More on L2 solutions

This post originally appeared on ZeMing M. Gao’s website, and we republished with permission from the author. Read the full piece here.

With Ethereum merge rolling out, the cryptoverse is excited. I tried to pour some cold water in this article: Layer 2 solutions

I doubt many will pay attention. But I still feel compelled to shout out, seeing a train going at a wrong direction.

As written in the previous article Layer 2 solutions, rollups are not layer 1 solutions. They are layer 2. And they ultimately won’t work on a blockchain unscalable at L1, because they unavoidably reintroduce all the unblockchain problems such as intermediation and centralization back into the system, and then do some more harm which don’t even exist in the conventional systems.

The full circle creates no new value to the whole economy. It only absorbs values from other parts of the economy.

Layer 2 solutions are not useless in principle. Rollups themselves can be useful, when used with a blockchain capable to serve as a scalable global base layer (L1) blockchain.

The keyword here are “scalable,” “global,” and “L1.” For a rollup to be useful, Its base blockchain has to have these characteristics.

But if the blockchain is scalable at L1, why do you need rollups or sidechains in the first place?

You do, for special purposes. Just like the Internet, it is scalable, but you still need overlay networks such as VPN for special purposes.

So the question is why rollups are problematic with a blockchain that is unscalable. We already explained about this in this post Layer 2 solutions, but will say more here.

Rollups bootstrap security on L1 blockchain?

Here is a counter argument by those who do rollups:

Rollups bootstrap security on L1 blockchain. Every state transition is verified on L1. Besides, a rollup itself can be based on blockchain.

The above is a common misunderstanding by developers who work on rollups.

It’s true, with rollups, every state transition is verified on L1. But a state is not a transaction. A state is a summary of thousands or even more transactions in the form of, say a Merkle tree index. An unscalable L1 blockchain cannot verify the individual transactions, for if it could it would be scalable and have no need of this type of L2 solutions in the first place.

But you say, what’s wrong with that? Why do you want the L1 blockchain to verify every individual transaction? It defeats the very purpose of having rollups.

That’s precisely the issue with an unscalable L1 blockchain.

With an unscalable L1 blockchain like Ethereum, you have no choice. Batch processing a large number of transactions on L2 and have only collective state transitions verified on L1 is the only way to go, because the very purpose of using rollups on Ethereum is to solve the scalability problem. It doesn’t matter if those individual transactions themselves really need L1 level security or not, because there is no choice and L2 transactions will have to sacrifice.

But it is different with a scalable L1 blockchain. You have options. You could do L2 batch processing if the individual transactions do not need high level security, do not need auditable records, nor business accounting compatibility etc. Nanopayments and micropayments are such examples.

But with individual transactions that do need such features, you have other options. You could do certain special pre-processing within the rollup before L1 verification but eventually have all preprocessed transactions verified on L1, or you can perform other functions such as virtualization and encapsulation.

Again, if you don’t realize we are talking about a globally scalable L1 blockchain, you might think because it does not lighten the transaction burden on L1, doing this serves no purpose. But it does. L2 preprocessing can serve many purposes, as discussed in Layer 2 solutions. For example, specialty efficiency, virtualization, encapsulation etc.

Now, you argue, there is no sacrifice on security with rollups because a rollup can itself be based on a blockchain, so these individual transactions in the rollup enjoy the same blockchain security.

But the keyword here is “same.” “Blockchain” is not a magic word. Just because something is a blockchain doesn’t mean it has full L1 blockchain security. If the rollup can do it with security equal with Ethereum, why do we need Ethereum in the first place? Alternatively, why don’t you build an L1 blockchain to replace Ethereum? It all goes to a circular logic.

This is not only about technicality. Even if a rollup is technically as sound as the L1 blockchain, having an extra blockchain layer itself is not ideal as just having one based blockchain layer (but one should realize one-based blockchain solution would require a scalable L1 blockchain), not only due to introducing one more attack point or failure point, but also because of the extra complexity and resource diversion.

Different assumptions

Once you get to the above last point, people get upset hearing it, and turn around 180°: What, you require a L2 to be a blockchain comparable to L1 in its own right? That is a ridiculous demand because we are talking about L2 solutions here!

But that’s the point. The logic error only exists when you presume an unscalable L1.

