Will Ethereum Layer 2 be the next failed Bitcoin Lightning Network?
Layer2 will not fail like the Lightning Network, but it is far inferior to ETH2.0, and it is also bad news for miners
Ethereum finally broke a new high on the evening of April 2, but on the other hand, the recent exchange public chain has made the limelight. Its high APY attracted many miners, and BNB as a "shovel" also reached a new high on April 2. , The total market value of BNB once broke through 50 billion US dollars, second only to ETH.
Although the currency price in the bull market is easy to rise, when the traffic is siphoned, the ETH/BTC exchange rate will inevitably weaken again. In addition, cross-chain ecosystems such as Polkadot are getting stronger. Will Ethereum really decline this time? The gas fee of ETH 1.0 has always been high, but in the short term it is impossible to pin hope on 2.0. In this case, the Layer 2 solution that V God strongly supports has become a life-saving straw in the congestion ecosystem of Ethereum.
But there are also different voices. For example, ViaBTC CEO Yang Haipo believes that the story of Ethereum Layer 1 and Layer 2 has already happened on the Bitcoin main chain and the Lightning Network, and the latter will eventually fail, and the same story will also happen in the Ethereum In the workshop, we don't need Layer 2, but a powerful Layer 1.
Although his views are personal, because Yang has always been a supporter of BCH large blocks, we also have to think about the possibility that Ethereum Layer 2 will really repeat the mistakes of the Lightning Network?
Ethereum Layer 2 is not the same as Lightning Network
Like the problems facing Ethereum now, Bitcoin also suffers from network congestion, and the Lightning Network is Bitcoin’s Layer 2 expansion solution. The principle is similar to opening multiple micro-payment channels between the two parties in a transaction to connect to each other and form The internet. Although the Lightning Network has been online for 3 years, data shows that it is still in its early stages of development.
As of February 28, 2021, the number of Lightning Network nodes is 9,284, the number of channels is 35,437, and the BTC carrying capacity is 1,100. In recent years, various data have been slowly increasing.
There are two main factors restricting the development of the Lightning Network: 1. Establishing and closing channels is more suitable for high-frequency trading scenarios, otherwise the handling fee is not cheaper than initiating a single transaction on the main chain; 2. Routes formed due to different channel pledge amounts Bottlenecks may cause transfer failure.
In addition, the factors affecting the development of the Lightning Network, in addition to technical defects, are also related to Bitcoin's greater emphasis on its payment properties and value storage properties. The difference is that the form of Ethereum is more similar to a "supercomputer" with many DApps hosted on it. Its usage scenarios are more frequent, and its ecological scale is much larger than that of any other public chain. Driven by practicality, Ethereum The mainstream Layer 2 solution of Fangfang will inevitably have enough users, so it is difficult to repeat the mistakes of the Lightning Network.
Layer 2 captures the value of ETH inferior to ETH 2.0
Now, the situation of the Layer 2 track has been initially clear. ZK Rollup and Optimistic Rollup are currently the most popular solutions. The former adopts zero-knowledge proof and is more secure, and the latter supports universal smart contracts, which is more for developers. Friendly, and in the latest AMA held by Bihu, V God said, “ZK Rollup has a longer-term future”. Currently the more representative ZK Rollup is mainly dominated by Matter Labs, Loopring and iden3 (Hermez Network).
If Layer 2 can rise rapidly and the head DeFi project can be successfully migrated, then to a certain extent, it can alleviate the user demand on Ethereum that is constantly overflowing due to high gas fees. A typical example is TRC-20 USDT: although The controversy over whether TRON’s main chain is centralized or not is quite controversial, but the data disclosed by Tether shows that TRC-20 USDT worth 15 billion U.S. dollars is currently authorized to be issued on TRON, accounting for 42% of the total USDT issuance. The proportion of USDT on Ethereum is 56%, and the gap between the two is not large. This is due to the high-frequency transfer scenario of USDT, which makes user demand overflow and tends to use cheaper public chains.
Returning to the concerns of currency holders, if the Layer 2 projects are issuing coins one after another, users may use the tokens + ETH of the second-layer scheme at the same time. Many people worry that the reduction in the frequency of using Layer 1 and the reduction in gas fees may be Significantly reduce the value of ETH. In this regard, V God’s view is that if the project on Layer 2 produces a scale effect and the frequency of network usage increases, it will be enough to offset the reduced gas fee on Layer 1, without affecting the value of ETH's fee, or even helpful .
However, no matter how to emphasize the advantages of Layer 2, its essence is still a trade-off. It is the transfer of the internal support "power" of the Ethereum network, and the Layer 2 project will also take over part of the economic benefits and traffic that originally belonged to Layer 1. The convergence of economic mechanisms is a "win-win", if the convergence fails, it can be regarded as an "endogenous bifurcation." If Layer 1 naturally had the advantages described in ETH 2.0, it would have been unnecessary to fall into this entanglement, and the value of ETH could be better captured.
In addition, Ethereum miners also have to face such a problem: during the period of time when the star project is migrating to Layer 2 and the user scale is expanded and the scale of users is limited, there will be a phenomenon of phased decline in fee income, which has been controversial some time ago. EIP-1559, the potential income of PoW miners may be greatly reduced.