Home Ethereum How the layer 2 race is scaling Ethereum before ETH 2.0

How the layer 2 race is scaling Ethereum before ETH 2.0

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Becoming a member of me proper now’s the co-founder and CEO of Enya.ai, that has partnered with OMG Community that scales and augments Ethereum, enjoying a vital half within the evolution. He’s additionally the co-president at Stanford Angels & Entrepreneurs, and likewise an important good friend. Alan Chiu, Welcome to the present.

Chiu: Thanks for having me, Angie. So joyful to be right here.

Lau: I’ve wished to speak with you for some time. I heard concerning the Enya.ai and the OMG tie-up and that is actually our first alternative to dive a little bit deeper. Let’s clarify the issue for the time being — scaling Ethereum. That’s one thing that Vitalik Buterin and different builders are aiming to unravel with ETH 2.0. However how are already builders making an attempt to unravel that drawback with layer 2? What’s layer 2? 

Chiu: That’s an important query to start out us off. Ethereum has a reasonably restricted capability for computation and this can be a identified drawback for a number of years and Vitalik and group have been engaged on potential options since then. ETH 2 is definitely on the horizon. And it’s going to be actually useful in fixing this drawback.

However the unique imaginative and prescient for ETH 2 was fairly bold. We’re making an attempt to scale each computation and information on the identical time. What occurred extra just lately is Vitalik and plenty of different Ethereum researchers have give you an alternate answer reasonably than making an attempt to do every thing in ETH 2, scaling each computation and information. We’re going to scale computation via an structure referred to as rollups, which is one type of implementing layer 2 — a blockchain that’s secured by Ethereum. However we’re shifting computation off the primary chain, performing the computation, after which storing proofs again on the primary chain to show that the computations had been carried out accurately, and this truly makes ETH 2 scaling a lot simpler to implement. For many who have been following the information Vitalik has truly moved up the estimate of rollup timeframe for ETH 2. So the most recent method of scaling Ethereum is thru a mix of rollups on layer 2, and ETH 2 itself.

Lau: So, in truth, layer 2 even for the unique good contract blockchain, actually a solution to the scaling answer. We all know that computationally, proof-of-work is a lot heavier and energy-laden and all of these issues that we’ve talked about that really impacts the pace and latency charges and the variety of transactions. Layer 2, by eradicating a few of these wanted operational, computational processes to a different layer for lack of a greater description, truly frees up the pipelines a little bit bit. Is that this what the idea is? Is that this basically what we’re seeing proper now?

Chiu: Completely. By implementing computations on layer 2, shifting them off the primary chain, we’re releasing up the valuable blocks on the primary chain in order that in combination we are able to — as an ecosystem — deal with much more transactions. So with out even ready for ETH 2 to turn out to be broadly out there, we’ll instantly begin seeing decrease transaction charges and plenty of extra transactions occurring between the mix of layer 2 options and the present implementation of Ethereum. And as we transfer ahead to ETH 2, we are going to see an excellent larger enhance in transaction price, in addition to extra capability for dealing with extra functions and hopefully reducing fuel charges accordingly.

Lau: And if you say we, you’re talking from the collective, as in all of us. However I need to ask about you. Enya has just lately launched the general public take a look at internet of OMGX, which is a layer 2 Ethereum scaling answer for OMG community. 

Inform us what work you’re doing at this tie-up with OMG and Enya. You’re engaged on a layer 2 Ethereum scaling alongside what ETH 2 is already working in the direction of. Inform us a little bit bit about what you’re seeing is important on this house. Not solely actually from you, we’re seeing so many extra layer 2 options which are making an attempt to unravel this actual drawback.

Chiu: So let’s take a step again and have a look at the promise of Ethereum and what decentralization affords. That permission-less, censorship-resistant participation in decentralized functions that many of those which have taken off should do with decentralized finance or participation in non-fungible tokens — that’s revolutionary since you don’t want anybody’s permission to take part and make the most of these functions. Nevertheless, due to their recognition, Ethereum has turn out to be cost-prohibitive for lots of mainstream customers. That forestalls a number of new customers from even simply making an attempt out what it’s like to make use of these functions.

