Vitalik Buterin Analyzes Ethereum’s Layer 2 Solutions

Ethereum founder, Vitalik Buterin, delved into the intricacies of Layer 2 (L2) solutions on the Ethereum blockchain in a detailed post dated October 31, 2023. He acknowledged the rapid expansion of the L2 ecosystem, especially the ZK-EVM rollup segment, featuring notable projects such as StarkNet, Arbitrum, Optimism, and Scroll. He lauded the advancements in security, with L2beat mentioned as a good resource for tracking the progress of these projects.

A notable observation by Buterin is the growing heterogeneity within L2 projects. He foresees a continuous trend driven by key factors:

1. Independent Layer 1 (L1) projects seeking closer alignment with Ethereum, albeit cautiously to avoid compromising usability or losing momentum.

2. Centralized projects exploring blockchain for enhanced security.

3. Non-financial applications like games and social media, eyeing decentralization with a balanced approach to security based on the nature and value of activities conducted on-chain.

He emphasized that while current Ethereum L1 users might tolerate moderate rollup fees, newcomers from the non-blockchain realm are unlikely to accept any fee, especially when transitioning from a no-fee environment.

Buterin dissected the trade-offs among Rollups, Validiums, and Disconnected Systems, particularly focusing on the security and scalability aspects. The core question revolves around the assurance level of moving an asset from L1 to L2 and back to L1. He presented a comparative chart to explain the technology properties, security guarantees, and costs associated with each system type.

He also presented a spectrum of intermediate solutions like a validating bridge and discussed the cost of Ethereum’s native data availability versus an application’s needs, which would ultimately influence the choice between different L2 solutions.

An interesting concept introduced is “pre-confirmations,” providing a form of partial guarantee by attesting to the order and post-state root of transactions. This could be beneficial for low-value, high-frequency applications, offering a lower-security, low-latency solution within the same ecosystem accommodating high-security, high-latency applications.

Buterin highlighted the importance of a system’s ability to trustlessly read the Ethereum blockchain, and the security implications it entails. He proposed two solutions: ensuring the top chain reads only finalized blocks of Ethereum or allowing the top chain to revert if Ethereum reverts.

He further delved into the concept of transforming a separate chain into a Validium through a two-way validating bridge. However, he pointed out that several edge cases, like handling 51% attacks or hard fork upgrades on Ethereum, require a social commitment to address exceptional scenarios.

In conclusion, Buterin explored two key dimensions of connectedness to Ethereum: the security of withdrawing to Ethereum and the security of reading Ethereum. He acknowledged the value of projects across different regions of this design space, advocating for a potential transition from looser to tighter couplings with Ethereum as technology evolves over time.

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Polygon Solutions to Ethereum Scaling Challenges: An Overview

According to official blog of Polygon Labs, Ethereum’s scaling problem isn’t a new conundrum, with its history being almost as ancient as Ethereum itself. What makes Ethereum uniquely robust is its steady evolution, ensuring the chain’s safety and decentralization. But the question arises, how does Polygon aim to augment Ethereum’s scalability?

Understanding Layer 1 (L1) and Layer 2 (L2)

L1 and L2 are often termed as the “parent” and “child” chain respectively. While the L1 operates independently, L2 has certain dependencies on L1, primarily for security and transaction data storage. The essence of all Ethereum L2s is to process and execute transactions, effectively making L2 an execution layer. However, the responsibility of reaching consensus—verifying transaction data and updating all blockchain accounts—falls to L1.

Ethereum’s careful progression towards consensus prioritizes security over speed. As a result, any perceived “slowness” in Ethereum is a consequence of its emphasis on safety.

Layer 2: A Solution to the Blockchain Trilemma

A classic engineering rule states: one can achieve either two of good, cheap, and fast simultaneously. In the blockchain context, the pivotal elements are decentralization, scalability, and security. Given the significance of security and decentralization, L2 emerges as the primary solution to address scalability concerns.

While many L2s were still in their development phase, several intermediate solutions existed, each with its unique approach to the trilemma.

Different Approaches to Scaling

State Channels: Existing off-chain, these utilize an on-chain smart contract to allow users to deposit assets. The catch? They function without L1 interaction and require a higher trust level due to their distinct transaction validation and dispute resolution logic.

Plasma Chains: Plasma chains submit periodic transaction summaries to the L1 in the form of block commitments, requiring lesser trust than state channels.

Rollups: The fundamental difference between sidechains (like state channels and plasma chains) and genuine L2s is their security assurance. While sidechains use consensus mechanisms, L2s employ cryptographic proofs. Among rollups, ZK rollups leverage validity proofs, and optimistic rollups utilize fraud proofs. Interestingly, ZK proofs can confirm the authenticity of a transaction batch without divulging specific details—a feature that boosts scalability without compromising on security or decentralization.

