1. The origin and necessity of Layer2

2. Layer 2 classification (Rollup, state channel, side chain, Plasma)

3. The upcoming Layer 2 outbreak opportunity

Key Take Away:

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1. Origin of Layer2

Since the birth of Ethereum, its low transaction speed has been criticized by the community, especially Ethereum has become the public chain with the most ecology, and more and more Dapps (decentralized applications) are deployed on Ethereum , it seems that the transaction processing speed of Ethereum is slow. In 2017, a decentralized game application, CryptoKitties, almost caused the entire public chain of Ethereum to be paralyzed. During the period when CryptoKitties was popular, most of the applications on Ethereum could not be used normally. The large-scale outbreak of DeFi in 2020 made users feel the limitations of Ethereum (during that time, mining users burned a lot of ETH to pay for gas fees, I believe these ETH should be worth a fortune today wealth). Therefore, the official Ethereum began to promote ETH2.0-related matters from 2019 until 2020 when it officially gave a relatively clear explanation on the planning of ETH2.0, but at present, whether it is the community or the official, the consensus of everyone is ETH2. 0 will take at least two years to land, and this round of bull market coupled with the outbreak of DeFi makes users and project parties unwilling to wait for more than two years.

The rise of HECO (Huobi Ecological Chain) and BSC (Binance Smart Chain) actually benefited from the inefficiency of Ethereum to a certain extent. If Ethereum continues to be congested, it is conceivable that more and more users will choose to trade on other public chains, especially HECO and BSC relying on Huobi and Binance to gather a large number of trading users. Public chains still cannot get rid of the problem of centralization, but the rich effect of DeFi applications on the chain and efficient transaction processing capabilities can still attract a large number of users. This can be seen from the transaction volume of MDEX and Pancakeswap quickly surpassing Uniswap. And a large number of users will attract developers and project parties to develop and deploy on HECO and BSC, which will further improve their ecology and have an impact on Ethereum. Therefore, the expansion of Ethereum (which can be simply understood as increasing transaction speed and reducing transaction costs) has always been the most important work of Ethereum.

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Two, Layer2 classification

Layer2 has experienced many changes from the conception to the present. In this article, we will not give a very detailed introduction to the Layer 2 technical solution, but rather explain and compare it from the perspective that readers can easily understand, so as to help everyone have a basic understanding of the overall development and evolution of Layer 2.

In fact, it can be seen from the naming of Layer 2 that its logic is to distinguish it from Layer 1 (that is, the Ethereum public chain). To put it simply, the Ethereum public chain is Layer 1. Originally, all applications deployed on Ethereum The calculation and transfer are performed directly on the Ethereum, but due to the increasing number of these applications, the congestion on the Ethereum is extremely severe, so someone asked whether it is possible to take part of the calculation work off-chain or on other public chains , and then return the calculation results to Ethereum, which can reduce the burden on the Ethereum public chain and improve the performance of Ethereum. For example, Ethereum is equivalent to a highway (Layer 1), and each application is equivalent to So a car, the car is full of goods (contract interaction data), as more and more cars and goods, especially the goods are directly loaded and unloaded on the highway, the highway of Ethereum is also getting more and more congested , so people thought of a way to build some stations (Layer 2) under the expressway, let the goods be loaded and unloaded on these stations (calculate and interact on Layer 2), and wait until the goods are loaded on the car before driving to the expressway On the highway (the calculation result is returned to Layer1), so that the congestion of the highway can be greatly alleviated.

This example is basically a simple description of Layer2 and Layer1, and a set of different Layer2 solutions is formed on this basis.

1. Rollup

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The Rollup solution is actually more like a combination of Layer 1 and Layer 2. It puts the calculations off the chain and stores the data on the chain, so that it can not only improve the calculation speed, but also take advantage of the security of the Ethereum main network and solve the data problem. Availability issue. These three types of Rollup solutions actually solve the trust problem in different ways.

Optimistic Rollup follows Plasma's "fraud proof" method, that is, anyone can verify and challenge the data returned to the chain. Once a problem is found, the data will be rolled back to ensure safety, but this method has a fatal The problem is the existence of the verification period. Usually the verification period is about 2 weeks, which means that when users want to transfer money from Layer 2 to Layer 1, they need to wait for about two weeks. It is estimated that normal users will go crazy.

ZK Rollup adopts the method of ZK-SNARK (concise non-interactive zero-knowledge proof, zero-knowledge succinct non-interactive argument of knowledge), and interested users can learn more about the relevant information of zero-knowledge proof. There is a problem with the verification period, but its disadvantages are a large amount of calculation, high technical difficulty and difficulty in supporting virtual machines. However, ZK Rollup is launching a Turing-complete virtual machine, so it is likely to replace Optimistic Rollup in the future.

