Opinion: The current state of the Ethereum Layer-2 solution
Editor's Note: This article comes fromEthereum enthusiasts (ID: ethfans)Editor's Note: This article comes from
Ethereum enthusiasts (ID: ethfans)
, Author: Mohamed Fouda, translation: A Jian, reproduced by Odaily with authorization.
In the first article of our Layer-2 series, we discussed Bitcoin off-chain scalability solutions, and also analyzed Lightning Network and various sidechain solutions. When we turn to the second largest cryptocurrency (measured by market value), we can see that Ethereum also has quite a few off-chain scalability options. Most of these solutions were proposed to deal with the frequent congestion of the Ethereum blockchain in 2017.
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- Average fee cost for Ethereum transactions in 2020 (in USD) -
The increase in usage of the Ethereum network, coupled with a 10-fold increase in transaction fees, has led multiple teams to officially launch projects they have been working on for a long time. We've seen - many projects launched over the past few months, all vying for the community's attention and acceptance. This article takes all these projects and makes a chart, ready to see whether these projects (so far) are successful or not from an investment point of view.
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- The off-chain expansion scheme has entered a stage of intense competition -
Classification of Ethereum Layer-2 schemes
There are many Ethereum Layer-2 projects, we classify them as follows:
The first category includes payment scalability schemes such as Raiden, Liquidity Network, and Spankchain (based on Connext). Most schemes use state channel technology, inspired by Bitcoin's Lightning Network. These projects successfully raised funds through ICOs in 2017 and early 2018.
The second type of solution stems from the need for more flexible scaling solutions (beyond payments). These solutions can support any smart contract transaction and dApp, including DefI applications of course. Leading the charge was the Plasma chain technology — which eventually gave rise to projects including Loom Network, OMG network, and Matic. Because of the complexity of Plasma implementations (especially data availability issues), a new class of general scalability schemes has gained traction: Rollup schemes. Optimism/OVM is a pioneer in this direction, followed by the zk Rollup scheme.
The third type of scheme is not in the same dimension as the first two types of schemes, and the purpose is to add additional functions, especially privacy. The most promising projects include Keep and Aztec.
Off-chain general scalability solution
Such schemes are currently the most active and discussed Ethereum scalability schemes. While the term "general scalability" is technically imprecise, the term does reflect the goal of such schemes: scaling the throughput of arbitrary Ethereum transactions, including smart contract transactions. Compared with the simple scheme of implementing off-chain payment, the problems to be solved by such schemes are much more difficult. From a technical point of view, such schemes can be called "commitment chains", which can scale the throughput of any transaction.
Plasma chain
Transaction grouping and compression scheme (Rollup)
- Simplified illustration of an Ethereum sidechain -
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In these two subcategories, there are different projects with different goals and different technical structures. A detailed project would take several articles, so we'll only focus on the rough stuff.
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- Classification of general scalability schemes in Ethereum -
The Plasma solution was the first to appear, marked by Vitalik's Plasma paper. Plasma implementations also vary widely depending on the application scenario. The first production-grade implementation of Palsma was made by Loom Network in 2018 using Plasma's variant, Plasma Cash. Plasma Cash features non-fungible tokens (NFTs) and games. This project eventually left the Ethereum ecosystem, created an independent blockchain, and changed direction to start an enterprise application. Loom is an interesting case that shows the difficulties that layer-2 projects face, especially when the main use cases they are targeting (such as games) are not deeply tied to ETH (as a financial asset).
Rollup scheme
Two other projects, Matic and OMG Network joined the “Plasma in the Production-Stage” club, each successfully launching their mainnet. Both projects are dedicated to scaling general-purpose Ethereum transactions. Matic uses a PoS consensus mechanism on the side chain (with their project token as the stake). The OMG network is similar in direction to Matic, though the current network relies on a fixed set of validators.
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The Rollup scalability solution is considered fledgling. The Rollup solution solves the data availability problem by storing all transaction data in a packaged/compressed form on the Ethereum blockchain. The main purpose of merging transactions into groups is to save verification costs. These groups of transactions are not directly verified by the Ethereum consensus mechanism, but another mechanism is used to prove the validity of these transactions. There are two subcategories of Rollup schemes: Optimistic Rollup and zk Rollup, and the methods of proving validity are also different. Optimistic Rollup schemes use Fraud Proofs to catch invalid transactions and punish validators who allow them. zk Rollup uses zero-knowledge proofs (such as SNARKs) to prove the validity of the processed Layer-2 transactions. The proof itself is also stored on the face along with the transaction data.
A workhorse in the field of Optimistic Rollup (OR) is Optimism. Optimism is developing the Optimistic Virtual Machine (OVM), which aims to scale arbitrary Ethereum transactions using Layer-2. Their team recently launched a demo that extends DeFi applications together with the Synthetix project. This demo is really encouraging. Another force developing OR is IDEX's scalability scheme. The IDEX team also released a demo of their solution in October last year.