Now, this drawback is well-known, however there’s an excellent larger hazard to the well being of this decentralization motion. And that’s, the barrier to entry for builders to hitch the motion and construct decentralized functions. As a result of as many makes an attempt at scaling Ethereum have led to growing complexity in code bases, and meaning until you’re a actual professional who’s been following these actions for a very long time, it’s actually laborious so that you can contribute to enhancing and sustaining these code bases. And on high of that, if we would like extra builders to have the ability to construct decentralized functions, we have to allow them to take what they already know, what they’ve already discovered in laptop science lessons, what the abilities that they’ve picked up, constructing Net functions to make use of as lots of these abilities as potential in constructing decentralized functions. 

That’s actually the imaginative and prescient that we went into this house with, is how will we construct a extra inclusive ecosystem that might carry in additional builders and extra customers on the identical time.

Lau: So in different phrases, I’m no developer. Typically I don’t even know how you can reprogram my microwave. And but, probably, I may additionally take part on this new ecosystem in DeFi by simpler consumer interface that you simply’re going to design on the entrance finish — so entrance finish, it’s going to be simpler for me — however on the again finish, the enter button may need the entire functionalities, the coding that permits me to execute, one factor or easy directions. However on the again finish, you may need already taken care of that? Is that the idea?

Chiu: Completely. So for you as a consumer to make the most of these new decentralized functions, not solely do we have to decrease the associated fee for performing these transactions, which we would like there to be as many of those functions as potential so that you simply as a consumer would have extra selections. And competitors results in ever-better product high quality. And that’s why we would like to have the ability to herald many extra builders to assist construct out that decentralized software ecosystem. 

That’s why we determined to work with OMG Community collectively and to construct on an optimistic rollup structure that has been created by the Optimism group. And we checked out many different choices, too. We determined to construct on Optimism as a result of Optimism itself is only a modified model of Ethereum, which suggests going ahead, it’s so a lot simpler to remain in sync and guarantee ahead compatibility with Ethereum, although you’re working your good contracts on our platform. And in order that’s vital as a result of that will make the job of builders a lot simpler emigrate good contracts onto us. 

However we’re not stopping right here. We’re additionally researching and investing in capabilities as a way to carry out extra advanced computations off-chain after which carry the outcomes again to your good contract, and meaning the most recent advances in machine studying and threat modeling and in lots of different fields of laptop science, together with what Enya brings to the desk, which is safe privateness, preserving computation, now you can make the most of all of those advanced computations within the context of a sensible contract, which you couldn’t do earlier than.

Lau: There are such a lot of layer 2 branches which are form of rising out of Ethereum. OMG beginning its take a look at internet, about to launch mainnet. If there’re so many layer 2 options, why are we nonetheless seeing congestions within the Ethereum community, versus,different blockchains, when there are different choices on the market?

Chiu: Initially, Ethereum has actually earned the belief of a number of customers and builders due to its scale, as a result of it’s been battle-tested. And the truth that there are numerous different choices truly is nice, it pushes the entire decentralized motion ahead. However Ethereum nonetheless has the most important mindshare amongst builders. By all creating on Ethereum, these completely different initiatives, DeFi initiatives, for instance, can construct on one another’s work. And that’s one of many key advantages of staying inside the Ethereum ecosystem. 

Now, why are we nonetheless seeing congestion? Sure, there are numerous layer 2 options which were within the works, however most are nonetheless within the Testnet section. However this summer season goes to be an thrilling interval when many of those initiatives are lastly coming to fruition and changing into mainnet prepared. So over the following a number of months, there’ll be a number of layer 2 options that might be shifting into mainnet and will probably be an thrilling time. We’ll see how that modifications to fuel charges that individuals should pay to make use of these DeFi initiatives. We’ll see how that helps drive consumer development and likewise create much more alternatives for DeFi builders.

