As a web3 developer and former java backend developer for almost a decade, I was honored to be selected as an Ethereum Foundation scholar for Devconnect 2023 Istanbul.

From my observations, there is a significant interest among potential users in blockchain applications in many nations due to government regulations and restrictions, difficulties with local currencies economy, and limited access to international banking infrastructure. In particular, severe bans on certain activities along with high rates of inflation that have eaten away at savings in local fiat currencies make cryptocurrency networks a desirable substitute. Adoption of cryptocurrencies has increased because they can make large-scale, seamless cross-border transactions possible. However, there are obstacles, particularly for micropayment use cases that call for small transaction sizes due to the high fees and restrictions inherent in base layer networks. As a result, users who would rather have access to decentralized platforms that offer better security and autonomy tend to gravitate toward more centralized networks like Tron. In order to allow users in nations with severe financial censorship and monetary instability to participate more widely globally, it is imperative that the scalability issues associated with decentralized layer 1 protocols be resolved.

Having said that, I made the decision to shed some light on layer 2 solutions. This makes it easier for users to think about l2s that have lower fees than the main layer of Ethereum and steer clear of centralized networks like Tron.

A glance into layer 2 solutions

Optimistic Rollups - These work by "rolling up" or bundling transactions off-chain and only sending the transaction data to the main Ethereum chain. Although they have a fraud-proof system where invalid transactions can be challenged, they assume the bundled transactions are valid by default. Pros - Very low transaction fees, high throughput. Cons - Delay for withdrawals due to challenge period, requires operators to bundle transactions.

Zk Rollups - Also bundle transactions off-chain but use a zero-knowledge proof to cryptographically prove validity of transactions without revealing any transaction data. Pros -funds are always withdrawable. Cons - have higher computational costs than other solutions like Optimistic Rollups because calculating zero-knowledge proofs is computationally intensive.

Validium - A form of rollup using validity proofs like zk Rollups but submitting transaction data off-chain similar to optimistic rollups. No trusted setup necessary. Pros - Higher throughput than zk rollups, no withdrawal delays. Cons - Not fully inheriting security of Ethereum, requires validators.

State Channels - Transact off chain and only submit blockchain transactions to open/close channel. Pros - Very fast, almost free transactions. Cons - Only works for certain use cases, requires locking up funds in channels.

Sidechains - Separate blockchains that have a connection to Ethereum, allowing asset transfers. Pros - Independent features/functionality, sovereignty. Cons - Lower security than L1, bridges can have risks.

Now that you have a grasp of the salient features of every layer 2 network, I would like to draw your attention to certain aspects of block chain networks that crucially matters in our case. As there will always be trade-offs, this would assist us in selecting one over the other. For the sake of micro transactions, my concerns are fees, security and decentralization. Fees have to be so much small as it worth to pay for a micro transaction.

Decentralization and why it does matter in this case

Decentralization is important because it makes life difficult for people in developing nations from two aspects when there is some degree of control over a network. One side can be the free world government, which for whatever reason barred "people" from a particular nation and restricted their access to cryptocurrency, which at first was supposed to be equitable for all. On the other hand, the government of that particular nation has the authority to impose laws that are mandatory on centralized networks. One instance of this would be the absurd laws the Chinese government imposed on technologies such as free Internet providers that are prohibited from being sold in China. A decentralized network would be immune to this kind of global interference from harsh regimes. None of the rollups are decentralized at the moment. Transactions in a rollup are verified by a single sequencer before being sent to layer one. Given the sequencer's substantial control and stake in the collateral, this poses certain centralization risks. Nonetheless, there are ongoing efforts to gradually decentralize rollups. Eventually, anyone will be able to contest erroneous transactions by providing fraud proofs thanks to optimistic rollups, which will lessen the sequencer's dependency. ZK rollups are designed to encourage competition among sequencers and enable multiple parties to generate ZK validity proofs, preventing any one party from holding a monopoly. Furthermore, in order to provide rollup users and validators the ability to decide, select sequencers, control collateral/slashing, and avoid capture, governance protocols and social layer coordination are being developed. Therefore, decentralization and censorship resistance are an active area of innovation, even though first generation rollups have more centralized sequencer designs to maximize efficiency. The ultimate objective is to reduce the amount of trust that must be maintained to the absolute minimum, relying only on the fraud and validity proofs that the Ethereum protocol itself guarantees.

Based on Marek Olszewski’s presentation on L2days event panel, the chain with the most daily active users is not ethereum l1 or l2, not polygon, it is Tron with 1.5M daily active users, Surprised? It’s a sad truth that the Ethereum ecosystem with all l2s still doesn’t beat that number. He pointed that Celo is almost the Ethereum aligned competitor to Tron.

Security

In terms of security rollups are better options as they rely on layer one for their security. Having a conversation with Patrick McCorry ,one of talkers from L2days event, he expressed his preference for rollups over channels. According to him, a channel's primary goal is to reduce computation on the blockchain's execution layer. By taking most of the transactions away from layer 1 (off-chain transactions), layer 2 channels improve transaction speed and reduce network congestion, transaction fees, and transaction delays. But the big downside of channel is that the participants have to stay online at all times and use their private keys to sign in. This makes them vulnerable to hacks and thefts if attackers crack the private keys. But rollups offer higher throughputs and better security as well without the need to await participants online. Rollups facilitate off-chain computation and transaction data generation; however, layer one submission of validity proofs is required. This implies that Ethereum's security guarantees are carried over while allowing for significantly larger transaction volumes at cheaper prices. Rollups offer a tamper-proof environment secured by the Ethereum main chain for micropayments, which need very small fees to be profitable. Micro transactions with sub-penny fees are made possible by innovations such as fraud-proof optimistic rollups and zero-knowledge validity proofs in zk rollups, which maintain security and decentralization.

Small fees

We can now achieve scalability while utilizing the Ethereum mainnet's security thanks to rollups. Therefore, rollups enjoy the same security properties as layer one Ethereum, but increase throughput by over 1000 times for scaling decentralized payments at any size. Because of this, they are currently the best way to benefit from Ethereum's stability for use cases involving both small-scale and large-scale transactions.

Conclusion

In conclusion, optimistic rollups have drawbacks related to centralization risks and withdrawal delays, even though they provide the best scalability in many use cases. Zk rollups have a lower throughput but provide a strong combination of security and scalability with instant withdrawals. I think zk rollups currently offer the best balance of decentralization, strong security, and scalability for micropayments.