Polygon’s Role in Ethereum’s Scaling

Polygon 2.0 envisions to cater to diverse use-case requirements, ensuring the scalability of each. The present Polygon protocols encompass Polygon PoS, Polygon zkEVM, and Polygon CDK, with the forthcoming addition of Polygon Miden. Notably, these chains are designed to be interoperable, allowing swift cross-chain transactions without needing a direct bridge to Ethereum.

Polygon PoS: Launched in 2020, this network has overseen more than 2 billion transactions from over ten thousand dApps, at an average transaction fee of just $0.015. Polygon Labs has plans to transform Polygon PoS into a zkEVM validium, which would effectively convert it into a true L2.

Polygon zkEVM: A ZK rollup that mirrors the Ethereum Virtual Machine (EVM), ensuring a seamless experience for Ethereum developers. Since its inception on Mainnet, it has processed over 5 million transactions from 400,000 unique addresses.

Polygon Miden: Another ZK rollup, but with a focus on a ZK-centric design. This design extends the capabilities of EVM, facilitating the development of applications challenging to realize on account-based systems like Ethereum.

Polygon CDK: An open-source kit to develop ZK-powered L2s, ensuring scalability, security, and sovereignty.

In essence, the evolution of the Polygon ecosystem is steadily aiding in the realization of a more equitable future through the mass adoption of Web3. To keep abreast of Polygon’s progress, enthusiasts are encouraged to follow the Polygon Labs Blog and other associated communication channels.

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Binance Labs Invests in AltLayer, a Leading Decentralized Rollups-as-a-Service Provider

Binance Labs, the venture capital and incubation arm of Binance, has announced a strategic investment in AltLayer, a leading decentralized Rollups-as-a-Service (RaaS) provider for Web3 applications, as of August 9, 2023.

Investment Details and AltLayer’s Vision

The investment aims to support AltLayer’s innovative approach to facilitating the launch of application-tailored rollups via its core network called the Beacon Layer. Nicola W., Investment Director at Binance Labs, stated, “Application-tailored rollups offer the security of Layer 1s and the customizability of appchains. However, a common issue with rollups today is that they mostly operate with centralized sequencers and create fragmented liquidity and userbase. We found AltLayer’s approach to facilitating the launch of application-tailored rollups via Beacon Layer an inspired take.”

Rollups are a Layer 2 scaling solution that bundles up transaction data and transfers it off the main chain (or Layer 1 blockchain). Transaction execution is performed off-chain, while assets are held in an on-chain smart contract. The transaction data is sent back to the main blockchain upon completion. Rollups increase transaction efficiency in terms of throughput, allowing a blockchain to process more transactions within a certain timeframe. There are two types of rollups: optimistic rollups, which use a fraud-proving scheme, and zero-knowledge rollups (zk-rollups), which use zero-knowledge proofs to validate transactions. Both types aim to enable high throughput and lower costs.

Optimistic Rollups are implemented by projects like Optimism ($OP) and Arbitrum ($ARB), focusing on increasing Ethereum’s transaction throughput using fraud-proving schemes. Zero-Knowledge Rollups (zk-Rollups) are used by zkSync, StarkWare, and Hermes Network to enhance scalability and privacy through zero-knowledge proofs.

AltLayer’s protocol is designed for a multi-chain and multi-VM world, with default support for EVM/WASM. It functions as a modular and pluggable scaling solution for all compatible chains. The company offers a no-code Rollups-as-a-Service launchpad that enables users to create a customized rollup within 2 minutes.

AltLayer’s Collaboration and Products

AltLayer has collaborated with industry leaders like EigenLayer, Espresso, Celestia, Double Jump, Arbitrum, Linea, and Jump to build on rollup usability. The company’s Rollup-as-a-Service (RaaS) solution provider offers products that fast-track the deployment of highly scalable decentralized applications. Most recently, AltLayer launched a no-code dashboard that enables users to spin up a customized rollup within 2 minutes.

Dr. Yaoqi Jia, CEO, AltLayer, expressed optimism about the investment, saying, “The rollup ecosystem is promising, and needs more eyes on it to flourish and expand. We’re honored to have the strategic investment from Binance Labs, and look forward to strengthening the rollup world with their support.”

About Binance Labs

Binance Labs, as the venture capital arm and accelerator of Binance, has grown to be worth over $9 billion. Its portfolio covers 200 projects from over 25 countries across six continents, with a return on investment rate of over 10X. Fifty of Binance Labs’ portfolio companies are projects that have gone through their incubation programs.

Binance Labs has been actively investing in various projects despite regulatory pressures and pessimistic market expectations.

