Why should you care about Ethereum Layer-2?
thecryptojournal.substack.com
thecryptojournal.substack.com
L2 is, in my view, some of the most interesting research happening in computer science right now. The article above is not a great explanation--in particular, L2s are not off-chain as the article presents. The point of L2 is that it on-chain, inheriting the security and censorship resistance guarantees of L1.
To simplify: L2 is about creating a fast, high throughput state machine whose state transitions are verifiable on a blockchain. Blockchains, in turn, are about creating a uncensorable state machine that reaches global consensus.
So L1 achieves security, and L2 adds speed.
So why not just make L1 fast to begin with?
The strong guarantees of L1 rely on a lot of validators (on the order of ~10k+, worldwide, often on home internet connections) verifying each state transition. This puts a fairly low practical ceiling on how fast L1 can go.
L2 uses centralized sequencers to run transactions much faster, but uses a mechanism that runs on L1 to ensure the sequencer can't cheat.
The main mechanisms are 1. optimistic rollups and 2. ZK rollups. The latter, in particular, are fascinating. If you care about distributed systems even a little bit, it pays to suppress your skepticism and learn about how they work.
Good starting point: https://vitalik.ca/general/2021/01/05/rollup.html
Alternatively if you believe this is all just a ponzi scheme involving ape jpegs, bookmark this comment and come back in 3 years.
Proving knowledge without revealing information allows us to prove computations (validating them is a lot quicker than repeating the computation) and "use things" without sacrificing privacy. You can combine the two and have private transactions which are then rolled up in a computation, and then post the proof of the computation to mainnet. You get both cheap and private transactions and infra on top of the base chain.
But this goes beyond blockchain: we can hand code to other people to run and then have proof they haven't altered what we agreed upon running, so we can trust the results of someone else running something. That is useful in all sorts of research for replicability in science/engineering.
WIRED Computer Scientist Explains One Concept in 5 Levels of Difficulty : https://www.youtube.com/watch?v=fOGdb1CTu5c
https://developers.aztec.network/
https://z.cash/technology/zksnarks/
https://github.com/matter-labs/awesome-zero-knowledge-proofs
Totally agree with this. After working closely with zk I noticed that it boosts your thinking about decentralized protocols in the same way as knowing about signatures or hashes.
Right now infrastructure for doing zk is in “alpha” stage and different proving systems and optimizations are fairly new and not widely used. I believe it will grow bigger It’s very exciting field.
(I worked on zk rollup called zksync but zk rollups are only one of the use cases for zk proofs)
Most of defi is structured in this way and it is working fine, it works because it IS being integrated and made compatible with existing finance.
This is "futuristic" because anyone in the world has opportunity to lend/borrow to anyone else in the world, to write code that automates savings accounts by rotating these positions, to write business logic of their startup to borrow money when they need and pay it back when its the best time for them - scaling their finance on demand like spinning up an ec2 instance. A system where you have more voice and opportunity for your work/savings/co-op/club, compared with whatever the state of banking is in wherever you happen to be born in the world.
Concrete example: I asked my bank to borrow some money and showed them my bitcoin, they predictably said no because their system cant handle it. I wrapped it onto ethereum, deposited it in aave, borrowed usdc, withdrew to my bank account and carried on with my life without needing the banks permissions. The people lending that usdc to aave to lend out to me know it is safe and I cant run off never paying back my debts and interest (otherwise they get my over-collateralized btc).
permissionless global p2p lending and borrowing. it isn't futuristic, it is the present. ill never understand why "hacker"news doesnt find that amazing.
No, you are only describing a part of what borrowing is about. Your use case is valid, but it is just one of many use cases. Consider the following:
I own a a long-term retirement account, but I need to pay an emergency medical bill and don't have cash at hand. Obviously I don't want to liquidate my savings account, but I can put it up as collateral to go to a bank and get a cash loan. If I'm unable to pay the account may be liquidated. That's an overcolleralized loan. It's useful. The same is happening when you put up your house as collateral, or arguably even your reputation.
The blockchain equivalent of this is the same. You put up one asset as collateral e.g. Bitcoin, and you can get another more liquid asset.
Another use case for this is simply market exposure and hedging. You can put up Bitcoin as collateral, still having exposure, and then use the loan to buy another asset to get exposure to, creating a more complex structured exposure. This has nothing to do with blockchain, it's the same in traditional finance.
Every loan has some form of collateral. Even credit cards do, it's just less tangible: you are staking your credit score, which they'll start chipping away at as soon as you start defaulting.
Credit cards are loans based on future income streams (which can be securitised in fact with crypto technology -- think a defi bank automatically getting 20% of your future income until it is repaid)
Smart contracts are Turing complete and you can build anything with it. You can even build an opt-in judiciary system with the power to reverse transactions.
