Ethereum, the world’s second-largest crypto and a global center of decentralized applications (dApps), is at an inflection point. It introduced the world to smart contracts and decentralized finance (DeFi). Its underlying architecture is woefully outdated and can no longer keep pace with the demands of a growing, fast-moving ecosystem. The Ethereum Foundation understands this profound challenge. Researchers last year sounded the alarm that Ethereum could become irrelevant if it doesn’t quickly find solutions to its scaling issues. GreedyChain.com explores the root of Ethereum’s biggest challenges. It digs into solutions as well, so you have a much clearer picture of where the platform is headed.

The Urgency of Scaling: Why Now?

The pressure on Ethereum to scale isn't just about handling more transactions. It's about maintaining its relevance in a competitive landscape. High transaction fees (gas fees) and slow processing times have plagued the network, making it expensive and cumbersome for everyday users. Ultimately, this creates a high barrier to entry, discouraging adoption of the dApps and DeFi protocols that are currently being developed on Ethereum. As newer, faster and cheaper blockchain platforms launch, Ethereum is in danger of losing its dominant position.

Ethereum's node architecture, still resembling Bitcoin's 2009 design, requires a fundamental shift. Rather than having every node on the network validate every transaction, a future Ethereum will require differentiated roles to support specialization and improve overall efficiency. This includes innovations such as data sharding and efficient consensus mechanisms. Our ecosystem is far outpacing the national progress. With targets of single-slot proof latencies later this year, it will massively reduce block times and increase responsiveness.

Ever since 2017, Vitalik Buterin has been beating the drums for Layer 2 (L2) scaling solutions. Though he’s in favor of much expressive change, he is adamantly against raising block sizes, seeing it a dangerous centralizing threat. His vision is a powerful reminder of how essential L2s are to Ethereum’s scaling roadmap. Unlike rollups or state channels, these solutions operate solely on the main Ethereum chain. They provide speedier, lower-cost transactions through off-chain computation and data. The ultimate goal is to make L2 activity extremely affordable, a key focus of Ethereum's next major upgrade, expected in late 2023 or early 2024.

Data Availability and the Promise of PeerDAS

Data availability has been a cornerstone of blockchain security. This design makes censorship impossible by ensuring that all transaction data is available to all network participants and enables complete transparency. Data-availability sampling (DAS) has emerged as a novel approach to improving data availability on Ethereum. The PeerDAS initiative will implement this idea in practice.

DAS enables nodes to prove the availability of data without needing to download the full dataset. They only sample tiny slices of the landscape. Through the application of cryptographic techniques, they make it so the complete data is probably unlockable. This greatly reduces the bandwidth and storage requirements for nodes. With this approach, more actors are able to participate in the network, increasing its overall resilience.

PeerDAS is a first-of-its-kind cooperative initiative to bring DAS to Ethereum. This way, the network spreads the burden of data availability over a larger set of peers. This novel hybrid approach greatly increases both the security and scalability of the blockchain. This initiative is a critical step for Ethereum’s long-term future. Together with other data availability solutions, it will enable Ethereum to handle more data from the ever-increasing number of L2 solutions and other applications.

EIP 7938: A Potential Game Changer

EIP (Ethereum Improvement Proposal) 7938 provides a common interface for communication across rollups. This proposal aims to address the fragmentation of liquidity across different L2s, making it easier to move assets and interact with applications across various scaling solutions. Today, moving assets between L2s is an arduous affair. This complexity not only creates a frustrating user experience, but significantly reduces the composability of DeFi protocols.

EIP 7938 is an effort to address some of these problems by introducing a standard for more generalized message passing between rollups. This collaborative layer enables developers to build applications that smoothly operate on top of multiple L2 worlds. This way, users have the convenience of utilizing a wider variety of services and assets without the annoyance of jumping across chains.

