The proposed change could save Ethereum from L2’s ‘roadmap to hell’

If you believe the group of Ethereum critics on X, the blockchain is dying. On the one hand, it is being beaten by Bitcoin as the best money, and on the other hand, it is being surpassed by Solana's fast and cheap transactions.

Layer 1 fee revenue has “collapsed” by 99% in the past six months because “Extractive L2s” have stolen all users, transactions and fee revenue, leaving the base layer with nothing to pay. That caused ETH to slide in value again causing slight inflation.

L2s are silenced by each other, and each has a financial incentive to increase its own income at the expense of ETH. Base users paid $2.5 million last month and returned just $11,100 to L1. OP mainnet is said to be paying $321.31 for every return to Ethereum.

“ETH is in a death spiral,” said senior bitcoin expert Fred Kreiger, who says the network's $73 million-a-year decline in fee revenue will result in some loss and may not justify its $300 billion market cap.

So, given this grim picture, it might come as a surprise to learn that key figures in the Ethereum ecosystem aren't even more concerned. Despite some challenges, with critics painting it as the road to hell, they believe Ethereum's roadmap is still a work in progress.

Maybe this is just because they have more confidence in where the roadmap is going. Ethereum Foundation researcher Justin Drake told the Rollup podcast this week that if Ethereum can correct a few courses on its roadmap, it will be a case of “winner takes all.”

“We can reach 10 million transactions per second (TPS) in the next 10 years. That's enough for the whole world. That's 100 transactions per person per day,” he predicts a multi-trillion dollar market cap.

Jump to the proposed solution to fix the roadmap

The Ethereum roadmap has already seen a 20x increase in transactions

The road map TL; DR focuses on making Ethereum's painfully slow base layer as decentralized and bomb-proof as possible, and makes changes to allow L2s to execute transactions faster and cheaper.

L2s, based on Bright Packet or Zero Knowledge (ZK) technology, inherit Ethereum's security (and hopefully ethos) and the number of transactions in the ecosystem has peaked at around 16 million per day at a very low cost to users. .

“L2s has led to a significant increase in the capacity of the Ethereum stack,” said Ed Felton, founder of Arbitrum at Korea Blockchain Week. Arbitrum is currently the most successful L2, although Base is dragging on its heels. Felton said the argument that L2s are stealing transactions from the now-defunct L1 makes no sense, because most of these transactions cannot happen at the base layer.

“If that 20x demand shows up and Ethereum L1 is all we have, 19x won't happen, or it will happen on a different chain,” he says.

“So the option to raise Ethereum by L2s is that people will just stay on Ethereum, and Ethereum will provide magical traffic in a way that it can currently – I don't believe that's true. So, I think this was a path to scale; it was very successful.”

Felton started working on expanding Ethereum at Princeton University before the Ethereum network launched, so he's been all about L2's vision for a decade now.

Not everyone agrees that the right balance has been struck. Ethereum researcher Max Resnick thinks the roadmap is now heavily weighted towards L2s and at least some effort should be focused on the base layer to be used more effectively for high volume DeFi.

Other chains are grudgingly accepting that a monolithic blockchain can't do everything, and a modular design like Ethereum isn't as bad as they once thought.

While Solana has been successfully pursuing fast and cheap scaling at the base layer, it has recently started using L2s – what it calls “network extensions” – to enable broader use cases.

Dan Albert from the Solana Foundation tells the magazine:

“Solana doesn't need L2s to scale. But some applications on Solana may choose to build L2s to provide their customers with the product or user experience they want, or they may need something like an L2 or network extension.”

Are Ethereum fees L2s too low?

Much of the current hype surrounding the roadmap is due to its dip in fee revenue, which is ironic, given that for years Ethereum was in high demand when it was criticized for its $100 transaction fee.

Felton said lowering fees was a deliberate design decision to attract users.

“When you scale, when you increase capacity, when you increase the gas limit, the price of fuel goes down, the revenue collected by your chain goes down. And you can see that as a failure or you can see it as a success in your goal.

