Guest post, written by Matthew Chaim
I, like many, have fallen down the Ethereum rabbit hole.
As an artist myself, I’ve gravitated primarily to the world of crypto art and Non-Fungible Tokens (or NFTs). As such, I am far more interested in playing with the platforms built atop the Ethereum blockchain — be it NFT marketplaces, tokenized DAOs, etc — than understanding all of what’s going on under the hood.
So when it came to learning about these transaction costs on Ethereum called “gas”, I didn’t really care to dig too deep — so long as they didn’t prevent me from moving ETH and other tokens around.
Now gas is the only thing on my mind, for it has quickly become the bottleneck preventing me from continuing my exploration across the Ethereum network.
So what is causing this problem? And what are its possible solutions?
Dams Be Damned
I recently listened to an interview with crypto expert Andreas Antonopolous, in which he shared an analogy that I find quite fitting to this moment. He was talking about the difference between centralized and decentralized systems — equating centralized systems to dams built to contain and control the flow of value, and decentralized systems like Bitcoin and Ethereum to holes drilled into those dams. Eventually, all that value is going to find its way through those holes.
We are seeing this happen now, as more and more people move their money out of fiat and into decentralized cryptocurrencies. The problem? That little hole in the dam called Ethereum is still too small to handle all incoming transactions. With this congestion, the price to play has gotten so high that little fish like me are treading water, unable to move.
So, how do we widen the hole?
Eth2 and Layer-2 Solutions
The Ethereum community has built a roadmap towards this end with the launch of Ethereum 2.0 — a multi-year upgrade to the Ethereum network meant to solve its inherent scalability issues. While Phase 0 of this upgrade launched in December 2020, mass adoption of Eth2 is still years away.
Thing is, we don’t have time to wait. There are Ethereum-built startups who have had to put their projects on pause — or worse, shutdown — due to exorbitant gas fees. We need solutions that can be implemented today.
Luckily there are projects working to solve this problem. These solutions are called “Layer 2” scaling solutions, because they fight the problem not at the base layer of the Ethereum blockchain but one layer above. It’s as if instead of widening the actual hole in the dam, they are building engines to push more water through the holes at their current size.
There are a number of flavors of Layer 2 solutions, and they can get very technical very quickly. Vitalik Buterin recently published an article in which he describes these different types of solutions and their technicalities. In it he concludes that “Rollups” — and more specifically zkRollups — are the layer 2 scaling solution that is most likely to win out in the long run. Without getting into the nitty gritty of how zkRollups work, they effectively allow the bundling up of many transactions into one so that the ensuing gas fees are negligibly small. As Matthew Finestone of Loopring puts it, “using zkRollups is like buying block space with 1000 friends and splitting the cost”.
Loopring is at the forefront of building and implementing this new technology. They first built a zkRollup exchange protocol, and have now launched a decentralized exchange and mobile crypto wallet with layer 2 tech baked in. All that to say, on Loopring you can trade and make payments rapidly fast and completely gas-free. I have tried their exchange for myself, and it is very satisfying to have your transaction go through instantly without costing an arm and a leg.
Rollups and the future of web3
It is still very early days. Layer 2 rollup solutions like the Loopring protocol have only been active a short while. It is so fresh that at the time of this writing, no Ethereum wallet outside of Loopring’s current beta Android app supports a direct window into layer 2 holdings. But layer 2 season is here, and the pace of advancement and adoption is picking up.
These solutions are naturally in high-demand for DeFi platforms. But the web3 ecosystem atop the Ethereum network extends a lot further, and everyone is facing this same problem. According to Opensea, the NFT market alone has gone from $1 million per month in mid-2020 to $80 million per month in February.
The excitement around DeFi and web3 is not without cause. These applications hold ripe potential to reshape the way we transact, create, distribute, communicate — and on and on the list goes. Adopting layer 2 solutions will be integral for these markets to scale at the rates that they clearly can, and it looks like zkRollups is carving the path to that gasless future.
Loopring is an Ethereum zkRollup protocol for scalable, secure exchanges & payments. Loopring builds non-custodial, high-performance products atop our layer-2, including the Loopring Wallet — a mobile Ethereum smart wallet, and the Loopring Exchange — an L2 orderbook and AMM DEX. To learn more, you can sign up for our Quarterly Update or see Loopring.org.