The big idea and why it matters: Scale is an issue for blockchain. However, if this can be addressed, it stands to reason that blockchain and related technologies will be a pervasive force across many aspects of our lives with many practical implications.
“Fear not for the future, weep not for the past. –Percy Bysshe Shelley (British writer)
More on Layer 2s
In Parts 1 and 2, we discussed Bitcoin’s Lightning network as an example of a layer-2 scaling technology, using the concept of an express lane to illustrate how it works. I recently heard a comparison of “layer 2s” to running a bar tab (i.e., a tab is opened, all your food and drinks are tracked all night, and then there’s just one transaction when the tab is closed), which I think is an even better way to conceptualize this idea.
Many layer 2s are being developed for Ethereum, some with specific applications in mind. However, the main idea is to improve what can be accomplished on Ethereum’s main blockchain (aka “layer 1” or the “Ethereum Mainnet”); this is achieved by processing transaction data off-chain and then reporting it back to Ethereum as a single layer-1 transaction – again, the bar tab concept [note: these are known as “rollups” due to their rolling-up data]. Layer 2s that are faster, cheaper, and generally more scalable will, of course, garner more attention from users. Let’s get deeper into that and wrap up this mini-series today. Here we go!
Sidechains and Valadiums
Before moving too far away from Layer 2s, it’s worth mentioning these other concepts, which are similar to the idea of Layer 2s but not quite the same. I’m again relying on ethereum.org for some of the heavy lifting here:
Sidechains: Imagine parallel roads that run on either side of a river. Every so often, a bridge allows traffic to cross from one road to the other, but each road is separate. Now imagine one of those roads is Ethereum, and the other is a different blockchain, which I’ll call “Dick Chainey.”
The bridges are connections that allow Ethereum and Dick Chainey to talk to one another or move information back and forth. Still, Dick Chainey doesn’t need to report its transactions back to Ethereum, as it functions independently. Thus, the protocols for how Dick Chainey validates its blockchain, secures/processes information, etc., may all be very different from the methodologies of Ethereum.
Validiums: Here’s my attempt at a concise summary (although these involve nuances that admittedly leave me struggling to understand precisely how they work): validiums can process/verify batches of off-chain transactions, which adds speed and efficiency to Ethereum (via fewer transactions on the Mainnet), but the underlying smart contracts, settlement, and security rely upon the main Ethereum chain.
Beginning with the end in mind?
We’re talking a lot about Ethereum today, but Solana is a competing blockchain solution whose founder believes its primary (Layer-1) blockchain can incrementally scale over time. It makes total sense to build in the flexibility for future scaling from the start, but will it work? I have no idea.
Okay – Ethereum is scaling, but what’s the point?
I realize all of this stuff about blockchains and layers can seem very, well, ethereal, so let me tie all of this into real-life implications. As blockchain solutions like Ethereum become faster and cheaper, they can improve how our digital world functions – alleviating many current concerns and improving our daily experience. Much of that can be summed up as the next evolution of the internet, aka “Web3.”
A quote from the co-founder of Ethereum and founder of Polkadot (another crypto/blockchain solution) can be found in this Web3 overview video, but it’s a nice summary of the concept: “Web3 is really sort of an alternative vision of the web where the services that we use are not hosted by a single service provider.” You’ve likely heard about congressional hearings about concerns over large corporations (e.g., Google, Meta) becoming too powerful because of the vast amount of centralized data they control and their related influence on our lives.
Web3 would change all of that, among other things. The solutions are built on blockchain solutions like Ethereum, and scalability efforts (the central focus of this mini-series) are vital to making it all possible. Web3 promises to pull together decentralization, embedded trust of smart contracts, the ability to integrate artificial intelligence and machine learning, and increased connectivity, resulting in a more personalized and integrated experience with the digital and physical world (Internet of Things). This topic is worth a deeper dive in a future edition.
So many things
Perhaps topics for another day, but I encourage you to scroll through this article, 15 Applications for Blockchain Technology, for a sense of how pervasive these solutions will be. The common thread across the examples offered (e.g., payments, transactions, lending, voting, medical records, etc.) is speed, trust, and disintermediation (cutting out the “middleman”). If you’ve ever been through a real estate transaction, you know there is massive room for improvement.
The great culmination?
It’s becoming clear to me that – IF Web3 and these other ideas evolve as anticipated – potentially overhyped ideas from recent years may have real, pragmatic utility. Completely separate from the “price of Bitcoin” discussion, blockchain technology, the underlying concept of Bitcoin, will be the foundation of our lives. NFTs (non-fungible tokens) won’t just represent ownership of (sometimes wildly overpriced and highly speculative) digital artwork but functionality for the social media platforms of the future.
At the same time, none of this would be remotely possible without advances in computing power (chip technologies), communication speeds (5G), connectivity/storage (data centers), and many other elements that have required all of human existence to lead us to this point.
No free lunch, as always
Not to rain on your (or my) parade, but many challenges remain for dreams like Web3 to become reality. Aside from the technologies themselves, we may have to rethink some energy solutions, given Bitcoin and AI already use “as much energy as a small country” – EACH. Also, any time large companies or governments stand to be disintermediated or lose regulatory ability, we have to assume that the transition isn’t going to be easy.
Nonetheless, blockchain and related technologies stand to enhance our lives significantly, and it’s exciting to watch it all continue to unfold before us.
Until next time, this is the end of alt.Blend.
Thanks for reading,
Steve
