Core:
- Layer2 reduces the gas fee, but the cross-chain processing fee is still expensive. Using REI can be nearly free through staking
- How to balance security, decentralization, and price?
- The island effect of layer2
The immediate need for blockchain scaling
Speed, security, and decentralization, which is known as the ‘Blockchain Impossible Triangle’, i.e. the need to achieve a balance between these three. Since ‘Defi Summer’ in 2020, we have gradually witnessed escalating gas fees and occasional network congestion on Ethereum. in June 2020, it cost me $1.25 to make a transaction on Curve, while this year the same transaction will cost at least $300 to start, and more and more people have realized that Ethereum’s infrastructure has can’t keep up with the growing demand for on-chain transactions. The ‘new public chains’ represented by Solana, Avalanche, and REI Network and layer2 represented by Rollup and optimism are solutions that enable scaling and compatibility with Ether and have grown rapidly in the past year.
Many people believe that the development of layer2 will kill the opportunity for new public chains. The answer is no. While layer2 is indeed an important direction to achieve blockchain expansion, layer2 takes a long time to develop and has a high threshold, the emergence of new public chains can help compensate for this part of the deficiency and can provide a low-threshold innovation opportunity for new protocols. For a long time to come, ETH+Layer2 and new public chains will remain the two main development directions for the underlying blockchain.
Layer2 — an important direction for scaling
The concept of layer2 dates back to the Lightning Network white paper in 2015, and is simply understood to mean that public chains such as Bitcoin and Ether are collectively referred to as layer1, which is responsible for the security and decentralization of the chain, while layer2 is responsible for local consensus, improving the efficiency of business processing, thereby enabling scaling and reducing the burden on a layer of the network. Layer2 can be implemented in a variety of ways, which can be broadly State channels, Sidechains, Plasma, Rollup (ZK Rollup, Optimistic Rollup), Validium.
Different solutions are represented by different projects, for example, Polygon uses the Plasma solution, the StarkWare platform on which the decentralized perpetual platform DYDX is based uses the Validium solution, Uniswap uses Optimistic Rollup and Loopring uses ZK Rollup ……
The sidechain solution is actually a branch of the main chain, an independent blockchain compatible with Ethernet, with its own separate consensus mechanism, not very decentralized; the Plasma solution is to transfer transactions from the Ethernet blockchain to the sub-blockchain through a smart contract; Optimistic Rollup presupposes that each aggregator is actively packing the correct data, and the aggregator packs the rollup block If the rollup block proves to be invalid, the contract will roll back the rollup chain, which is more secure but has a longer funding exit cycle; ZK Rollup uses the main chain smart contract to hold the funds, while the calculation and storage are done off-chain, which requires a lot of computing resources up front, but is much more secure, which is also the current Layer2 This is also the main method adopted by Layer2.
The shortcomings of Layer2
Vitalik, the founder of Ethernet, has recommended the layer2 solution, Rollups, several times in his previous speeches, and has also said that ETH1+Rollups can help Ether achieve about 1000–4000 TPS, and ETH2+Rollup can help Ether achieve 25,000–100,000 TPS.
Does that mean that ETH+Layer2 can scale the blockchain without the need for other public chains? Based on the current shortcomings and flaws of Layer2, the answer is obviously no.
- Among the existing Layer 2 solutions, Rollup, which combines speed and security, takes too long to develop in the early stages, and Optimistic Rollup has problems with withdrawal delays, and the on-chain transaction fees are still expensive.
- The process of entering and exiting Layer 2 is often complex, and this is a barrier for both developers and users. For developers, the Layer 1 infrastructure (Infura, browser, light client, exchange support, etc.) is already well established, but in the process of migrating applications to Layer 2, there is a need for the corresponding supporting infrastructure. For users, moving from layer 1 to layer 2 is not only complex but also involves high cross-chain fees, and without the right incentives, it is difficult to be motivated to move across chains.
- Some solutions face the problem of insufficient security and over-centralization.
- Layer 2 itself is an island, if the layout of projects on Layer 2 is not complete enough, it will break the combinability of Layer 1, when Defi loses its combinability, many arbitrage behaviors cannot be completed, and there is no way to help users get higher returns, Defi will also lose its original meaning. In short, the theoretical scalability is only possible if a Layer2 solution has a full family of Defi protocols laid out in it. Of course, the silo effect also exists in new public chains, and later on, we will describe how REI Network solves such a problem.
How can new public chains solve these problems? — The REI Network as an example
New public chains are also an important way to improve the scalability of blockchains, mainly through new consensus mechanisms (e.g. Solana) or by layering authentication and storage (e.g. Avalanche), but also through compatibility with EVM, which can smoothly take over Ethernet on-chain applications and attract users and developers with lower fees and higher TPS.
REI Network adopts a PoS consensus mechanism, which greatly enhances network scalability while ensuring the security of on-chain transactions. Compared to other public chains and layer2’s Gas fee, REI Network can obtain free resources by pledging passes, which enables free or nearly free transactions and contract calls, greatly reducing transaction costs, which is a significant advantage for high-frequency on-chain actions (such as GameFi).
In order to solve the problem of the “island effect”, REI Network will actively cooperate with cross-chain bridges through active contracts and eco-incentives, so as to attract quality developers and at the same time attract quality eco-projects from other public chains, in order to achieve a combined closed loop of Defi eco-projects on the chain. Users can directly access the ecology through REI Network native Tokens to participate in decentralized financial projects and gain revenue without the need to spend huge cross-chain fees and low cost of participation.
Conclusion
Layer2 and the new public chain were both created to enable blockchain scaling, but Layer2 was developed more for the current underlying public chain, Ether, which needs to achieve not only extremely high transaction throughput and low costs but also to figure out how to allow more Ether projects to migrate to it, so as to achieve ecological interoperability.
Even if ZkRollup, which has not yet been fully implemented, proves to be a good trade-off between security and performance, it can perfectly take over the on-chain applications of Ethernet, greatly alleviating the current congestion and Gas fee dilemma and helping Ethernet become a “super public chain”. The ‘spillover value’ of Ether is also destined to be taken up by new public chains, and for a public chain with very low usage costs, it is more suitable for the development of innovative projects. In short, there is still a huge opportunity for new public chains before Layer2 hits the ground.
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