected to solve Ethereum’s scalability issues. But others, like Alan Chiu are trying to do the same sooner in a layer 2 race.

Chiu, the founder and CEO of Enya.ai, says scalability in Ethereum is already making headway while the world waits for the next level Ethereum — a project already infamous for its many delays.

“Ethereum has a rather limited capacity for computation and this has been a known problem for several years,” Chiu told Forkast.News in a video interview.

“What happened more recently is, Vitalik [Buterin] and many other Ethereum researchers have come up with an alternative solution rather than trying to do everything in ETH 2.0, scaling both computation and data.”

One approach to scaling is called rollups, which moves transactions off the main Ethereum chain before recording on the main chain. The off-chain transactions can also be executed in layer 2 chains before moving back to layer 1 to store proofs. The aim is to move transactions off-chain for faster throughput of transactions, and potentially reduce transaction fees.

Chiu expressed excitement for the up-and-coming layer 2 developments, as examples like Polygon have been gaining ground while even showing immunity to the recent crypto crash. Enya.ai and OMG Network have also launched the public testnet of OMGX — a layer 2 Ethereum scaling solution which allows off-chain computations.

“By implementing computations on layer 2, moving them off the main chain, we are freeing up the precious blocks on the main chain so that in aggregate we can — as an ecosystem — handle a lot more transactions,” Chiu said. According to Chiu, the layer 2 solutions like rollups will provide lower transaction fees and increase capacity for more transactions without having to wait for ETH 2.0.

While the industry waits for the final form of ETH 2.0 for improved scaling and less network congestion — which has been leading to slow and expensive user experience — a variety of layer 2 projects are looking to solve Ethereum’s network clogs.

The Ethereum development team has also scheduled network upgrade EIP-1559 as part of the London hard fork slated for July. That upgrade seeks to further lower transaction fees by introducing measures to discourage miners from manipulating gas fees.

“So, over the next several months, there’ll be several layer 2 solutions that will be moving into mainnet and it will be an exciting time,” Chiu said. “We’ll see how that changes to gas fees that people have to pay to use these DeFi projects.”

Watch Alan Chiu’s full interview with Forkast.News to learn more about Ethereum scalability, the “scalability trilemma,” privacy and more.

Highlights:

  • Ethereum is getting bogged down by its own success: “That permission-less, censorship-resistant participation in decentralized applications that many of these that have taken off have to do with decentralized finance or participation in non-fungible tokens — that’s revolutionary because you don’t need anyone’s permission to participate and take advantage of these applications. However, because of their popularity, Ethereum has become cost-prohibitive for a lot of mainstream users. That prevents a lot of new users from even just trying out what it’s like to use these applications.”
  • How layer 2 can decongest the network: “By implementing computations on layer 2, moving them off the main chain, we are freeing up the precious blocks on the main chain so that in aggregate we can — as an ecosystem — handle a lot more transactions. So without even waiting for ETH 2 to become broadly available, we’ll immediately start seeing lower transaction fees and many more transactions happening between the combination of layer 2 solutions and the current implementation of Ethereum.”
  • Solving the scalability trilemma: “The trilemma is very real, and the trick in navigating through this trilemma is: Don’t try to optimize for all three dimensions with one solution, but rather come up with solutions that are complementary and bring them together. It’s like putting a puzzle together. Rollout and ETH 2 actually would be a great complimentary example, where optimistic rollout, let’s focus on that because that’s the OMGX architecture.”
  • The downside of transparency in public blockchains like Ethereum: “The role of privacy is essential to protecting individual users from being exploited by more sophisticated actors with ill intent on the network. After all, Ethereum is a public blockchain. Any transactions that you proposed and want to be included in the network are visible to anybody. As a result, frontrunning, for example, is rampant currently in DeFi where these bots basically software programs that monitor orders, and if they spot an order that it is worthwhile frontrunning, they will do that. And I know many folks have lost money to front-running bots.”

Transcript

Angie Lau: By introducing smart contracts, Ethereum has changed the world of finance. But as Voltaire said, ‘With great power comes great responsibility.’ As revolutionary as Ethereum has been, its popularity has been its own kryptonite. Network congestions have led to high gas fees, but also brought a historic race for us to experience, the layer 2 race — the race to scale Ethereum.

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here in Forkast.News. I’m Forkast Editor-in-Chief Angie Lau.

So, can Ethereum’s scalability puzzle ever be cracked? Is layer 2 the answer? And how can ETH 2 push DeFi and NFTs to the next level?