Coinbase Note: The Real 'Ethereum Killer' Could Be Ethereum Itself

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Layer 1 (L1) is another way to get favorites. Much of this is due to the high fuel costs of the Ethereum network, which causes DeFi to affect market share.

Ethereum wants to resolve network connectivity issues as a Layer 2 solution and move to approval and proof of concept sharing.

This does not necessarily mean that L1 is insufficient, but the cost of L1 may vary depending on how long it takes for the Ethereum network to complete the measurement.

The cost of oil on the Ethereum network is often one of the biggest challenges in the development of ETH and smart contracts, with Tier 1 alternatives such as Solana (SOL), Avalanche (AVAX), and Terra (LUNA). The main reason 2021 is popular. However, most improvements to active applications on the L1 network still appear to be happening on the Ethereum blockchain, with a total of $ 156 billion in locks currently on 214 positions on the Ethereum chain. It almost closed. Double approval of blockchain shutdown for grades 2 to 11 numbers. In this case, the following issues arise:If Ethereum 2.0 could replace the current Ethereum network as a faster and cheaper option, was the L1 alternative (known as the "Ethereum killer") finally worth it?

In our opinion, there is still room for some L1 blockchains in the crypto space and can join Ethereum in at least a few ways. First, although the Ethereum 2.0 operating system has been pushed back to 2023 (fractional completion), this transition period, the L1 network will still be integrated into the network, which is the goal of mentioning the long-term operation of Ethereum and exchange rates. high questions. That said, at least for now, ETH-centric L2 (process 2) solutions can play an important role in increasing affordability and reducing exchange rates.

Second, scalability is just an issue affecting the Ethereum network. Currently, issues like high margins (SRMs) may not be of interest to consumers or investors, but as ecosystems continue to be, issues that affect will change the status of the L1 blockchain. Additionally, increased connectivity and improved connectivity can have a significant impact on future L1 network connectivity.

For some L1 alternatives, Ethereum 2.0 will not push any further network upgrades as we will see the Ethereum mainnet gain some advantages before joining the beacon chain. However, we believe that the performance of the Ethereum mainnet in the first half of 2022 will be largely affected by fiscal policy. In particular, during the transition to proof of stake over time, the supply of ETH to minors (and the sale of ETH by minors) has been gradually reduced. We do not believe these changes will affect the capabilities or performance of the blockchain.

However, we believe that L2 solutions, integration with beacon chains and upgrades may limit the current development of L1 networks. For example, because Ethereum improves scalability, DApp users shouldn't search faster and cheaper than other Ethereum alternatives. However, we believe there is still room for further integration of the various components in the short term, driven by the integration of components and the need for further approval.

Caption: Ethereum 2.0 timeline

Essentially, Ethereum 2.0 is an "updated connection" of the Ethereum network, allowing network connectivity without major disruptions or security. Considering the rapidity of development of decentralized applications (dapps) on the Ethereum blockchain and the growth of the entire ecosystem, if Ethereum 2.0 could offer lower costs and better network performance, it would certainly be able to interfere with L1. I believe. of the network.

However, many market players will be confused about merging the Ethereum main chain with the actual deployment of Ethereum 2.0 itself, which is a big doubt. The point is, the integration of the Ethereum mainnet and beacon chain will only transform Ethereum from Proof of Work (PoW) approval to Proof of Stake (PoS) approval. , but not in itself. , which is essential to accelerate exchange rates and increase exchange rates, with minimal support to reduce oil prices. In fact, the value of the Ethereum network is usually determined by the needs of the blockchain, so if the network performance increases further after the Ethereum mainnet is integrated with the chain beacon, the backbone network costs (e.g. , the Ethereum mainnet) will continue to grow. .

Financial policy. While there are a few issues, integrating the mainnet and Ethereum beacon chain doesn't mean the update doesn't make sense. Indeed, changes to the agreement can have a significant impact on performance, especially in fiscal policy. For example, the integration of the mainnet and Ethereum beacon chain would mean more ETH integration and less ETH production (consider moving from miners to validators), reducing the cost of exchange and therefore the demand and on products, prices grow. nce.