Lau: I need to ask you concerning the privateness facet that you simply’re actually bringing on with Enya. Do you, I imply, more and more, as all of us have skilled, both on a person stage or a part of a bunch that was uncovered to an even bigger hack of a company, how necessary is privateness? And as a price proposition for both a token or a platform or perhaps a layer 2 answer, in your view, the place do you see the function of privateness?

Chiu: The function of privateness is important to defending particular person customers from being exploited by extra refined actors with unwell intent on the community. In spite of everything, Ethereum is a public blockchain. Any transactions that you simply proposed and need to be included within the community are seen to anyone. Consequently, frontrunning, for instance, is rampant at present in DeFi the place these bots principally software program applications that monitor orders, and in the event that they spot an order that it’s worthwhile frontrunning, they may do this. And I do know many people have misplaced cash to front-running bots. There’s a college of thought that believes that, you understand what, that is the value we pay for transparency, for working on a public, blockchain-based computation platform. Our philosophy is that’s not essentially the case, we are able to truly present privateness, preserving capabilities to smaller contract builders in order that they’ll defend these orders from being front-run. Now, is the information so widespread that any developer can simply begin doing it utilizing cryptography to guard these orders or different items of delicate info? No, however that’s what we’re making an attempt to do right here is to make it accessible and straightforward for builders to make the most of cryptography, to place privateness the place it issues.

Lau: I imply, I assume that’s one of many explanation why the tie-up with OMG, I wished to get extra of the origin story of how that occurred. That is an Asia-born partnership. However do inform how did Enya and OMG get collectively?

Chiu: It’s an important story, truly, so we’ve identified OMG Community was acquired by GBV in the direction of the tip of final yr. 

Lau: Genesis Block Ventures?

Chiu: That’s proper.

Lau: Out of Hong Kong. 

Chiu: Primarily based in Hong Kong — sure. One other a part of the Asian story.

And we’ve identified the group at GBV for a number of years and we now have a number of respect for them, not just for their savviness however for the way they deal with their companions, how they’ve supported the portfolio corporations that they’ve invested in. After the acquisition, they got here to us and mentioned, no, we noticed this potential synergy between what you guys are doing at Enya and the potential right here OMG community, we must always speak. One dialog led to a different. We consider that, particularly given the timing of this partnership the place Ethereum goes via some rising pains, huge congestion, and on the identical time, we’re seeing a number of points reminiscent of entrance working which have their root causes within the lack of privacy-preserving expertise in these decentralized functions.

We thought it made good sense to carry the 2 collectively. 

Lau: In blockchain, a number of the dialog has centered across the scalability drawback. The ‘scalability trilemma’ is a phrase coined by Vitalik Buterin himself to explain what just isn’t potential. You may’t equally maximize three fascinating attributes of blockchain. They’re decentralization, scalability, and safety. Should you’re going to dominate in two, you’ve received to reduce on one. So, for instance, so many circumstances of that — Binance Good Chain, for instance, gave up decentralization for scalability. 

The place are we on the scalability trilemma? I do know of quite a lot of initiatives that say they’re fixing it and so they have solved it. However the place are we when it comes to the following section of expertise? 

Chiu: The trilemma may be very actual, and the trick in navigating via this trilemma is: Don’t attempt to optimize for all three dimensions with one answer, however reasonably give you options which are complementary and convey them collectively. It’s like placing a puzzle collectively. 

Rollout and ETH 2 truly could be an important complimentary instance, the place optimistic rollout, let’s concentrate on that as a result of that’s the OMGX structure. The sacrifices that the structure has made on the dimension of decentralization is a single sequencer that controls the block order or the transaction orders. And that permits computerized roll-ups to optimize for safety and for scalability. 