While some members of the Ethereum community have proposed increasing fees to L2s to improve revenue, Rushi Manche, co-founder of Move — whose L2-compatible Ethereum and Facebook-enhanced Move language recently hit 12,000 transactions per second on its testnet — says that's short-term thinking.

“I think the Ethereum Foundation is looking at this from a 30-year time horizon, which groups don't think; they're thinking about two years ago. But in a 30-year time horizon, what you need is low fees, low barriers to access and low barriers to entry, get people to try crypto.” If there is an early network effect, you can add it, so really, I think it's the right call.

Will Ethereum Fee Revenue Increase Again?

The fee revenue is set to increase when the amount of space (known as blobs) is used for data delivery. Felton says that's not far off.

“If you look at the percentage of the blob target used, it has been consistently over 80%, often over 90% in recent months,” he says. “If the demand for blob space grows by more than 100%, the price of blob data will increase significantly.”

On the day of LayerZero's airdrop, demand on the network was so great that fees increased. “Blob spot prices are up 13 orders of magnitude in one day,” he said, adding that as the price of L2 transactions increases, “users are going to back off and use less.”

So, if the payment revenue problem will fix itself as more people use the ecosystem and the number of transactions increases exponentially, why has the roadmap received so much criticism?

A big reason is that most people don't see L2s or rollups as an extension of Ethereum, but as a competitor. Each with their own agenda, liquidity, and incentives, you'll see a beat pack that doesn't align well with Ethereum's goals.

While Drake points to the dramatic reduction in base fees and the creation of infrastructure to enable a full-scale dunksharding upgrade, confirming that the roadmap is on track, he admits that the designers didn't anticipate that problem.

From a pure testing perspective, from a TPS perspective, we shipped fantastically. The problem came up with another issue that we didn't 100% appreciate or anticipate, the quality of the blob space is less than we wanted. Basically, we have these L2s, these coils that are highly silent and create fragmentation for Ethereum.

How the Ethereum ecosystem is solving interoperability.

A larger set of interoperable L2s is an obvious way to make them feel like Ethereum again, but there's no easy way to make that happen. Currently, users can transfer between bundles of Ethereum (which can take a week) or they can use bridges, which are a honeypot for hackers.

Various solutions are being developed so that the users don't feel, “jumping between 34 blockchains,” Vitalik Buterin said. You should feel like you're using Ethereum.”

Magic Account offers a wallet that uses account abstraction/smart accounts to hide basic infrastructure from users and allow them to instantly withdraw money on any chain. Even though they are hampered by Ethereum's 12 second block times, based coils that are more aligned with the base layer and allocation of address liquidity are also becoming popular.

The various scrolls are all working on practical solutions that bridge the various chains in their respective ecosystems. Optimism has a superchain to connect connected L2s like Base and Optimism. Arbitrum orbit connects L2s and L3s; And Polygon has Aglier, which connects various ZK solutions and stock verification network.

“The way we look at it is that everyone is trying to make the Internet real: Optimism, Superchain, Aglier,” says Brian Pellegrino, founder and CEO of communications solutions LayerZero. The Internet usually refers to a type of private network used within companies to share internal information and communication.

“Internets have a place in the real world; intranets are still used in moderation today, but just like the Internet, it's still the Internet.

“You get some advantages. You have shared order. You basically have better integration across all these assets, but you lose a little bit of sovereignty. And still, when you're trying to get between this Internet and that Internet, you need some way to communicate out there.

LayerZero is considered by many to be the best solution in the bridge space, designed in a way that has yet to be hacked and other bridges have lost billions of dollars.

But even good bridges and messaging can't solve interoperability by themselves. Many critics argue that L2s have a financial incentive to keep users and their fees in their own walled garden and don't really want real interaction.

The magazine pointed out to Felton that Arbitrum seems unlikely to join rival Optimism's Superchain in the near future, even though both use similar technology.