Challenges and Opportunities of EIP 7938

Though EIP 7938 is incredibly promising, it does pose some challenges. Standardizing cross-rollup communication should be done strategically with a focus on security, interoperability, and performance. It falls with developers to give builders a powerful, yet easy-to-use interface to receive and process any conceivable type of message and transaction efficiently. Simultaneously, they need to reduce the threat of vulnerabilities and cyberattacks.

The opportunities opened up by EIP 7938 are breathtaking. By powering new types of DeFi, gaming, and more applications through seamless cross-rollup communication, it can truly create a powerful new ecosystem. Users would be able to seamlessly interface with a combined ecosystem of services, without needing to worry about which L2 tech is under the hood. Something like this would undoubtedly accelerate adoption of Ethereum and its scaling solutions.

Layer 2 Solutions: A Deep Dive

Layer 2 (L2) solutions are exciting new protocols that run on top of Ethereum. They take the transactions off chain, and then privately combine and submit them to the main chain. This eases the load on the primary chain, speeding up and lowering the cost for all transactions. There are many kinds of L2 solutions all with their own trade-offs on security, scalability, and compatibility.

Types of Layer 2 Solutions

  • Rollups: These solutions bundle multiple transactions into a single transaction on the main chain. There are two main types of rollups:
    • Optimistic Rollups: These assume transactions are valid unless challenged. They are relatively easy to implement but require a challenge period, which can delay withdrawals.
    • Zero-Knowledge Rollups (zk-Rollups): These use cryptographic proofs to verify the validity of transactions, eliminating the need for a challenge period. They offer faster withdrawals and higher security but are more complex to implement.
  • Sidechains: These are independent blockchains that run parallel to the main chain. They have their own consensus mechanisms and block parameters, allowing for greater flexibility and customization. However, they also introduce additional trust assumptions, as they are not directly secured by the Ethereum main chain.
  • Validium: This is similar to zk-Rollups but stores data off-chain, further reducing costs. However, this also introduces additional trust assumptions, as users need to trust the data availability provider.

This is where zero-knowledge rollups really shine, as they can share liquidity across all of them. This feature is especially important for DeFi applications, where liquidity is vital to facilitating trades, loans, and borrowing.

Environmental Impact: L1 vs. L2

One lesser-known advantage of L2 solutions is the effect on the environment. Ethereum’s switch from Proof-of-Work (PoW) to PoS cut its energy usage by 99.95 percent. Digiconomist tells us the carbon footprint of an Ethereum transaction is almost as bad as that of a flight. It recently matched the pollution generated by two hours of YouTube. Yet, it turns out there is still more—L2 solutions are proven to help lower this impact even more.

Using L2 solutions such as Argent on zkSync saves 22,500× more energy than Layer 1 (L1) transactions. Because L2s process these transactions off-chain, they significantly lessen the burden of transactions needing to be processed on the main chain, resulting in much lower energy consumption. This transition has made Ethereum a more energy-efficient platform for decentralized applications.

Navigating the Ethereum Scaling Landscape

We know that the Ethereum scaling landscape can be intimidating and confusing, with a multitude of L2 solutions and initiatives competing for your attention. It’s a critical moment, and it’s important to be engaged and aware of the trade-offs between any given alternative.

L2Beat gives Ethereum users a great one-stop shop to get a full understanding of the scaling progress. It provides complete information across all L2 solutions, be it transaction costs, throughput or security features. This gives users the ability to compare various options and select the ones that fit their needs.

Staying Informed and Making Informed Decisions

For those looking to stay ahead in the Web3 game, GreedyChain.com offers side-by-side comparisons of Layer 1 blockchains, simple explainers on cross-chain bridges, and updates on DeFi and NFT trends. No jargon, just solid insights.

Ethereum’s path to scale is just beginning, but the developments of the past couple of years are promising. Ethereum is well-positioned to address its scaling issues head on. With the rapid development of Layer 2 solutions, improvements in data availability and efforts toward standardization, such as EIP 7938, it will remain the undisputed best platform for decentralized innovation. The Ethereum Foundation's awareness of these challenges and proactive approach to addressing them signals a commitment to ensuring Ethereum's long-term viability.