Partnered With:

The New Public Chain Wars: Why Layer 2 is Important for Ethereum?

Read this article in 14 Minutes

For Ethereum, this is a battle it can't afford to lose.

The Crossroads of Layer 2: A New Public Chain War

Article: Deep Tide Techflow

2021: Are there definitive opportunities for cryptocurrency investment?

If the answer to this question is yes, then I will give two answers, Layer 2 and the derivative Dex.

As for the logic of investing in Layer 2 and the specific technical solutions, we have previously written in the article"Who is Layer 2 King when the wind blows OMG?", so I won't go over it here.

Capacity expansion on the Ethereum chain is not a new issue. We have been talking about it for many years, but now we have to face up to the challenges: BSC and HECO are in full swing; New public chains like Polkadot, Solana, and Near are ambitious; The move to L2 is still "a lot of talk and a little bit of rain"...

At Layer 2's crossroads, a new public chain battle looms, a battle Ethereum can't afford to lose.

新的公链战争：为何 Layer 2 对以太坊至关重要？

Layer 2 pair

All along, V has a special interest in Rollup. ZK Rollup and Optimistic Rollup have become the most concerned two players at Layer 2.

Optimistic Rollup, as its name suggests, tends to believe that honest people will submit honest data and that dishonesty will be punished.

In terms of architecture design, Optimistic Rollup draws a lot from Plasma and ZK Rollup, which is generally a neutral idea. Instead of pursuing extreme scalability, it balances compatibility and allows a fully generic smart contract to run in Layer 2.

This is the biggest advantage of Optimistic Rollup, which is seamlessly compatible with smart contracts on Ethereum, resulting in significantly less work for developers.

The corresponding disadvantage is that the TPS increase is limited, the exit network may be calculated on a daily basis, and the data security is questionable.

Another Rollup is the ZK Rollup that V God currently favors.

The advantages and disadvantages of ZK Rollup are the opposite of Optimistic Rollup.

The biggest advantage of ZK Rollup is that it is fast. ZK Rollup uses zero-knowledge proof to secure the data. When Layer1 interacts with Layer 2, it is easy for Layer1 to trust the data from ZK Rollup and complete verification directly at Layer1, thus completing the transfer quickly.

Counterpart, ZK Rollup disadvantage is that it is difficult to support general intelligent contract, therefore, for the developer is not friendly, ZK Rollup developers need to be independently developed intelligent module contract, not only the difficulty is big, big workload, and difficult to replicate the migration, but it also brings a benefit, when a team development actually use the ZK Rollup, prove that they are really technology.

To sum up, the ZK Rollup is fast and secure, but not smart contract compatible and not developer friendly. Optimistic Rollup is compatible with smart contracts, which is good for developers, but it has low TPS and low efficiency.

Which of the two plans is better?

In the short term, Optimistic Rollup has a lower threshold and the general EVM allows developers to start quickly, so it is more suitable for the current stage of development. ZK Rollup has a higher development threshold and is more suitable for areas requiring quick payment. In the long term, with the development of ZK-Snark technology, ZK Rollup will have more application scenarios and staying power.

However, the answer to this question needs to be written by the project side. It does not mean that the one who has the best technology will win. Layer 2 itself is fragmented.

At present, each project has already started the team migration.

For example, Synthetix and Uniswap decide to adopt an Optimistic Rollup.

To incentivize users to migrate to Layer 2, Synthetix has introduced an incentive scheme where users who pledge to Synthetix L2 are rewarded with SNX tokens.

The much-anticipated version of Uniswap, V3, may also move to Layer 2, with Uniswap founder Hayden Adams saying on Twitter that V3 will "solve all the problems."

In October 2019, Uniswap released its Dblockquoteo example of Uniswap + Layer 2. According to Dblockquoteo, Unipig can achieve almost no Gas handling under a Optimistic Rollup scenario, and its throughput is extended to 200 tx/s, which is 10 times the efficiency of the main network.

- Tether considers moving USDT of ERC-20 to Layer 2 of ZK Rollup; DyDX, a derivatives trading platform, uses StarkWare's solution...

A key question is whether the development team of Optimistic and ZK will issue coins?

Of course, it's only a Matter of time. Matter Labs founder Alex Gluchowski has already confirmed that he will release a governance token for ZKSync, a ZK Rollup based two-tier scaling solution. Offchain Labs and StarkWare will follow suit.