Now, how will we make up for the sacrifices in decentralization? Nicely, one, there are 4 approvers of verifiers monitoring only a single sequencer to ensure the one sequencer doesn’t commit any fraudulent transactions. After which, after all, as a result of this layer 2 finally is secured again to the mainchain Ethereum, which is decentralized. So we’re bringing the mainchain, which is decentralized and safe, however not very scalable, and mixing that with a layer 2 answer that’s scalable and safe, however not decentralized. So between the 2, we’re hitting all three dimensions.

Lau: How necessary is that for ESG, for sustainability? 

A whole lot of the current narrative, particularly tied into the market crash that we noticed in crypto this previous couple of weeks, actually centered across the carbon footprint difficulty. And there’s a root trigger, I assume, there that probably explains a little bit little bit of the market pullback. The place can expertise play right here and does scalability additionally play an element right here? I’m speaking about – lowering the latency by lowering the computational necessities and all of these issues that really take up a number of vitality.

Chiu: You’re completely proper in a proof-of-work protocol. The explanation it’s so energy-intensive is as a result of we’re replicating the identical computations throughout all of the nodes within the community, which is overkill, frankly. By shifting computations off chain to layer 2 options, for instance, we’re eliminating a number of that duplication. By performing the computations off-chain after which solely hovering the state roots again to the mainchain, and that dramatically eliminates a number of the wasted and duplicate computations. 

And naturally, as Ethereum itself strikes to ETH 2 and transitions from a proof-of-work mannequin to a proof-of-stake mannequin, that may additional scale back its vitality footprint. However even earlier than that occurs, merely shifting a number of the transactions from mainchain to layer 2 options will dramatically scale back the vitality footprint per transaction required.

Lau: Yeah, and this additionally ties again to the basics of the particular crypto market that we’ve usually talked about, which is it’s actually technology-based reasonably than, EBITDA-based, if you’ll, an equity-based elementary evaluation. 

Should you had been to try the current pullback that we noticed available in the market, lots of people mentioned that “the expertise isn’t any good. I don’t consider on this house. It’s speculative, it’s x, it’s x, it’s x.” You’re in it. You’re taking part in it. You’re constructing in it. You’re creating merchandise in it. The place is the expertise right here? What’s the software use case that really is the true underlying expertise of a number of the issues that we’re speaking about.

Chiu: Asset costs usually run forward of what’s occurring on the bottom when it comes to expertise growth and adoption, and that’s partially a pure cycle of value discovery of buyers making an attempt to determine how a lot is an asset value on the finish of the day. When there’s one thing new on the horizon, what the long run holds is commonly laborious to foretell. And completely different buyers may give you very completely different predictions. And that’s what drives pricing volatility, whereas within the meantime, applied sciences proceed to construct, and if we technologists are constructing one thing useful, customers will proceed to return. 

What we are able to have a look at is overlook about value volatility, let’s have a look at precise adoption. Let’s have a look at whole worth logged in DeFi initiatives, whole variety of the expansion within the variety of wallets, the quantity of belongings which are taking part. Not simply on Ethereum., however throughout completely different chains. The expansion has been greater than regular, has been explosive up to now couple of years. And so whereas pricing will proceed to fluctuate, I consider that so long as we proceed to construct one thing that individuals need the entire ecosystem will proceed to develop and buyers over time will discover the precise costs for various belongings over time.

Lau: Yeah, it’s costs up or down just isn’t the story. That is the story right here. What’s the most irritating headline that you simply learn just lately and also you need to debunk? You may solely decide one. 

Chiu: I learn one which blamed ransomware on crypto. The author of that article argued for banning crypto as a result of nefarious actors are demanding to be paid in crypto for ransomware. And I’m like, that complete notion of holding individuals hostage for ransom has been round lengthy earlier than the invention of cryptocurrencies. So blaming this new foreign money or blockchain expertise on the whole for an age-old drawback appears off to me. 