On August 8, 2023, Web3 startup zkPass raised $2.5 million in a seed round, with Binance Labs leading the investment, alongside OKX and other participants.

On August 4, 2023, Binance Labs announced investments in AltLayer, KiloEx, Kinza, and Sleepless AI as part of their MVB (Most Valuable Builder) Program.

Additionally, on July 20, 2023, Binance Labs has invested $10 million in DeFi lender Radiant (RDNT), a protocol operating on the Arbitrum network.

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Coinbase exec says major Ethereum scaling improvements coming soon

Coinbase Chief Product Officer Surojit Chatterjee is the latest to publish his predictions for the crypto industry in 2022 and he foresees major advances in the scaling of Ethereum.

Industry leaders, analysts, and investors are sharing their 2022 predictions for the crypto ecosystem, and Coinbase’s Surojit Chatterjee is confident that Ethereum will be at the forefront of Web3 and the crypto-economy as it scales.

The CPO shared his predictions in a company blog post on Jan. 4 in which he stated that Ethereum scalability will improve but alternative layer 1 networks will also see traction.

“I am optimistic about improvements in Eth scalability with the emergence of Eth2 and many L2 rollups.”

He added that newer layer 1 networks focused on gaming and social media will also emerge. Chatterjee predicts that scalability will be vastly improved by advances in layer 1 to layer 2 bridges, adding that the industry will “desperately seek improvements in speed and usability of cross-L1 and L1-L2 bridges.”

These bridges enable tokens to be moved from a layer 1 network such as Ethereum to a layer 2 network such as Arbitrum and vice versa.

Referring to scaling technologies, the CPO specifically mentioned ZK-rollups stating that they will “attract both investor and user attention.” Zero-Knowledge scaling “rolls up” transactions data in batches for more efficient processing on Ethereum’s layer 1.

Firms such as Matter Labs have advanced in leaps and bounds in 2021 with the development and deployment of their rollup-based zkSync layer 2 platform.

The layer 2 ecosystem has undergone massive expansion in 2021 with a surge in adoption for all major platforms. According to L2beat, which tracks the L2 ecosystem, the total value locked surged by nearly 11,000% over the past year from around $50 million in January 2021 to $5.5 billion by the end of the year.

Related: Even with Ethereum 2.0 underway, L2 scaling is still key to DeFi’s future

Chatterjee predicted that there will be more privacy-focused applications emerging but this could attract more regulatory attention as more KYC/AML (know your customer/anti-money laundering) restrictions are enforced.

“We’ll see new privacy-centric use cases emerge, including privacy-safe applications, and gaming models that have privacy built into the core.”

Other predictions he made include more regulation industry-wide, larger institutional participation in DeFi, the emergence of more DeFi insurance, greater brand involvement in Metaverse and NFTs, and Web2 companies scrambling to get into Web3.


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Offchain Labs launches Arbitrum One mainnet, secures $120M in funding

Offchain Labs, the team behind the highly anticipated Ethereum layer two platform, Arbitrum One, has completed the public mainnet launch of its optimistic rollups solution.

Announced on Aug. 31, Offchain Labs also revealed that it has secured $120 million in a Series B fundraising round. The round was led by Lightspeed Venture Partners and also saw participation from heavyweight crypto investors Polychain Capital, Pantera Capital, Alameda Research and Mark Cuban.

Lightspeed partner Ravi Mhatre also joined Offchain Labs’ board as part of the round. Amy Wu, also a partner at Lightspeed, stated:

“[Offchain Labs’] dedication to the Ethereum developer community is second to none and they have the best, easiest-to-use scalability product. That’s why over 400 projects have chosen to launch with Arbitrum, including Reddit.”

In May, Offchain Labs, completed its beta launch of Arbitrum One for developers, allowing developers to begin building on the platform.

Many leading DeFi protocols are already building on Arbitrum One, including Aave, MakerDAO, Chainlink, and Uniswap. Last month, popular social media network Reddit also announced it will launch its own layer-two rollup based on Arbitrum’s technology.

Offchain Labs are not alone in pushing to scale Ethereum, with rival rollups solution Optimism onboarding developers in recent weeks, while the total value locked (TVL) in decentralized finance protocols on the Polygon sidechain appears to have found a floor at $5 billion since the recent crypto downtrend.

Related: Chainlink launches data oracles on Arbitrum One’s Ethereum scaling solution

Arbitrum One’s public launch comes as gas fees have been persistently high on the Ethereum mainnet as a result of the surging popularity of nonfungible tokens (NFTs).

According to Etherscan, average gas prices have exceeded 100 gwei over the past week, with regular token transfers costing more than $7 while transactions using decentralized exchanges exceed $65 on average. By contrast, gas prices were just 15 gwei one year ago.