Another option, zk Rollup, is intended to achieve greater scalability of Ethereum Layer-2 (higher Layer-2 transaction TPS). However, this technology is still limited to specific application scenarios, such as payment or exchange, which is limited by the complexity of zero-knowledge proof construction. There are two projects competing fiercely in this space: Loopring and Matter lab's zkSync project. Loopring initially used zk Rollup to implement a decentralized transaction on Layer-2, and has entered the Layer-2 payment field and launched Loopring Pay. But zkSync initially aimed at Layer-2 payment. They also recently officially launched the product.
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There are other scalability technologies that don't fit into this Plasma/Rollup category. An example is the Starkware team, who have implemented a scalability scheme that both puts transaction data off-chain (similar to Plasma) and uses zero-knowledge proofs to package off-chain transactions together. The proof-of-knowledge scheme is called STARKs, and it is a scheme that does not require a trusted setup. Starkware and Vitalik call this solution Validum.
Raiden Network
Ethereum off-chain payment scheme
Liquidity Network
Raiden Network
Raiden Network is considered to be the closest solution to Lightning Network. Similar to the Lightning Network, it also creates a micropayment network running on the basis of Ethereum by implementing a 1-to-1 channel between different nodes on the network. In May 2020, Raiden Network released its products on the mainnet for the first time. Using the Raiden browser, as of this writing, there are only 25 accounts and about 50 channels in the network. Because the attention of the entire Ethereum ecosystem has been largely attracted by more flexible scaling solutions, it is difficult to believe that peer-to-peer payment channel networks (such as Raiden Network) have any bright future.
Similar to Raiden Network, Liquidity Network is also trying to implement payment channels on the basis of Ethereum. However, instead of following the same 1-to-1 channel model used by Lightning Network and Raiden Network, they used a 1-to-N channel model. The network operates on payment hubs that everyone can connect to. As such, Liquidity is taxonomically closer to a sidechain than a payment channel network. The project is led by several academic fellows from Imperial College London who take pride in presenting their academic research on the project website. The project was launched on the mainnet in 2018, but it failed miserably in attracting users. Only when the current Ethereum network usage and Gas prices soared did popularity pick up.
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- Return on investment of tokens related to Layer-2 payment schemes -
Enhanced off-chain solution
The last category of Ethereum Layer-2 solutions are created to realize functions that the underlying layer of Ethereum cannot provide. One of the most popular features: privacy. Privacy includes hiding the amount of the transaction and completely hiding the addresses involved in the transaction. None of these privacy features can be directly implemented on the Ethereum main chain, and need to be implemented with an independent Layer-2 solution. Two major projects in this space are Aztec and Keep.
Aztec's goal is to build a UTXO layer on the basis of Ethereum, using zero-knowledge proof to improve the privacy of transactions. This project uses a public, large-scale multi-party computation (MPC) ceremony for trusted setup, and developed zk.money to allow the community to try out their product. Because these Layer-2 privacy schemes are irrelevant to scalability schemes, the Aztec team is working hard to combine privacy-enhancing technology and zk Rollup technology stack to create ZK² Rollup.
Similarly, Keep Network is also developing an off-chain privacy layer for Ethereum. This project does not want to do hidden transactions, what it wants to do is to create a storage space (called Keeps) for private data, which can be accessed and used through Ethereum's smart contracts. The Keep mainnet was launched in early May 2020 to support the project's leading product, TBTC. In the previous article, we said that TBTC is a viable alternative to help scale the Bitcoin network. In order to achieve the high security guarantee of TBTC, transactions are only processed by the Ethereum blockchain. However, there is no fundamental problem that prevents these transactions from being processed off-chain.
On the Bitcoin blockchain, the Lightning Network is a single Layer-2 solution that provides a unified platform for many Bitcoin developers from different projects. The cumulative development work from projects like Lightning Labs, ACINQ, Blockstream, Zap, Bitrefill, and more all flow into the same river. But on Ethereum, the situation is quite different. Different Layer-2 extension methods are not compatible with each other, there is a lot of friction and competition between each other. This kind of competition may also lead to ecological division, which will delay or even hinder the acceptance of Layer-2 solutions, so that no solution can be accepted on a large scale.
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But on the other hand, the breadth of experiments in the Ethereum ecosystem may mean that everyone can find out the real useful prevention faster. A more performant scalability solution may eventually defeat or even absorb a less efficient solution.
There are some opinions that establishing an off-chain bridge solution between different Layer-2 chains (that is, a bridge solution that does not need to go back to the Ethereum main chain) can reduce possible friction. This is reminiscent of the vision of Cosmos’ Interchain Communication Protocol (IBC). Off-chain bridging may be able to glue different Layer-2 projects together to achieve greater scalability of the Ethereum network. However, most projects are still very young, and there is little discussion about Layer-2 bridging.
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