I think you'll be pleasantly surprised if you look at how DeFi actually works.
In some sense, we would be back to having banks with the exception that the bank now exists solely as an investment vehicle.
I guess I’m struggling to see what barriers prevent crypto currencies from being used in traditional financing?
No one can steal your ETH from your wallet, but they can liquidate your staked collateral held by the smart contract.
The current frothy state of crypto, unsustainable as it may be, is evidence that people are willing to trust crypto projects enough to give them money if there's a chance of getting some amount of more money. Much of this looks like equity financing. Debt financing isn't inherently off limits though it just is harder.
https://docs.truefi.io/faq/ https://teller.gitbook.io/teller-docs/protocol-1/overview
I don't even know where to begin when it comes to examples of just that happening. Defaulting on debt is something that happens with every single form of credit. It's extremely fundamental to the idea of debt.
It does not say it's 'off-chain'. It says that the scalability solution is off-chain - 'can process transactions off-chain'.
The solution to that is stuff like polygon which is an ethereum compatible network ( meaning that smart contracts that run on ethereum can be also deployed to polygon without changes) and has minimum fees. The same thing that has $30 fees on ethereum will have line $0.01 in polygon. So polygon can be easily used for all kind of stuff without the need to pay the heavy gas premium.
This is possible because polygon uses a different concencus model (proof of stake) than ethereum (proof of work).
Does this mean Polygon will become obsolete when Ethereum moves to PoS?
The Sun having entered the red giant phase will take out Polygon long before Ethereum actually moves to PoS.
Polygon is much less decentralized than Ethereum. There are 100 validators on the network. In the future, there will be some sort of scoring and auction mechanism to ensure only healthy validators. Currently, this mechanism has not been deployed. All 100 slots are taken by an in-group of node runners. It is not a pleasant experience to run a node on Polygon and not be in this in-group because the team does not communicate well with anyone outside the in-group. For example, in December, we experienced several days of downtime after the Polygon team made an emergency security patch that took down almost all nodes on the network but only communicated it to the in-group. This outage hit us, Polygonscan, and many independent node operators and was not a pleasant experience. The Ethereum team, on the other hand, is excellent about communicating upcoming changes, even emergency patches. Things really feel much more open and accessible as a node operator on Ethereum than they do on Polygon.
It is hard to transfer value to Polygon. Most exchanges do not support moving value directly to Polygon (Binance is the notable exception). Most use the Polygon bridge (https://wallet.polygon.technology/bridge). Using the bridge to move from Ethereum to Polygon requires submitting a transaction against the bridging contract on the Ethereum mainnet and current gas costs make this very expensive relative to the value most people want to transfer. You pay roughly $100 for any transfer of value, but most people are transferring less than $10,000 in value per transaction. Also, this bridge went down for over 24 hours last week when Polygon released EIP1559 support. I believe this is a major obstacle to Polygon adoption.
Finally, as a developer, Polygon frequently experiences deep reorgs - up to 40 or 50 blocks deep in my experience. This makes it really difficult for conventional servers to work with on-chain state. Ethereum is really much more stable as a blockchain.
Anyway, I'm not really shitting on Polygon. We do deploy all of our own smart contracts to Polygon before Ethereum because it is a production environment and allows us to incubate our on-chain features with real customers and real feedback before we take them to the show. It also gives us ample time to figure out where we need to optimize gas before moving to Ethereum.
The only part that pisses me off is the in-group/out-group dynamics around running a node, but mafias exist everywhere and no blockchain will change that.
The URL slug saying "may-2022" while the title says June 2022 really exudes confidence, too.
Don't give them your precious attention and lifespam. You will never get it back.
If you’re still confused why would you care about it, so am I.
blockchains are useful because they offer decentralized centralization. Ethereum has no policies, no embargoes, it's a neutral platform. this is because everyone can agree that what's on Ethereum is canon, and everyone can access Ethereum (except for how pricey gas is.)
this is the opposite of federations where servers host their own state, with their own terms and conditions or API keys. everyone can agree on putting things in one place. I think that bit is genuinely useful.
so the major problem is that gas is expensive (and PoW is immoral, but I'll leave that for another time.) gas is cheap on altcoins, but nobody (rightly!) trusts bespoke altcoins because they're too small to be secure.
this L2 stuff is the solution, because rolling up to Ethereum keeps the not-an-altcoin L2 chains honest, along with verifying that their aggregation or challenge protocols or whatever are secure.
whether you find a scalable blockchain useful or not is a different matter, but I think L2 protocols will get it there.
I find trustless/decentralized protocols intellectually interesting. I didn't count myself as a proponent because I don't have skin in the game.
until people realize they are a sidechain,
and Loopring does what they do without inherent added security risks.
This is like asking "why are Google services centralized?".