High gas costs and traffic congestion. Ethereum blockchain issues are not new. So-called “layer 2” blockchains have emerged as a response to these issues, with spearheads we know: Polygon, Arbitrum, StarkNet… In a blog article published on September 17, Vitalik Buterin outlines his vision of layer 3, and the role they can play in Ethereum’s post-Merge future.
Back to the role of the Ethereum overlay – layer 2 blockchain
Ethereum is expensive and slow. The mainnet is not suitable for micropayments, and fees reach $6 per transaction. Moreover, it takes about 6 minutes per transaction, despite a block time of 12 seconds.
In fact, you should know that exchanges like Binance, FTX or Coinbase require some blocks to confirm a transaction on Ethereum. If FTX is limited to 10 blocks, this is not the case with Coinbase which requires at least 35 blocks.
So Ethereum’s problem is the same as Bitcoin’s problem. But this is the price to pay for having a secure and decentralized blockchain.
A “layer 2” is added to the main blockchain (called “layer 1”) to solve a specific problem related to one of the three main aspects of a network: scalability, security and decentralization.
An example : Polygon (MATIC) solves scalability problems by promoting micropayments. To keep it short, by validating transactions in batches of 1000 on their network, Polygon sends all of that in one transaction to Ethereum.
Let’s look, for a few lines, at Ethereum layer 2 families 🤓.
Off-chain transaction channels
Behind the exotic terminology, these are simply payment channels that consolidate hundreds (or even thousands) of transactions into a single transaction sent to Ethereum.
The goal is often the counterparty security : a smart contract, acting as a trusted third party, ensures that transactions between players are well compensated, like a bank clearing house.
An example : Raiden (RDN)
Large coats of plasma
Plasma overlays get their name because they “gravitate” around the mother blockchain like cells around a main body. “Child chains” do the transactions on their side, before sending them to Ethereum – but not storing them there. So DeFi applications are not compatible.
The objective is above all speed and the lowest cost.
An example : Polygon (MATIC)
Sidechains have their own consensus algorithm, are independent, and are connected to Ethereum by a bridge that works both ways. Despite their advantages, sidechains have a vulnerability problem due to their limited decentralization.
The goal is independence from Ethereum and speed.
An example : Ronin (RON)
It is necessary to distinguish the ZK Rollups (zk = zero-knowledge) and the Hopeful rollups. ZK Rollups, like off-chain routes, can aggregate thousands of transactions that have occurred off-chain. With the difference that they add encryption to guarantee anonymity.
Despite their vulnerabilities, ZK Rollups represent the future of Ethereum in the medium term to solve its scalability problems. The community is very enthusiastic about them, favoring them over sidechains, plasma, baliums and other off-chain channels.
An example : StarkNet
Validiums are very similar to ZK Rollups, but unfortunately not compatible with all smart contracts.
The main objective is scalability, validated able to process up to 10,000 transactions per second.
Coming back to Vitalik Buterin, he expressed himself as such on September 17 in a blog article, titled ” What kind of Layer 3 makes sense? “. He mainly talks about Rollups, and their potential in solving Ethereum’s scalability problems.
In fact, some developers have advanced the hypothesis of Rollups Rollups: in other words, to aggregate transactions on an additional level, in the reaching a target of 100,000 transactions per second. Then we would move towards Rollups located in layer 3, with “square scalability”.
a hypothesis in which Vitalik Buterin was interested and responded by sharing his vision for a three-layer Ethereum ecosystem.
To keep it short and put this in investment logic, we can summarize three possibilities for layer 3:
Case 1 = 2 layers don scalability + layer 3 for confidentiality (ZK Rolls). In this vision, it’s not a question of quadratic scalability, but a level 2 overlay that runs applications, then different level 3 overlays for specific needs like anonymization.
Case 2 = layer 2 for general scalability + layer 3 for scalability personal .
Case 3 = layer 2 for general scalability + layer 3 for scalability low confidence (validiums) . With validiums instead of Rollups, to make transactions even cheaper.
For the average investor, these technical considerations are obviously difficult to understand. The most important thing to remember is that they provide insight into how Ethereum is going to evolve. Priority is therefore given to solving scalability problems through an overlay ecosystem.