Even when we banned cryptocurrency worldwide immediately or if cryptocurrency by no means had been invented, to start with, there’ll nonetheless be nefarious actors who would maintain corporations and maintain individuals ransom. They might simply ask for no matter they need, could possibly be U.S. {dollars} or no matter type of fee they want. Crypto simply occurs to be within the headlines and the attackers that held Colonial Pipeline hostage, they wished Bitcoin, that’s why they made it into the information. However to attach the 2 after which blame crypto for the emergence of ransomware to me didn’t make any logical sense.

Lau: You’re there in Silicon Valley proper now. However pre-Covid, I noticed you a large number in Asia and the U.S. I imply, when the world was a little bit bit completely different. The place do you see Asia’s function in DeFi specifically, as we see the house proceed to develop?

Chiu: There are a number of DeFi actions in Asia, which is why we truly love the place that we’re in, the place we’re capable of carry the perfect of each worlds collectively — the innovation and the drive of Silicon Valley with the innovation in Asia and the hustle and powerful work ethics throughout Asia. We’re benefiting from each ecosystems. My co-founder is a Stanford professor. Now we have very sturdy ties to Stanford and Silicon Valley. We are able to recruit the perfect engineers on the planet right here. We even have entry to expertise in Asia and in Europe and with the broad mixed community of Genesis Block Ventures in addition to OMG community. We’re in a really enviable place to actually carry the perfect collectively. 

Simply to talk to the significance of Asia in DeFi. I do know a number of my crypto dealer buddies within the U.S. who truly would turn out to be very lively proper round dinnertime, which is when Asia wakes up and so they monitor the market till Asia goes to mattress. That speaks to the pull and the significance of Asia in the entire DeFi house.

Lau: We additionally noticed Asia’s function within the newest market volatility. And I assume this final query, we’re seeing a number of coverage pullback from Korea, from China, that appears to make lots of people nervous. Would you clarify that a little bit bit out of your perspective, the way you view how you’re feeling a few of the coverage modifications in Asia may impression the market.

Chiu: I believe we’re nonetheless going via this section the place collectively, we’re studying how you can finest defend shoppers and defend the soundness of current monetary programs whereas nonetheless encouraging innovation in DeFi and the broader blockchain house, and a number of regulators themselves are nonetheless studying and a few are additional forward than others. So we’ll proceed to see, I believe, coverage place modifications over time as regulators be taught concerning the dangers and potential advantages. It’s incumbent upon trade actors like ourselves to interact with regulators and maintain them knowledgeable and never attempt to go away them behind whereas we simply proceed pushing ahead and pushing the frontier of innovation with out bringing the regulators alongside. If we proceed to reside in separate worlds, it gained’t be the perfect for our trade, it wouldn’t be the perfect for different mainstream individuals that we need to carry into the ecosystem. We actually have to work way more intently with policymakers.

Lau: I believe for certain there was a parallelism that we’ve skilled for a very long time, legacy programs after which in parallel, rising. First, Bitcoin after which blockchain expertise after which all of those parallel programs, and now we’re seeing a convergence. And that is additionally what explains a number of the viewership that’s becoming a member of us proper now. They’re not essentially crypto natives or you understand, crypto converts, of which we welcome as nicely, and tremendous hanging on to each phrase. But it surely’s this mixture of curiosity in two worlds merging collectively that’s the long run. Alan Chiu, you might be a part of that future. And I thanks a lot for sharing a little bit bit extra perception into what you’re doing it Enya.ai. in Defi house and likewise with OMG. And we’re going to welcome you again once more subsequent time for deeper insights on Phrase on the Block. Thanks, Alan.

Chiu: Look ahead to it. Thanks once more for having me.

Lau: And thanks, everybody, for becoming a member of us on this newest episode of Phrase on the Block. I’m Forkast.Information Editor-in-Chief Angie Lau. Till the following time.

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