While he didn't say why, Arbitrum said it competes with “a better product, lower cost, better security, more reliability, and I don't think we have to be afraid of users leaving.”

“We want the doors open for people to come in,” he said.

The challenges of interoperability between Ethereum L2s

Regardless of the motivation, Felton points out that there are significant practical problems with connecting different L2s to each other. Chains do not work in a lock, and they all have different lock times.

“You're not going to reduce the friction in the chain crossing to zero,” cautions Felton. “As long as there are different trust assumptions, different governance bodies on different chains, and so on, the movement of assets or coordination within the chain is a potentially risky decision.”

“You get something similar to using the Internet, where different servers or services on the Internet connect, but they don't connect at the same time or atomically in a transaction. There are rather short delays.

“Speed ​​bumps will be a lot less than they are now, but they won't matter.”

Seamless operation in a single chain is known as “synchronous”, while Internet-type delays are called “asynchronous”. Pellegrino says decentralized app designers will have to rethink how things work for this version of interoperability.

“Historically, everything was built for single-chain integration,” he says. “Applications are now being designed with async patterns, but it's a huge design shift.”

Ethereum L1 shared tracker could make Ethereum great again.

But there's a different approach Ethereum is taking as part of its roadmap to enable L2 interoperability and integration, Drake says.

Stacked capability is one of the reasons why DeFi took off on Ethereum. He refers to things like “Money Legos”, where anyone can build a financial DApp on Ethereum that can seamlessly interact with any other DApp, just by clicking on Lego pieces.

An independent, decentralized, shared blockchain with integrity managed by Ethereum validators enables synchronous transactions and integration between different types of blockchains. Ethereum researchers have been discussing the idea for some time, but it is not yet part of the official roadmap.

ZK-rollups have more ways to interact, but ZK technology is not yet fast or cheap. Projects including Espresso, Astria, and Radius are working on the common order but do not rely on Ethereum validators and have different trust assumptions.

But as Collective 2077 director Emmanuel Awosika asks, why should L2s be willing to give up control over their own centralized series (or Internet network series) and give up series fees?

Drake argues that about 80% of L2 charges are congestion charges, while the remaining 20% ​​are contention charges related to MEV or Maximal Extractable Value.

There are different methods, but broadly speaking, MEV bots process and settle transactions in queues with priority payments so you can profit from the trade first.

But Drake argues that MEV will soon drop below 1% of the total because private mempools hide transactions (making MEV impossible) and decentralized exchanges return MEV to users. MetaMask is already using Virtual Mempool to fight MEV.

They argue that the benefits and increased usage will outweigh the losses of MEV and that they can maintain congestion charge revenue.

If the base layer consisted of a decentralized shared tracker, instead of a collection of siled L2s, the community would have a true Ethereum ecosystem that could scale to the size of a globe while maintaining unity.

A bull case for Ethereum: a multi-trillion dollar market cap

This is how Drake saw 10 million TPS happen on Ethereum. Companies like Netflix argue that enabling capacity creates demand, not how fast broadband speeds encourage them to use it.

If that happens, the back-of-the-envelope math shows that even one-tenth of a cent data supply fees could cost Ethereum $1 billion a day, while half-cent fees could generate $5 billion a day, an Nvidia-style market capitalization.

“At this trillion-dollar base valuation, there's a chance that Ether will be money, as an economic security bond, but a decentralized stablecoin with economic bandwidth,” he says. “Long story short, you know, there's a very interesting potential roadmap in the next 10 years.”

That's a bull case from Ethereum Stan. But it's still going to take years before the problems are resolved and we'll see a decentralized successor realize this vision. Meanwhile, Solana and Sui are already making it big. And if it happens slowly, there's no point in having the right road map.

For corrections or clarifications please email andrewfenton at cointelegraph.com

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Andrew Fenton

Based in Melbourne, Andrew Fenton is a journalist and editor covering cryptocurrency and blockchain. He has worked as a film journalist for News Corp Australia, SA Wind and national entertainment writer for Melbourne Weekly.

Follow the author @andrewfenton