But with a blockchain scalable at L1, you don’t have that illogical demand on your L2, because you don’t need to. It’s a beautiful thing when your system has components that don’t contradict with each other.

It is a pity that people are stuck with Ethereum, thinking that they can’t do without it, so they have to live with it. In reality it’s not the case.

At this point, we’ve touched the base assumption: the real controversy is really not about how rollups of wood perform, but on a different assumptions about the base layer blockchain. Most people automatically assume that, based on the teachings of the Trilemma doctrine, it is absolutely out of the question to even think about a scalable blockchain on a base layer, because doing that sacrifices the sacred “decentralization.”

For those who have such a pre-assumption, thinking from a different viewpoint on this basic point is hard.

But that is exactly what we hope the blockchain community would do—some rethinking, making sure one’s presumption has not been a result of previous erroneous assumptions, or even propaganda.

I fundamentally believe that the trilemma doctrine is a fallacy.

Unfortunately, the fallacy has played a powerful role in leading the whole field astray.

In addition to the Bitcoin trilemma doctrine itself, there is also the assumption that the doctrine is consistent with Satoshi’s view (or is even Satoshi’s own idea). This is completely false and misleading. But most people including developers have been misled to believe it, and such a belief has made things even worse.

Satoshi’s view was and still is absolutely the opposite of the trilemma doctrine.

See: Bitcoin Trilemma is a fallacy

Blockchain scalable at L1

There is a beautiful alternative, but people refuse to acknowledge or even to look at it.

I encourage able-minded and less biased people, especially those who are knowledgeable on L2 and app developments, to think away from Ethereum.

With a scalable blockchain at the base layer, L2 solutions can be used to extend the network of a blockchain that is already vastly scalable at L1 and provide effective solutions to some special use cases.

Unfortunately, the whole crypto train is running in a wrong direction. All these ultimately futile efforts are being made because people are unwilling to look into a much better, fundamentally better alternative, which in turn is because people have pre-decided that these unscalable and unproductive blockchains must be saved in order to promote the market prices of the coins and tokens that were already created, and owned.

That is just working for promoting coin prices, not creating economic values, and many don’t even see the difference between the two

Please look at the alternative. Have you imagined even just a possibility that the original Bitcoin blockchain (not BTC) designed by its inventor Satoshi Nakamoto has unbounded scalability and extremely low transaction cost (already below $0.0001 and going even lower), has full smart contract and tokenization capabilities, can host any Ethereum application at a transaction cost tens of thousand times lower (even with a transpiler that converts Solidity to Bitcoin scripts automatically), and can be integrated with IPv6 to form the next global Internet with IoV?

Once you do, you will honestly place your effort on building a far better future for the world, instead of devoting your life on a coin that finds its sole justification of existence in a temporary market price derived from a popularity voting by a speculative crowd.

See more detail in the full article: Layer 2 Solutions.

The Internet as an analogy

Think about the Internet itself as an analogy. There is only one Internet based on one base protocol TCP/IP.

There are many applications, but they don’t each form its own network, yet claim to have the same Internet properties.

There are also many overlay networks such as VPNs, but these overlay networks are a part of the same Internet conducting Internet-protocol-based communications using encapsulation and virtualization. They’re not separate networks doing “rollups” or “hops” with only occasional perfunctory “settlement” on the Internet.

But more importantly, these apps and networks don’t exist just to make the Internet scalable. The Internet itself is scalable. It just needs to be further enriched by useful applications.

That is the right structure and that’s why the Internet has been so successful.

But look at what we’ve got with cryptocurrencies, after multitrillion dollars.

A far better new Internet with IPv6 and blockchain integrated at the base layer is possible, in fact already exists and is rising. Just need some more able-minded people to lift up their eyes and look into the right direction.

Watch the BSV Global Blockchain Convention Dubai 2022 Day 1 here:

https://www.youtube.com/watch?v=ggbZ8YedpBE

Watch the BSV Global Blockchain Convention Dubai 2022 Day 2 here:

https://www.youtube.com/watch?v=RzJsCRb6zt8

Watch the BSV Global Blockchain Convention Dubai 2022 Day 3 here:

https://www.youtube.com/watch?v=RzSCrXf1Ywc