2023 ushered in two important upgrades in the history of Ethereum. The first is the Shanghai upgrade, which was completed on April 13. After the upgrade in Shanghai, the beacon chain pledged withdrawal function was opened, making Ethereum officially change from the PoW mechanism to the PoS mechanism. This upgrade has become an important milestone in the Ethereum upgrade roadmap. Now, Ethereum is about to usher in the Cancun upgrade, which aims to add more data storage to reduce costs and increase efficiency for L2. It is expected to increase the speed of L2 by 10 to 100 times while reducing costs on the existing basis. According to the latest Ethereum core developer meeting, the Cancun upgrade is expected to go live by the end of the year.
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1. Deterministic future - Layer 2
In the latest article The Three Transitions by Vitalik, the co-founder of Ethereum, three main technical transitions that Ethereum needs to go through: transition to L2 expansion, everyone turns to Rollup; transition to wallet security, everyone uses smart contracts Wallets; transition to privacy, ensuring privacy-preserving fund transfers are possible.
The article clarified the importance of L2 and Rollup, and Vitalik pointed out that without the development of L2, Ethereum will fail due to high transaction costs. Compared with the performance of the world-renowned transaction system VISA, which can process tens of thousands of transactions per second, the performance of Ethereum, which can only process 15 transactions per second, is really difficult to meet normal transaction needs. The cost threshold of $3.75 per transaction also discourages a large number of ordinary users.
Ethereum supports a large number of transaction activities every day. With the continuous development of the ecology, due to the limitation of block space, in order to compete for limited resources, the network becomes increasingly congested. Problems such as low speed are gradually emerging, and there is an urgent need to reduce costs and increase speed.
How to speed up the expansion of Ethereum has always been a problem that Ethereum developers pay special attention to. According to the Ethereum roadmap released by V God, after Shanghai upgrades to solve the problem of the consensus mechanism, it will then focus on solving the problem of expansion. The goal is to increase the transaction volume of the Ethereum network to more than 100,000 per second.
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2. Optimistic Rollup VS ZK Rollup
Rollup is mainly divided into two types: Optimistic Rollup (Optimistic Rollup) and ZK Rollup (Zero Knowledge Proof Rollup).
Optimistic Rollup uses a fraud proof mechanism. The system defaults to the reliability of the transaction data, and the waiting period can be entered without verification of validity. During the waiting period, if any node raises an objection and provides evidence that the transaction is malicious, the transaction will be cancelled. If there is no objection, after the waiting period is over, the transaction will be confirmed and written into the block. Through the fraud-proof transaction scheme, large-scale verification deployment is omitted, which saves computing resources and ensures the accuracy of transactions. Currently well-known solutions include: Arbitrum, Optimism.
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Advantage:
Advantage:
Disadvantages:
Disadvantages:
Time delay for fraud proofs: When malicious transactions or disputes arise, Optimistic Rollups have a longer exit time, usually a week, which can result in funds not flowing freely for a period of time.
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Advantage:
Advantage:
Privacy protection: ZK Rollup uses zero-knowledge proof technology to verify the validity of transactions while protecting user privacy. Transaction details are kept private and only the correctness of the proof needs to be verified, providing a higher level of privacy protection.
Disadvantages:
Disadvantages:
Computational cost: Generating and verifying zero-knowledge proofs requires a large amount of computing resources, therefore, the computational cost of ZK Rollup is relatively high, which may result in long processing time and higher computational overhead.
Limited smart contract functions: Since ZK Rollup is designed to optimize transaction processing, it has limited support for complex smart contract functions, and some complex contracts may not be directly implemented on ZK Rollup.
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3. The future of Layer 2: the way forward led by the Cancun upgrade
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1. Main content
The Cancun upgrade includes five EIPs designed to add more data storage and lower fees. The upgrade is centered on EIP-4844, in addition to four improvement proposals including EIP-1153, EIP-4788, EIP-5656, and EIP-6780. Theres no firm date for the upgrade yet, but its expected to go live by the end of 2023.