It should be noted that the amount of ETH issued is also significant. Indeed, in the past, most miners had to sell ETH to get money to pay for the operation of their equipment. Thus, our estimates show that the use of (less) consumer products can reduce ETH production by up to 90% and ETH sales on stock exchanges by at least 30-50% due to differences in proof of work. (The Ethereum network requires less power consumption compared to merging the mainnet and Ethereum beacon chain (e.g. lower operating costs mean lower ETH sales).

Daim duab 1: Ethereum Miner Wallet Net ETH Influx / Sortie, Source: Coinbase Analytics

However, while the integration of Ethereum's mainnet-beacon chain may set higher and lower rates for ETH / USD, we won't see much improvement in performance metrics such as onboarding, modifying the speed, size or value of the network. So how do you solve these problems? The answer can be a fragment of the beacon chain, which was actually intended for use by the Ethereum network before the Ethereum mainnet was merged with the beacon chain, but for a number of reasons it ultimately ended up being been extended until 2023, one of which uses ETH. . It is an improvement. The basic L2 solution was very successful, but now L2 has become a major problem facing the Ethereum network.

L2: The key to the expansion of the Ethereum network

We believe that the long-term viability of the Ethereum blockchain now depends on L2 solutions rather than improving the underlying network. That said, we believe that the growth and adoption of L2 solutions in terms of attracting developers and investors and smart contracts can be critical in deciding whether so-called 'ETH killers' can challenge dominance. of Ethereum.

Historically, blockchain scaling solutions have often been chosen for larger blocks and / or shards, but with the advent of L2 faster and more cost effective solutions have emerged. The most important of these is the reliable, zero-knowledge (ZK) solution that can tie the business together, succeed in a new environment (for example, off-chain), and then send the update file back to Ethereum. Coinbase has already discussed these solutions in detail and you can see them here.

A rollup can reduce exchange costs, but if Ethereum implements the update in 2023, the rollup could take up more of Ethereum's blockchain space, thus increasing the impact on the market. In the long run, this will be crucial for the Ethereum network to reach millions of users and meet its goal of reaching tens of thousands of businesses per second.

Figure 2: Average Monthly Value of Ethereum Chain, Source: Coinbase Analytics

However, L2 is still in its infancy and may not be ready for its golden age, so it can continue as "L1 changes". For example, when trading money between competitors and the Ethereum process below and looking for scams, users can wait a long time in hope. . On the other hand, ZK rollup also has some limitations on the types of business it can support. ~

In the world of many chains

As Ethereum's scalability issues persist, we believe the aesthetics of the L1 alternative in the industry will depend on how quickly Ethereum 2.0 and L2 solutions work. That being said, we can see the continued growth of the so called “L1 alternative” and continued connectivity in the first half of 2022. However, the time for the L1 alternative could start to decline in the second half of 2022 so what do we expect ZK certification to improve and make it more usable.

However, that does not mean that the L1 alternative is going to go away soon. Global multi-chain is real because we believe that solving the scalability trilemma is only the first step in improving blockchain for smart platform integration. First, in terms of the trilemma, users pay more attention to speed of operation, security, and decentralization, and can choose L1 based on these circumstances.

Second, other issues in the crypto industry are starting to emerge, such as high mining rate (SRM) and oil preferences.SRM refers to the benefits that miners and validators can exclude from others as they can include, exclude, judge, and re-execute transactions in blocks, which can lead to proof of work and proof of stake issues. . Such problems can be attributed to blockchains that use other approaches, such as proof of origin (PoH), which do not rely on Mempool and may be more isolated by MEV.

Third, we move away from the notion of simple composability by pinning it to a joint.The development of the L1 inter-chain bridge and the L1-L2 inter-chain bridge allows assets to go through joint ventures in search of higher returns or other pools. As more and more interactions have become one, we will see the L1 ecosystem grow as some DApp developers may not want to compete in a tough market. In fact, we will still see some L1 blockchains appear that focus on certain applications, like games or media. ~