How will Ethereum upgrade affect the development of Layer2?

On September 15, with the completion of the merger of Ethereum, PoW miners withdrew from the ecosystem, and Ethereum officially became a PoS mechanism. Ethereum is a huge ecosystem, with thousands of decentralized applications and decentralized financial protocols running on its chain. In traditional centralized finance, payment systems such as Visa and Mastercard are confirmed by the processing center, which can support 65000 financial transactions per second.

In contrast, the Ethereum blockchain can only process no more than 30 transfers per second. To solve the dilemma of blockchain expansion, while maintaining decentralization, security and ensuring transmission speedThe Layer2 solution has emerged, that is, a two-layer solution built on the Ethereum blockchain to promote faster transactions and make Ethereum more scalable.

The merger will not hinder the development of Layer2

The merger of Ethereum into PoS indicates that Ethereum is transitioning to the third stage and begins to process transactions on the PoS chain, but it has not had much impact on the scalability or the change of gas fees. So,What will happen to Layer2 ecosystems such as Optimism and Arbitrum One after Ethereum switches to PoS?

The Chief Technology Officer of Bitfinex believes that the recent merger of Ethereum will not have any impact on Layer2, because it will not immediately solve the scalability solution. On the other hand, even after the third phase of Ethereum is completed and becomes extremely scalable, Layer2 will still find a place in the ecosystem.

Because Layer2 solutions still have critical value for short-term, medium-term and long-term scalability. Ethereum still needs Layer2 to meet the growing global demand and use of blockchain. Even if the Ethereum main chain can handle 100000 transactions per second, it may not be able to meet the real global demand and adoption.

The Global Business Director of AAX Exchange believes that,Layer2 currently does not face many problems, nor does it need to make major technical changes.With more major investments flowing into the public chain, people can expect more efficient solutions. No matter what happens after the merger, Layer2 will adapt to this change.

At present, there is a common misconception in the industry that the Ethereum extension solution will eventually make the Layer2 solution redundant or useless, but most Layer2 solutions say that the change of Ethereum consensus will not really reduce the demand for the two-layer protocol extension solution. In the official blog post, Polygon pointed out that although the merger did pave the way for sharding, the future upgrade will not be enough to make Ethereum get enough expansion.In fact, Layer2 protocol will benefit from it, because merging will improve the performance of the two-layer protocol extension solution.

What impact will the merge have on Layer2

Ethereum is using mergers to build its infrastructure. How does Layer2 ecosystem fit into it? In fact, Layer2 has improved the performance of Ethereum for some time. The merger will not only improve the Ethereum ecosystem, but also make Layer2 more efficient& nbsp;

Zilliqa research analysts of Layer1 blockchain platform believe that Layer2 will be consistent with Ethereum's actions, and both will be improved synchronously. For example, if Arbitrum is faster than Ethereum before Ethereum merges, and if Ethereum itself becomes faster, then Arbitrum will further expand its speed. With the improvement of Ethereum, the experience of Layer2 users and developers will continue to improve over time.

The merger will also make Layer2 more environmentally friendly, because the merger will eventually reduce 60000 metric tons of carbon emissions, that is, 99.91% less than the previous value. The transition from Ethereum to PoS mechanism can pave the way for the better adoption of Layer2 in terms of environment. The CEO of Bitwave, an enterprise digital asset platform, believes that the transition to PoS is the key to the legalization of Ethereum network and allows more enterprises to join the blockchain. Previously, the environmental problems caused by PoW mining have kept a large number of enterprises on the sidelines of digital assets, and merger may be the catalyst to promote enterprises to participate in it.

In addition to efficiency and environmental benefits, the transition to PoS is also expected to enhance the security of the network against collaborative attacks. The PoW blockchain is vulnerable to reorganization attacks, while similar attacks are more difficult to occur on the PoS blockchain, because attackers must burn two-thirds of the ETH supply. As the network becomes safer and more friendly to the enterprise environment, society and governance goals, the low energy consumption PoS mechanism will open the gate of institutional capital.

How will the future upgrade of Ethereum affect Layer2

The merger marks the completion of the second phase of the Ethereum upgrade. Ethereum plans to complete the third phase of the upgrade by the end of 2023. It will improve the transaction throughput through fragmentation, so as to achieve scalability. The scalability improvement plan will be launched after the completion of the third phase,This phase will introduce sharding, which is a form of parallel processing. The Ethereum team developers claim that sharding will greatly improve the transaction throughput of Ethereum.

The chief scientist of Swarm Foundation, a decentralized storage and communication system provider, talked about the long-term impact of the future upgrade of Ethereum on Layer2. He believes that with the introduction of long-term scalability solutions, many projects, especially NFT projects, may choose Layer1 instead of Layer2. The merger will greatly promote rollup, thus eroding the market share of the current side chain. Whether it is optimal for storing data to ensure availability or rollup of zero knowledge type, it will greatly benefit from sharding. Although this will not be achieved immediately after the merger, with the gradual adoption of rollups, and the more scalable Layer1 and rollups, the side chain will be squeezed for survival and development.

The Proto danksharding update will be completed in the next important upgrade of Ethereum, namely the Shanghai upgrade. This update is related to rollup scalability technology. Rollup is an Ethereum network expansion tool, which gathers transaction sets into a unit, and then submits the unit to the Ethereum blockchain as an independent transaction, thus solving the problem of slow transaction processing speed and high gas cost on the Ethereum main network.

Proto danksharding can be seen as the preliminary version of danksharding. In the process of proto danksharding, you can verify a large amount of data on rollback by simply sampling the small block data. In essence, this update should greatly improve the speed and convenience of verifying large amounts of data on Ethernet Layer 2 networks such as Optimism and Arbitrum, making it easier for rollback to expand on a large scale, and at the same time, the transaction cost will be greatly reduced.

After the Ethereum 2.0 upgrade is fully implemented, sharding may become an additional challenge to the Layer2 protocol, because the transaction speed and gas cost of the main chain will be greatly improved. However, in the long run, the problem of capacity expansion will not disappear. If the transaction cost of the main network is low, users of Layer2 solutions will directly switch to the Ethereum main chain, which will lead to a rise in gas costs and network load again, leading to a rebound in demand for cheaper and faster Layer2 services.

Therefore, no matter how scalable the network is, Layer2 will continue to flourish and gain traction on the Ethereum blockchain. Even after the upgrade of all phases of the Ethereum main network is completed and the performance is greatly improved, Layer2 will continue to develop as the executive layer