The Blockchain for the general public (KPMG file)

It is not (only) the size that matters – In this new part of our analysis of the KPMG study, we will focus on the Ethereum Blockchain. If Twitter recently allowed ether donations, it’s not for nothing. Ethereum is the first smart contract blockchain, with $ 163 billion injected. This is 66% of the total value contained in the blockchain. But Ethereum only offers 15 transactions per second (TPS) when Visa offers 65,000. The downsizing of blockchains is therefore one of the main challenges of the ecosystem, which is about to be addressed this year.

MULTIPLICATION OF LAYERS 1: FALSE GOOD IDEA

To overcome this lack of scalability, KPMG explains in its “Perspectives cryptos 2022” report that side-chain or child chains have emerged. Daughter chains are secondary blockchains based on the same blockchain. They are compatible with the Ethereum Virtual Machine or not, but data transfer requires bridging, an additional step that complicates operations.

Solving the famous challenge of scalability with the triangle “decentralization – scalability – security” leads aa multiplication of blockchains, therefore dispersion of liquidity on different media. This logically hampers interactions and the construction of complex services.

The scalability trilemma

So if Polygon took the lead by allowing certain networks to migrate in its chain, allowing for example the creation of Forex on-chain. Polygon was subsequently spammed due to a lack of commissions that facilitate attacks. In fact, it is difficult to imagine an L1 blockchain capable of absorbing many transactions, while remaining secure and decentralized.

The multiplication of Layer 1 does not seem to be the solution: either the new blockchains encounter the same problems as Ethereum or Bitcoin, or they compromise the essence of cryptocurrencies.

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SECONDARY LAYERS FOR BETTER PERFORMANCE

Ethereum could be defined as rigid and homogeneous. Ethereum itself manages storage, execution and consensus on its blockchain in tier 1. The idea of ​​tier 2 rollups is a hybrid solution that combines off-chain and on-chain, such as sidechains. So they are moving storage off-chain to make Ethereum more modular.

The structure of blockchain technology is made up of multiple levels.
Layered structure of blockchain technology.

Rollups perform transactions, then compress and write them into the chain, reducing written data and therefore costs. The rollups therefore provide access to improved correspondence network security, an increase in transactions per second, and a reduction in costs. So we have a better compromise here than Layer 1 and classic sidechains. For Vitalik Buterin, the use of ETH 2.0 combined with rollups would allow Visa to reach TPS capabilities.

TWO TYPES OF LAYER ROLLUP PER ETHEREUM

  • Optimistic Rollups : Widespread and mature, however, they impose a certain time limit for the withdrawal of funds. We can mention Arbitrum developed by Offchain lab, a leader with 2.5 billion of total blocked value distributed over 60 apps.
  • Zeroknowledge Rollup : Difficult and technical, this protocol allows the aggregation of transactions and the production of a cryptographic proof of the status of the balances on Ethereum. We can mention Starknet used by Sorare for the creation and trading of NFTs.
Starkware StarkNet Architecture, a level 2 ZKRollup
Starknet architecture, level 2 ZKrollup

However, furthermore, the Zkrollups are hardly compatible with solidity smart contracts. The solutions can therefore: come from Starknet which improves its modularity; o ZkSync developed by Matter’s Lab’s and compatible with Ethereum.

In conclusion, the multi-chain world will inevitably see constraints imposed by the scalability trilemma. So while Ethereum is developing its upgrade, the blockchain will have to go through zkrollup to compete with Visa. Finally, one of the main challenges will be interoperability between chains and layers. So perhaps by addressing these challenges, bankless forecasts will have a better chance of coming true.

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