Compilation of the original text: Lynch, Chain Catcher

Original title: "Outlook 2022: The many faces of crypto scalability》

Compilation of the original text: Lynch, Chain Catcher

If 2020 is the year of DeFi, and 2021 is the year of NFT, I believe that 2022 will be the year when encryption scalability blooms.

Much of what has happened in the past few months has been driven by a debate about the growing need for scalability on encrypted networks. Alternative approaches to cryptographic scalability will be revealed in the near future.

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From Ethereum Killer to Modular Blockchain

This has been happening continuously since CryptoKitties first clogged Ethereum in 2017, showing that the current state of major smart contract platforms is not ready for mass adoption. The scalability trilemma shows how difficult it is to increase scalability without compromising other important dimensions such as decentralization and security.

What problem is the crypto ecosystem actually trying to solve?

In the most naive sense, developers and speculators are looking for solutions that provide the highest transaction throughput. One of the difficulties in scaling transaction throughput is that the demand for transactions is very volatile, so capacity needs to be able to scale up or down based on network demand. Even the best centralized networks have shown that sometimes sudden spikes in transaction demand can bring the entire network to a standstill.The reason is that the real world (chips for computing and long-term and short-term data storage) needs to meet the needs of the digital world (acquisition, sending, data editing), and the real world always moves at a slower pace, especially when the global (real world ) when the supply chain is already operating at maximum capacity.

The interaction between reality and digital is very relevant for the future development of scalability of encryption. Simply increasing the block size for greater transaction throughput requires more powerful hardware to run a full node, thus increasing the barrier and resulting in a less decentralized network.

This trade-off has led to the creation of BCH and a split in the Bitcoin community. Larger block sizes are not the only way to achieve this tradeoff. If a network requires transaction validators to perform more complex calculations or process more short-term data, this will lead to a similar increase in the need for specialized hardware or large amounts of memory, thereby excluding most long-tail users from verifying the integrity of transactions in the network , which will lead to a more centralized network in the long run.

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Transition from a monolithic architecture to a modular architecture. Source: Celestia

Ethereum's most promising scalability solutions all address a combination of domains or stacks: sharding addresses data availability, consensus, and block building, while Rollup allows transactions to be processed at L2 with validity or fraud proofs. Hooked to the security of L1. Validiums and Volitions use proof-of-validity methods, and more platforms utilizing these technologies may gradually enter the mainnet in 2022.

As the modular architecture matures, I expect the crypto industry's need for alternative monolithic L1 smart contract platforms to decrease in the future.For many existing or aspiring professional smart contract platforms, building a long-term scalable monolithic chain from scratch with secure bootstrapping will be inferior as a second layer on top of secure data availability + settlement layer Running is more engaging.image description

Visualize the Rollup contract. Source: Vitalik Buterin

At the same time, I would like to see some interesting new developments, even more modular approaches, such as through separate data availability and consensus layers that do not perform any computation themselves. A key issue to be aware of is composability between various modular building blocks, and even though some tentative solutions have been proposed, we still need to understand how the world of modular encryption evolves at scale.

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Design Space Expansion for Post-dApp Scalability

Overall, I expect greater scalability and better user experience, such as widening the design space for dApps in Web3 by abstracting blockchain interactions. Many design choices for the user interface, as well as the nature of the dApp itself, are limited by the current architecture of the platform they are built on.

For example, we are seeing the rise of AMMs and liquidity pools in DeFi as an alternative to limit order books on exchanges. This is not because AMMs are generally more efficient (you can't see AMMs on Wall Street), but because AMMs are an ideal solution for the compute-constrained environments of current Web3 development. Millions of users constantly posting, editing, and canceling limit orders can congest the network as a whole and consume a lot of gas per user. With more scalability, we might expect the return of limit order books in DeFi.

This could again have an impact on real DeFi yields. With limit orders and less reliance on AMMs, there may be less demand for liquidity mining projects due to increased capital efficiency, and less demand for cash or stablecoins in Defi. The current Curve war may come to an end, and capital may once again find a more productive use.

Due to increased scalability, DeFi may go beyond basic financial primitives and compose complex use cases, driving more real-world user needs, such as building a full-fledged DeFi bank. One of the really exciting areas right now is DeFi options, which is where we see DeFi succeed where CeFi failed, offering a robust crypto options market in addition to Bitcoin and Ether options.

However, there is currently no secondary market for DeFi options, so the potential for market participants to hedge or express ideas through options is still limited. If scalability enables viable limit order book swaps and reduces the minimum fragment size for transactions (by lowering transaction costs), a liquid secondary market for DeFi options could become a reality.

The added scalability will also enable truly long-term participation in crypto games and new NFT use cases in the future.

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Growing demand for tools and middleware in a multi-chain and multi-tiered world

A modular multi-chain and multi-layer crypto ecosystem will also require more tools, infrastructure and middleware solutions than currently available. Existing or new crypto networks will have a niche in the market focused on this new paradigm.

Perhaps, existing cloud storage protocols will expand their service scope and evolve into a complete data availability + consensus network. Potentially, there will be other networks that focus on providing pure computing resources as a service, focusing on processing zero-knowledge proofs of Zk-Rollups. Indexing protocols for querying network data from different data layers, cross-chain and cross-layer oracles, or composability and liquidity layers will also continue to evolve.

in conclusion

in conclusion

We are still in the initial stages of being able to grasp what it all means. I’m interested to explore how tokenomics and value capture evolve in such a modular world, and what other impacts can be expected, such as on MEV and DeFi composability. The expansion of block space acts as a huge supply-side shock that will have an impact on the use cases of most cryptocurrencies and the investment case behind them.

During this transitional period, there will be many opportunities for entrepreneurs, talent, investors, and ecosystem participants of any kind. New protocols will emerge, old protocols will become axes, and some will be phased out. Due to the open nature of the crypto world, there will always be multiple approaches, and I'm excited to see them continue to advance and evolve throughout 2022 and beyond.