Research Summary
The report discusses the expansion of the Ethereum layer 2 ecosystem, focusing on the ZK-EVM rollup ecosystem’s progress in enhancing security. It explores the transition of layer 1 projects to layer 2s, the exploration of blockchain-based routes by centralized projects, and the security requirements of non-financial applications. The report also delves into the tradeoffs between rollups, validiums, and disconnected systems, and the expected decrease in Ethereum’s native data availability cost.
Key Takeaways
Ethereum Layer 2 Ecosystem Expansion
- Transition to Layer 2: Layer 1 projects are gradually transitioning to layer 2 to maintain usability and momentum. This transition is driven by the need for improved security and lower fees, especially for users from the non-blockchain world.
- Security Tradeoffs: The choice between rollups, validiums, and disconnected systems depends on the level of security guarantees and tradeoffs. Rollups provide computation proven via fraud proofs or ZK-SNARKs, with data stored on L1, ensuring assets can always be brought back to L1.
Decrease in Ethereum’s Native Data Availability Cost
- Technological Improvements: The cost of Ethereum’s native data availability is expected to decrease over time as technology improves. Ethereum’s next hard fork, Dencun, introduces EIP-4844, which will provide increased onchain data availability.
- Data Compression: Improvements in data compression will allow for more efficient use of data on Ethereum, further reducing costs and improving performance.
Application Needs and Security Tradeoffs
- Application Priorities: The application’s needs play a significant role in determining the tradeoff between high fees and potential application failures. Financial applications prioritize security, while games and social media prioritize low latency and high activity.
- Pre-confirmations: Pre-confirmations are messages signed by participants in a rollup or validium that provide a partial guarantee of transaction inclusion. They are useful for low-value applications but may not be suitable for high-value transactions.
Trustlessly Reading Ethereum
- Token Bridging: Trustlessly reading Ethereum is crucial for bridging tokens issued on Ethereum to other chains and for secure asset storage in account abstraction wallets.
- Reverting Chains: The ability to revert if Ethereum reverts is valuable to prevent exploits and ensure the correct functionality of the top chain. There are two ways to solve the problem of reverting chains: only reading finalized blocks of Ethereum or reverting the top chain if Ethereum reverts.
Security of Withdrawing to Ethereum
- Asset Security: Having a bridge contract on Ethereum does not provide asset security guarantees for the top chain. The validation of block headers does not ensure the correctness of state transitions, leaving assets vulnerable to theft if the top chain’s validators go rogue.
- Two-way Validating Bridges: Two-way validating bridges, along with a social commitment, are essential for making a chain a validium. The security of withdrawing to Ethereum and the security of reading Ethereum are two important dimensions of connectedness to Ethereum.
Actionable Insights
- Investigate the Potential of Layer 2: With the rapid expansion of the Ethereum layer 2 ecosystem, there is potential for projects to transition from layer 1 to layer 2 to improve security and reduce fees. This transition could be beneficial for both financial and non-financial applications.
- Consider the Tradeoffs: When choosing between rollups, validiums, and disconnected systems, it’s important to consider the level of security guarantees and tradeoffs. Understanding these tradeoffs can help in making informed decisions about the best approach for a particular project.
- Explore Technological Improvements: The expected decrease in Ethereum’s native data availability cost due to technological improvements and data compression could provide opportunities for more efficient use of data on Ethereum. This could lead to cost savings and improved performance.
- Understand Application Needs: Understanding the specific needs of an application can help in determining the tradeoff between high fees and potential application failures. This understanding can guide the development of strategies that prioritize either security or low latency and high activity, depending on the application’s requirements.
- Ensure Secure Asset Storage: Trustlessly reading Ethereum is crucial for secure asset storage in account abstraction wallets. Ensuring this capability can help in preventing exploits and ensuring the correct functionality of the top chain.
