22 December 2021: The general argument against the utilization and widescale adoption of the leading smart contract network Ethereum is center around a key flaw - the notoriously unaffordable gas prices for everyone using the network. It presently affects everything from simple swaps on DEXs to even cashing out here on Publish0x.
Of course, it is well known that Ethereum is attempting to navigate these difficulties through the development of Ethereum 2.0, a complete network overhaul that will see the introduction of Proof-of-Stake, highly efficient scaling solutions, and provide a base framework for Layer 2 blockchain solutions.
With all that in mind, many are still not convinced that this will traverse the horrible gas fees that Ethereum users have to endure. But with the proper architecture in place, do the gas fees even matters if other networks leverage the global scope of Ethereum through roll-ups?
Introduction to Rollups
Overall, roll-ups are a relatively simple concept. Roll-ups are solutions that execute transactions outside of the main layer 1 blockchain (Ethereum) but still post all the data to the layer 1 chain. This greatly reduces the network load on the L1 chain while still giving L2 chains access to the widespread architecture of the main chain.
This, generally speaking, creates the following advantages:
- Reduced network fees (gas fees)
- Greater participation
- Higher network speeds
There are two distinct classifications of roll-ups. They are Optimistic and ZK rollups, both with their own unique features.
Optimistic Rollups
This type of roll-up is a parallel solution as a secondary layer (L2) to the main L1 chain being Ethereum. Optimistic rollups don't compute anything, allowing them to be highly scalable, potentially by several magnitudes.
Instead of computation, optimistic rollups notarise the L1 blockchain transactions in the form of calldata. Doing this can significantly lower gas fees, though this does not necessarily speed up transaction times.
Example solution: Fuel Network
Zero Knowledge Rollups
Zero Knowledge or ZK rollups create large bundles of transactions for off-chain computation in the form of cryptographic proofs known as SNARKs. All transfers are stored on L2 solutions while the SNARK (succinct non-interactive argument of knowledge) serves as the validating proof for the main chain. Utilizing ZK solutions can greatly increase block validation speeds and lower transaction costs, making it a highly desirable soltion to Ethereum's ailments.
Example solution: Loopring
Rollups are Bullish for Both Ethereum & Other Networks
The benefit of utilizing rollups is mainly saving time and money to launch a new blockchain, cryptocurrency, or application. Rollups allow for new projects to take advantage of the sprawling blockchain architecture that already exists on the Ethereum network. This bypasses the long development times, trial & error, and increased costs of:
- Developing the blockchain
- Attracting validators
- Minting and releasing coins
- Implementing security
Rollups only need to be concerned with the benefits of the project and not the high costs of attracting all the necessary capital to reinvent what Ethereum already has developed.
Rollups are bullish for both Ethereum and other networks because rollup solutions only need to buy and burn Ether (ETH) to settle transactions and store data on Ethereum's L1 chain. The costs associated with launching a fully independent project versus simply buying & burning Ether is not even close.
So in summary, new projects greatly reduce costs by leveraging Ethereum's existing architecture while Ethereum becomes increasingly bullish because each rollup helps to optimize the Ethereum mainnet while Ether rises in value perpetually.
Check out this fantastic thread by Twitter user @domothy for a clear example utilizing Solana as an example:
The Value in "Ethereum Killers"
When discussing direct Etherum competitors or "Ethereum killers", it is important to acknowledge that nothing is going to "kill" Ethereum but rather slowly eat into the Ethereum market share just like Etheruem is already doing to Bitcoin.
Some well-known Ethereum competitors are:
- Algorand
- Cardano
- Polkadot
- Solana
Of course, all of the above networks have their own unique solutions, technological advantages, visions, and differing plans of action to bring about the best L1 blockchain solutions. It doesn't necessarily mean all of them will succeed. As @domothy argues, Solana would be better situated as a rollup on Ethereum than as an independent L1 network.
Algorand has the infrastructure, community support, and real world use cases to survive while outperforming the Ethereum blockchain. Plus, Polkadot and Cosmos both have taken large steps foward in terms of blockchain interoperability - something that is key to the long term development of the entire cryptocurrency space.
With such a vast, expansive ocean of blockchain infrastructure that either already exists or is being developed, even projects that don't necessarily survive on their own can pivot and leverage larger, more established chains to formulate stability and longevity. Over time, expect to see far greater specialization from even current L1 blockchains, like Solana dominating the NFT market and Algorand taking the lead in government blockchain technology.
Summary
When looking past present day gas fees for the majority of users, Ethereum's architecture could become the base layer for hundreds if not thousands of rollups, scaling solutions, blockchain games, applications, DeFi protocols, and more. As more solutions and layers come together, the overall network will run faster, smoother, be more secure, and cost far, far less than it does currently.
Overall, the key takeaway here is that rollups are exceedingly bullish for both Ethereum and the broader cryptocurrency space. As investors, developers, and enthusiasts realize the value of existing blockchain architecture versus developing projects from the ground up, expect a flood of capital into L2 solutions and, most importantly, Ethereum itself.
Author Note:
Apologies for the delay :) I have been very ill over the past week. Weekly Markets tomorrow will be the last article until Wednesday next week (December 29th). Thank you guys!
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