Layered Scaling Solutions: Going Vertical
Written By: Ahmad Jaouni
May/30/2023
First, let me start off with: Where are We Looking to Invest?
We believe that the best way to scale blockchains, such as Ethereum, is to invest in layered scaling solutions. These solutions can help to improve scalability by offloading some of the computational and data processing requirements from the base layer to a secondary or tertiary layer. Companies that are making it easier to deploy appchains, L2/L3s, such as RaaS (rollup as a service) models would help improve the scalability of blockchains overall. We are excited to invest in these types of companies, as we believe that they have the potential to make a significant impact on the blockchain industry.
Introduction
The advancement of rollup tech is arguably the best thing since Ethereum itself. The way I see it is the future of scaling goes vertical. We will start seeing various types such as layer 3, appchains, and validium. Starting off with Zk rollups and optimistic rollups, they are two Layer 2 scaling solutions for Ethereum. They both work by moving transactions off the Ethereum mainnet (aka Layer 1 or L1) and processing them on a separate sidechain. Once the transactions have been processed, they are submitted to the L1 as a single batch. This allows for much higher transaction throughput and lower gas fees than that on L1
Zk rollups use zero-knowledge proofs to verify the validity of transactions. This means that they can process transactions without revealing any information about the underlying data. This makes zk rollups more secure than optimistic rollups, but it also makes them more complex and computationally expensive to implement.
Optimistic rollups do not use zero-knowledge proofs. Instead, they rely on a fraud-proof mechanism to ensure the validity of transactions. This makes optimistic rollups simpler and less computationally expensive to implement than zk rollups, but it also makes them less secure.
Main Differences Between zk Rollups and Optimistic Rollups
Here is a table that summarizes the main differences between zk rollups and optimistic rollups:
Feature zk rollups optimistic rollups Security More secure Less secure Complexity More complex Less complex Computational cost More computationally expensive Less computationally expensive Transaction speed Faster Slower Gas fees Lower gas fees Higher gas fees
zk rollups are particularly well-suited for DeFi applications, as they offer the highest level of security. Optimistic rollups are a good choice for applications that require high transaction speed and low gas fees, such as gaming and NFTs. Currently, there is an Ethereum improvement proposal that has big implications for the usability and scalability of both zk-rollups and optimistic rollups.
Implications of EIP-4844
EIP-4844 is a proposed Ethereum Improvement Proposal that will introduce a new type of transaction called a blob-carrying transaction. Blob-carrying transactions will allow for the transfer of larger amounts of data on Ethereum, which will lead to increased transaction throughput and lower gas fees.
EIP-4844 is expected to have a number of positive implications for Ethereum, including:
Increased transaction throughput: EIP-4844 will allow for increased transaction throughput on Ethereum by offloading some of the computation and data storage from the L1 to L2 rollups. This will lead to lower gas fees and faster transaction speeds.
Improved scalability: EIP-4844 will make Ethereum more scalable by making it easier to add new L2 rollups. This will allow Ethereum to handle more transactions without compromising its security or decentralization.
Reduced costs: EIP-4844 will reduce the costs of using Ethereum by lowering gas fees. This will make Ethereum more accessible to a wider range of users and applications.
Increased security: EIP-4844 will increase the security of Ethereum by making it more difficult to attack the network. This is because L2 rollups are more isolated from the L1 and are therefore less vulnerable to attack.
Improved decentralization: EIP-4844 will improve the decentralization of Ethereum by making it easier for anyone to run a rollup node. This will make the network more resistant to censorship and manipulation.
Overall, EIP-4844 is a positive development for Ethereum. It will make the network more scalable, secure, and decentralized. This will make Ethereum more attractive to users and developers, and it will help to ensure the long-term success of the project.
We are Going Vertical: L3s, Rollups, and Their Potential Impact on Ethereum
Layer 3
Layer 3 solutions (L3s) and rollups are emerging technologies that hold great promise for scaling Ethereum to new heights (literally). While still in the early stages of development, they offer several benefits that can significantly enhance the Ethereum ecosystem.
One of the key advantages of L3s and rollups is the ability to process transactions at a much faster rate compared to the L1. By operating outside the L1’s constraints, these solutions can achieve higher transaction speeds, reducing latency and improving user experience.
Additionally, L3s and rollups can substantially lower transaction costs. By leveraging off-chain or sidechain processing, they require less computational power and energy, resulting in reduced fees. This cost-effectiveness opens up possibilities for microtransactions and wider adoption of decentralized applications (dApps). These additional layers help to alleviate the load on the L1, enabling even higher transaction throughput and reduced costs.
Validium
Validium, as a type of L3 solution, focuses on improving privacy and reducing transaction fees while maintaining a strong connection with the Layer 1. It achieves this by employing a combination of off-chain processing and on-chain validity proofs.
In a Validium solution, the bulk of the transaction computation and execution happens off-chain, within a separate sidechain or layer. This allows for faster transaction speeds and significantly lower transaction fees compared to the L1. However, unlike traditional rollups, Validium doesn't publish transaction data directly to the L1. Instead, it provides validity proofs that demonstrate the correctness and integrity of the off-chain transaction computations.
By using validity proofs, Validium ensures that the L1 can verify and trust the results of the off-chain computations without needing to process and store all the transaction data. This approach strikes a balance between scalability, privacy, and security. Validity proofs provide strong assurances about the correctness of the transaction processing while minimizing the computational and storage burden on the L1.
The introduction of L3 solutions like Validium opens up new possibilities for Ethereum, particularly in terms of privacy-focused applications. Validium's off-chain processing and validity proofs can be leveraged to implement various privacy-enhancing techniques, such as confidential transactions or secure multiparty computation. These techniques allow for the execution of private transactions or the computation of sensitive data without revealing the underlying details on the public Ethereum blockchain.
It is important to note that L3 solutions, including Validium, are still under active research and development. While they hold great promise, they are not yet widely adopted and face ongoing challenges, including security considerations, complexity, and ecosystem adoption. As the Ethereum ecosystem evolves, further exploration, testing, and standardization of L3 solutions like Validium will be necessary to ensure their effectiveness, security, and compatibility with the broader Ethereum infrastructure.
Conclusion
Zk rollups, optimistic rollups, and EIP-4844 all have the potential to make Ethereum more scalable, secure, and decentralized. The advancement of ETH scaling solutions and the layered scaling approach is quickly evolving, and blockchain developers and startups are pushing the frontier of computer science. L3 solutions and Validium provide innovative approaches to enhance scalability, privacy, and cost efficiency on the Ethereum network. They contribute to the ongoing efforts to create a more scalable and versatile platform that can accommodate a wide range of decentralized applications and user demands while preserving the essential properties of security and decentralization. These technologies are still under development, but they have the potential to revolutionize the way we use Ethereum and other applications such as AI.