The design of Arbitrum Rollup has a validator role. The validator needs to record on the chain, and then needs to send a claim to Ethereum. At the same time, the verifier needs to deposit a deposit. If the validator's claim is false, then the validator's bond is forfeited. When a validator sends a claim onto the chain, there is a period of time when anyone can challenge it. If you disagree, there will be disputes, and the dispute resolution mechanism is the core and key point for Arbitrum to achieve scalability. The Arbitrum dispute resolution mechanism is like this. If the two parties disagree on something, the effective resolution mechanism will be split from big to small. For example, if a transaction involves 1 billion steps and there is a dispute, then the 1 billion steps will be split into 100 smaller claims, each of which contains 10 million steps, thus reducing the 1 billion-scale dispute to tens of millions scale. The party who disagrees will pick out the ones he disagrees with from the 10 million, and then further reduce the large to small until the most critical step of controversy is found. After finding the key step, use the Ethereum contract to decide whether this step is right or wrong. In this way, efficient dispute resolution can be achieved.

The overall process is as follows, when a node sends a claim, the claim is correct, there is no problem, then a hash is sent every 10 minutes. After hashing to the Ethereum chain, there is no dispute, and the system can run smoothly. If there is a dispute, you can use the efficient method just introduced to reduce the dispute from big to small, and finally get a good arbitration. This is where the efficiency of the Arbitrum system lies.

So far, these three rollup methods have some supporters, and some applications have begun to try to deploy them.

2. State Channel

It is equivalent to directly establishing a channel between users. For example, user A and user B often transfer money, so they decide to directly establish a channel, and then each person deposits a certain amount of tokens in this channel. When When you need to transfer money, just do the transfer transaction directly from here.

If we use the above example to explain, then user A and user B often exchange goods, and they feel that it is too troublesome to use a public truck every time, so they simply buy a truck together, transport the goods back and forth, and share the cost together. But there are two problems here. First, it is impossible for A and B to do transactions all the time. Second, because the users of this car are only A and B, there is no way to verify if one party fails to pay the fee as agreed (this Ignore statements such as transfer evidence, because transfer evidence can also be forged, and there is no fair arbitration mechanism to quickly resolve disputes), so the state channel solution cannot be reused on a large scale, especially when we return to Ethereum From the transactions on the Internet, we will find that most of the transactions are carried out with different users, so this kind of scheme does not really solve the problem of Ethereum congestion.

3. Sidechain

The side chain is relatively easy to understand, that is, simply run another public chain directly, then transfer most of the calculations to this public chain, and then return the result to Ethereum when the result needs to be returned. This solution sounds very feasible, but one of the biggest problems is the security of this public chain. The reason why Ethereum can attract so many applications and users is precisely because its ecology has been established, and there is enough computing power (nodes after the realization of ETH2.0) to ensure the security of Ethereum, but other companies The chain does not have this safety factor. For example, Ethereum is like a very complete highway. There are police and ambulances. Once a problem occurs, it can be solved in time. However, if you drive and transport goods on other roads, whether it is a car accident or a robber , there may be no protection measures, so how dare users ship goods on this road.

4、Plasma

The special feature of Plasma is that it has designed a set of fraud proof mechanism: Plasma sends specific underlying data to users for safekeeping, which solves the problem of data availability; in addition, Plasma has an "exit period" design, even if hackers obtain side When trying to withdraw the control of the chain and try to withdraw, any user can submit evidence to challenge within the "exit period". If the challenge is successful, no one can withdraw this asset, and the operator will also be fined, thus ensuring The authenticity, validity and accuracy of the data solve the problem of financial security.

However, Plasma solved the problem of side chains, but created new problems: first, users must go online every two weeks to monitor the Plasma chain, otherwise the "exit period" is missed, and hackers can withdraw assets; , users must save the underlying transaction data by themselves to ensure the availability of data, but it brings huge storage costs to users. Therefore, Plasma is not user-friendly and has a very poor experience. In the context of the big bear market in 2018, the Plasma solution that was once based on high hopes in the Ethereum community was gradually abandoned.

epilogue

epilogue

At present, among all the Layer 2 solutions, the Rollup solution is relatively the most feasible. The representative project of Optimistic Rollup is Optimism, the representative project of ZK Rollup is Zksync, and the representative project of Arbitrum Rollup is Arbitrum. Further understanding of the project;

The Layer 2 solution is indeed of great value before the launch of ETH2.0, because the current congestion of Ethereum has already hindered the ecological development of Ethereum. If the performance is not improved, whether the status of Ethereum’s first public chain can be maintained will be uncertain. problem, so in the short to medium term, there will be a wave of Layer 2 explosions; the Layer 2 solution has economic capture value because it can help users save gas fees, so this part of the saved gas fees can not only generate income for the project side, but also empower the generation currency, therefore, Layer2 projects are worthy of attention;

The tearing of the Ethereum ecology by various Layer 2 schemes is a huge problem, so if the ecological integration cannot be carried out before the official launch of ETH2.0, then the Layer 2 scheme will be completely reduced to an excessive scheme and lose its value.

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This article does not constitute any investment advice.