EIP-4844 ：As the core of the Cancun upgrade, EIP-4844, also known as Proto-Danksharding, is an expansion solution around Rollup. EIP-4844 is the first step on the road to scaling Ethereum. Before the upgrade, Rollup data is permanently stored on Ethereum, and storage costs are expensive. 90% of the transaction costs paid by users for Rollup are due to this storage cost. For this reason, EIP-4844 introduces a new type of transaction - Blob Transaction, the data will be migrated to the Blob for temporary storage, the storage time is about 1 month, after which the data will be deleted. If you want to store long-term data, it will be stored by other service providers according to actual needs. When blobs become part of the Ethereum protocol through Proto-Danksharding, it is possible to add more blobs to the Ethereum block. At this time, the throughput of Ethereum will be greatly expanded again (>100 times), and the transaction cost will also increase. will fall.
Other selected EIPs include:
EIP-1153: Reduce fees for storing data on-chain, improving block space.
EIP-4788: Improve the design of cross-chain bridges and stake pools.
EIP-5656: Add minor code changes related to the Ethereum Virtual Machine.
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2. Which opportunities deserve attention?
(1) The grand narrative of Layer 2
The era background of Ethereum congestion also created the grandest narrative. The total TVL of the current L2 ecosystem has more than doubled from the beginning of the year to around US$8 billion.
The Cancun upgrade, as the first step in the expansion of Ethereum, will make Layer 2 faster by 10x-100x! cheaper! The expansion and low cost of EIP-4844 will benefit each L2 ecology, the OP ecology will be more diversified, and the ZK ecology will be more available due to the enhanced data availability, allowing the rapid growth of independent layer 2, which is difficult to operate at high cost. Benefiting from the reduction of on-chain fees, the L2 ecosystem will become more abundant and the number of users will increase.
Among the projects that have been launched, Arbitrum, OP, the rookie ZKsync, and the established application dYdX occupy half of the current L2. The strong is always strong, and the leading agreement of the popular track has greater potential after the Cancun upgrade.
In addition to the projects that have already been launched, Scroll, Linea, and Taiko, which are about to launch the mainnet, are worthy of attention.
In addition, the faster transaction speed and lower transaction costs of L2 will inevitably lead to a new round of rise of projects on L2. On-chain futures and on-chain options are vulnerable to the low TPS of Ethereum. The upgrade of Cancun to such projects with high transaction speed requirements such as GMX and GNS has brought substantial improvements and further expanded development space.
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3. Where is Layer 2 headed?
In the foreseeable future, as Cancun upgrade blows the clarion call of Ethereum expansion, the expansion will provide higher throughput and lower transaction fees. This will enable Layer 2 applications to process more transactions and provide users with faster, instant transaction confirmations. Whether it is payment and settlement in the financial field, or in games and NFT, the high performance of Layer 2 will provide users with a smoother and more efficient experience.
However, technological advancement alone cannot attract users. In order for Layer 2 to truly thrive, innovative applications are essential. According to L2beat data, there are 29 Layer 2s that are currently online and waiting to be launched in RD, among which Arbtirum One, Optimisim, zkSync Era, and dYdX account for 92.75% of the market, and other L2s share the remaining 6.25% market share.
Disclaimer: There are risks in the market, and investment needs to be cautious. Readers are requested to strictly abide by local laws and regulations when considering any opinions, viewpoints or conclusions in this article. The above content does not constitute any investment advice.
Reference
1.https://vitalik.eth.limo/general/2023/06/09/three_transitions.html
2.https://ethereum-magicians.org/t/a-rollup-centric-ethereum-roadmap/4698
https://www.datawallet.com/crypto/zk-rollups-vs-optimistic-rollups
3.https://www.coindesk.com/tech/2023/06/08/ethereum-developers-cement-final-lineup-of-changes-in-dencun-upgrade/
4.https://l 2b eat.com/scaling/tvl#upcoming
5.https://ethereum.org/zh/layer-2/
6.https://medium.com/bitcoin-news-today-gambling-news/ethereums-cancun-deneb-upgrade-everything-you-need-to-know-3e67439a036
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Disclaimer: There are risks in the market, and investment needs to be cautious. Readers are requested to strictly abide by local laws and regulations when considering any opinions, viewpoints or conclusions in this article. The above content does not constitute any investment advice.