In the latest news, crypto venture fund Andreessen Horowitz (A16Z) has announced that it is leading A $25 million Series A round for Optimistic and will launch A publicly available MainNet in March.

There is no doubt that these trump card projects have been wrapped up by the top agencies, and the opportunity for ordinary people still lies in the secondary market.

The new public chain war

The concept of Layer 2 is not new, but from the perspective of token performance, L2 tokens have not been able to sustain a large market, mostly a flash in the pan. The main reason is that L2 is still mostly in the concept, and L2 itself has too many disadvantages, the most criticized is that it will form an island and split the ecosystem of Ethereum.

The power of the Ethereum ecosystem is that there are enough assets deposited that, through contract to contract interaction, the various types of Defi products can be put together like building blocks to spark innovation.

The emergence of Layer 2 breaks the composability of Ethereum, and developers are faced with the problem of choosing sides. When different projects are deployed in different Layer 2 projects according to their needs and interpersonal networks, their interaction costs will increase greatly, in fact, splitting the ecosystem of Ethereum and forming an island.

In the short term after the L2 migration of the project side, the island is inevitable, but if a certain solution is widely supported, the pace of L2 migration will be accelerated and the users will be inseparable from L2.

From this point of view, Layer 2 is similar to rebuilding a public chain ecology based on Ethereum. The war of Layer 2 is essentially a public chain war, and on the whole, it presents a situation of three-way melee.

Firstly, there will be a war inside Layer 2. Optimistic Rollup and ZK Rollup mentioned above, as well as Offchain Labs and Starkware will become the leading roles, while grabbing projects and encouraging migration will become the focus.

In order to encourage migration, "liquidity incentives +L2 airdrops" may be the focus of the next phase.

The other camp is the exchange public chain led by BSC and HECO. Both benefit from Ethereum congestion, undertake Ethereum traffic spillover, are compatible with Ethereum EVM, friendly to developers, and have exchange resources and traffic support... Today, BSC and HECO have become a network ecology to be reckoned with, even second only to Ethereum.

The current exchange public chain can be understood as a new Layer 2.

Finally, the new public chain camp, led by Boca, Avalanche, Near, Algoland and Solana, benefits from the same logic, Ethereum is no longer a dominant company, the fund spillover, the market needs the story of new public chain, at the same time, these projects are compatible with EVM, but also compete for developers and users.

There are three forces, both fighting within and fighting outside. At present, the Layer 2 camp is not as strong as BSC and HECO. Instead of migrating to L2, the migration of projects and users to BSC is more obvious.

So, BSC and HECO have flow, capital and wealth effect. Boca and other new public chain technology, there are ecological...... What makes Layer 2 the most certain opportunity this year?

The answer to that question is to believe in Ethereum.

In a recent interview, the founder of Polygon(Matic) refuted the idea that the Ethereum killers were taking over:

Ethereum is the most proven and secure programmable blockchain in the world, and as the ultimate settlement layer and security source, it's hard to replicate the success of Ethereum no matter how much money you have, just like the entire digital nation was formed around Ethereum.

EVM has become the global standard for virtual machines, and it will take years for any competitor to achieve this. In addition to technical things, community and culture are also unique competencies, which are deeply ingrained and hard to describe.

For example, some traders on The Defiant's Discord channel say they are using The BSC, but plan to return to Ethereum as soon as The Ethereum Layer 2 solution becomes more widely adopted in The Defi dapp.

At the same time, both BSC and HECO are not only a kind of competition, but also a form of user education for investors to carry out Layer 2 migration.

For Ethereum, this is a battle it can't afford to lose.

Layer 2 is a life-saving straw for the future development of Ethereum ecology in the years when ETH2.0 was still in the womb and Ethereum was congested.

If L2 succeeds, then THE valuation of THE ethereum ecological project will be improved, THE story of THE exchange public chain and new public chain and THE logic of high valuation will be questioned, ETH TO THE MOON, L2 TO THE MOON.

If L2 fails, then the public chain dynasty dominated by Ethereum for a long time will collapse, and it will return to the Warring States Period -- the multi-chain world, and the blockchain world will usher in a new pattern of wealth distribution.

Some expect the former, others the latter, but either way, in 2021, you have to keep an eye on Layer 2.