Full decentralization will happen in a few years – layer-2 package groups

Ethereum layer 2s full decentralization will happen in a few years, several groups told Cointelegraph in June.

The purpose of decentralization is held for a variety of reasons, including user experience and the need to implement security improvements. However, progress is now being made to decentralize these networks, and “Phase 2” will be reached soon, the teams said.

The concept of “Level 2 Decentralization” refers to the last step in Ethereum founder Vitalik Buterin's list of the main stages of Layer-2 Decentralization. It is also called “full decentralization” because it would theoretically be impossible for censorship to operate on the network.

Ethereum Layer 2s are networks that attempt to balance Ethereum by compressing and verifying transactions on separate networks.

According to some networks, decentralization will come soon

Linea founder Nicolas Lichon told Cointelegraph that “in the next few years,” users should expect most L2s to reach Decentralization Level 2.

“Rollups has prioritized other important improvements that directly affect user experience and security,” Leokon said. “For example, Denkun's upgrade has reduced the cost of orders for consumers.”

But now that these reforms have been implemented, progress has “started” to reach Stage 2. According to Leocon, the team plans to release a testnet with new decentralized features “in the coming months.”

Anthony Rose, chief technology officer of zkSync developer Matter Labs, expects the dominant L2s to reach Level 2 “in the next two to three years.”

Rose expects some reinforcements in place. Currently, more than 20 L2s have a total value locked (TVL) of $100 million or more. But in the future, he says, “we'll see very large networks with a relatively small number of people. These networks will be built from several individual chains, the largest of which will be completely decentralized.

“The performance of these systems could use some things,” Rose said. “Therefore, I think we see the two big platforms today […] Getting off their training wheels in the next two to three years.

Optimist founder Carl Florsch said the transition to Phase 2 would be “swift and decisive.” In his view, reaching Level 2 is difficult because it requires multiple proof-of-concept implementations, and these implementations include “very safety-critical code and [require] Unbelievable levels of authentication.” Still, he expects his own network to reach that level soon.

Floresch says that once a single network reaches Level 2, others will quickly follow. The reason is the open-source blockchain technology.

Once we get to level 2, most L2s will get there too. That's part of the beauty of building open source ecosystems: the value driven by contributions can be shared by all participants and projects using the standard.

According to Steven Goldfeder, co-founder of Arbitrum developer Offchain Labs, his team's network is “very, very close” to reaching Level 2. Currently, evidence of arbitration fraud can only be overturned by a nine out of 12 Security Council vote. . ARB tokens elect members of this council.

Related: Optimism Implements Error Proofing, Step 1 Reaches Decentralization

“I think two of them are from our team,” Goldfeder said. “in order to […] Our group doesn't even have veto power.

To reach Level 2, the arbitrator would have to remove the Security Council's mandate, except in those cases where there are “consequential errors.” This is “a question of community preparedness more than anything else,” Goldfeder said. ARB tokens must vote for this change, and at this point they have not.

According to Goldfeder, the Security Council of Arbitration had no authority to overturn evidence of fraud, but it never did. However, Arbitrum, a decentralized autonomous organization, can vote if it wants to remove this emergency power, which would be the “last hurdle” to making the network Level 2.

Vince Yang, CEO of Layer-3 network zkLink, also estimated that full decentralization “won't take that long” and “less than two years.” For Yang, much of the problem so far has come from a lack of interest among consumers. “L2/L3s already inherit security from Ethereum, making the industry's need for actual decentralization relatively low,” he said.

Furthermore, it was difficult to convince L2 decentralized autonomous organizations to share this revenue with independent actors, as they did not necessarily want to give up their monopoly on revenue. “There is a financial incentive for L2/L3 networks to maximize revenue on transactions, which further discourages attitudes and behaviors towards complete decentralization,” he said.

According to Yang, zkLink uses Layer-2 Linea as the settlement layer. It is “Validium” rather than a complete package as it stores compressed transaction data with the Data Availability Committee (DAC) rather than directly at the settlement layer.

zkLink says it is “actively seeking industry best practices” and is “willing and ready to fully decentralize pending upper layer 2s footprint and decision.”

Other networks say that decentralization is too far

While the above networks are hopeful that full decentralization will come soon, others say this lofty ideal is still far from a reality.

According to Metis co-founder Kevin Liu, most L2s find it difficult to maintain decentralization because of token-voting systems for governance. “Traditional token voting often results in increased control by large token holders,” Liu said.

To solve this problem, protocols must be decentralized, which ensures that “the network is owned by all participating nodes and shareholders from the economic layer”. “Metis uses this governance model because each successive node earns mining rewards based on the blocks it produces, and all onchain activity benefits the nodes,” Liu said.

Still, Liu says L2s are far from achieving the goal of full decentralization. “From a technical perspective, I don't believe that pure decentralization for Layer-2 solutions is achievable anytime soon, given the current state of the technology and the need for continuous improvement,” he said.

Still, Liu said the road ahead is long and difficult, but the teams must continue to work toward the goal of decentralization. And so he said.

“Decentralization is not just one technical layer, which is still immature; decentralization is multi-level, and we believe that our approach is the most practical and will lead to the development of technical improvements.”

Related: Layer 2 networks must be serially decentralized or face the consequences

Decentralized levels

The concept of decentralized “stages” comes from Buterin's November 2022 post, “Chapters intended to take off the training wheels.” In the post, Buterin suggests that a layer-2 package may start with centralized control until it temporarily “trains the wheels” for decentralized control.

Buterin identified three levels of decentralization. To be labeled a “level 0 package,” a network must provide software that can be used to independently calculate the status of the package. However, the development team can still censor transactions or block withdrawals by posting fake state funds to Ethereum.

In order to be designated a “level 1 package,” the network must implement tamper proof or admissible authentication in Ethereum smart contracts. This means that the group sequencer can no longer print false state roots, as they will be rejected as invalid.

However, Level 1 networks are allowed to have a Security Council, which can override valid transactions. Repeal requires clear action by the House, which can only be done with six out of eight votes. At least two members of the council should not be from the development team.

In a Level 2 package, the Security Council cannot override the network's fraud proofs unless these proofs contradict themselves or unless the network has been trading for at least seven days.

Blockchain analytics platform L2Beat regularly evaluates L2 networks and classifies them according to Buterin's criteria.

The decentralization of most Layer 2s caused controversy in June, as the Linea team successfully paused withdrawals and censored one user's address. The censored user was an attacker using the Volcore decentralized exchange. While many users were happy that the attacker's withdrawal was blocked, some argued that it was evidence that Layer 2s was taking too long to decentralize.

Buterin himself argued that it should move to Tier 1 by the end of 2024 or not be considered a package at all.

Magazine: ‘Bitcoin Layer 2s' Are Not L2s at All: Why Does That Matter?

Update (June 27, 2024 1:18 PM): This article has been updated to include an additional statement from zkLink CEO Vince Young.