Laden...
| Breaking down Ethereum’s evolution and its impact on crypto markets By Teddy Oosterbaan February 16, 2022 +5.1% $3,076.72 $372.46B $14.02B (As of 2/15/22 @ 17:21 UTC. ETH price % change over 24 hours.) Was this newsletter forwarded to you? Sign up here.
Today, a week after Ethereum co-founder Vitalik Buterin doubled down on his belief in rollups, I hoped it might be useful to provide an introduction to the technology behind rollups and the different approaches used in their implementation.
So, as defined by the Ethereum Foundation, rollups are a solution for scaling Ethereum that performs transaction execution outside of the network’s layer 1, yet posts the transaction data to Ethereum and inherits its security properties. In short, rollups make Ethereum transactions cheaper without significantly sacrificing the inherent security of the base blockchain. It's important to note that not all rollups are built the same; the most popular implementations have very different security models and user experiences.
Optimistic rollups Optimistic rollups do not do any computation by default; rather, they assume all state changes are valid (hence optimistic) and post the off-chain transactions to Ethereum’s layer 1 as calldata. In order to protect against fraudulent transactions, the rollup has dispute periods in which any third party can publish a fraud proof. The fraud proof will cross-check layer 1 and layer 2 and confirm that all transactions are valid. If not, the invalid transactions and all following affected transactions will be reverted. Arbitrum, Optimism and Metis are a few of the protocols implementing Optimistic rollup technology to create a full Ethereum Virtual Machine (EVM) environment with user experience being a cheaper and faster version of mainnet.
Optimistic rollups do not largely change the trust assumptions of Ethereum, as any user is capable of running a sequencer (Arbitrum full node) that processes transactions and allows users to withdraw funds to mainnet. Sequencers are required to put up a “fidelity bond” on mainnet, thereby creating a financial incentive to be truthful. If another user disputes the sequencer’s transactions, and they are found to be dishonest, the fidelity bond is paid out to the disputer. Financial incentives and multiple sequencers will allow the layer 2s to have strong uptime performance and lean on Ethereum’s security without the concern of interference.
By socializing gas cost across bundled users and only posting calldata to mainnet, Optimistic rollups are able to achieve transaction fees 10-100x cheaper than the corresponding transaction on Ethereum layer 1. These fees will continue to get cheaper as data storage is optimized on mainnet for rollups and sharding, splitting the network in multiple chains to relieve congestion, is eventually implemented.
Zero knowledge rollups Zero knowledge (zk) rollups bunch together hundreds of off-chain transactions using extensive computation and post them bundled to mainnet in what is known as a “validity proof.” The validity proof is the already computed state of the layer 2 that is sent to mainnet for storage, which contains much less data than the calldata used in Optimistic rollups. Starkware, Polygon Hermez and zkSync are a few of the first implementations of Ethereum based zk rollups creating low cost, application specific layer 2s.
Since zk rollups are so computationally intensive, it is nearly impossible to recreate the full EVM environment that layer 1 and Optimistic rollups are able to run. Therefore, this scaling solution is confined to single types of transactions and cannot host a wide variety of projects on a single network. However, since zk rollups compute and verify transactions on their own, the technology is able to offer fast finality and transaction costs that are significantly lower than Optimistic rollups and magnitudes lower than mainnet.
Which rollup will win? The transition to rollups is still at an extremely early stage, with the most activity still seen on Ethereum mainnet and a handful of alternative layer 1s. Until large liquidity providers and developers decide to move capital and protocols over to rollups, it will be difficult to say which solution is favorable. Obviously it may not be a binary answer, with some applications favoring an application-specific chain and others favoring full EVM compatibility and the surrounding composability.
As of today, protocols have appeared to favor Arbitrum, which falls under the Optimistic category. Arbitrum has gained $2.3 billion in total value locked (TVL) according to DeFiLlama, making it the 10th largest individual chain. DyDx however, utilized zk rollup technology to enable leveraged derivatives products that gained massive traction earlier in 2021. The application has nearly $1 billion in TVL alone and noted that they chose Starkware’s ZK technology for its further commitment to decentralization and user experience.
To get a better understanding of where Ethereum is moving next, I will be attending ETHDenver later this week! If the panels and speakers are any hint, layer 2 development and the transition to proof-of-stake will be on the agenda. I’ll be sure to outline the significant takeaways in articles this weekend and in next week’s edition of the newsletter!
Abra is a proud sponsor of Coindesk’s Valid Points newsletter. Based in California and backed by top Venture Capital firms, Abra is an all-in-one simple, secure app that allows you to trade over 110 cryptocurrencies, get 0% interest loans using your crypto as collateral and earn interest with up to 13% APY on stablecoins and 7.15% APY on Bitcoin. Join nearly 2 million users by downloading Abra from the Google Play or Apple App store. Do it today and get $15 in free crypto once you fund your account. You came, you invested, now conquer. Abra – Conquer Crypto.
Pulse check
The following is an overview of network activity on the Ethereum 2.0 Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on Eth 2.0 metrics. Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.
Colligo means ‘to bind’ in Latin, this project has been created for the sole purpose of building an NFT community &; eco-system for online art &; collectibles lovers and artists to be part of and benefit from actively
Validated takes LooksRare NFT marketplace is called out for a team payout, which again brings into question the longevity of decentralized protocols. BACKGROUND: The protocol’s mechanics were transparently stated in the documents, but caused backlash this week when the team received a large payout in wrapped ether. While the payout might have been unnecessarily large, the team did not sell any of the Looks token and had been working on the project unpaid for over six months.
A new Ethereum Improvement Proposal (EIP) would set the foundation for staked ether withdrawals after the transition to proof-of-stake. BACKGROUND: While the EIP won’t immediately allow validator withdrawals, it sets the stage for the simple upgrade that makes the process possible. Ethereum core developers are estimating the Merge will take place in the early summer, and this proposal would further advance the road to proof-of-stake.
The U.S. Department of the Treasury reiterated that the IRS would not classify miners, stakers or developers as “brokers” under the new Infrastructure bill. BACKGROUND: Months ago, the crypto provision seen in the infrastructure bill would have subjected miners and validators to impossible reporting requirements that could kill the U.S. crypto industry. A single senator made the move to block an informed amendment to the provision, but the department acknowledged that it would be impossible for wallet providers, stakers and miners to follow transaction reporting as brokers.
Factoid of the Week
Open comms Valid Points incorporates information and data about CoinDesk’s own Eth 2.0 validator. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.
You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is: 0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb.
Search for it on any Eth 2.0 block explorer site!
Valid Points A newsletter from CoinDesk Were you forwarded this newsletter? Sign up here. Copyright © 2021 CoinDesk, All rights reserved. 250 Park Avenue South New York, NY 10003, USA Manage your newsletter subscriptions | Unsubscribe from all CoinDesk email |
Laden...
Laden...
© 2024
