Author: Steven Pu, Co-founder of Taraxa
The currently popular rollup-based layer 2 networks are destroying cryptocurrency, or more accurately, they are undermining the trustless nature of cryptocurrency by rapidly eroding its decentralized trustlessness.
The uniqueness of cryptocurrency comes from its trustless characteristic, which is primarily supported by the underlying infrastructure of the layer 1 network. The only truly trustless way is through complete decentralization, where decisions are made calmly by a large collection of randomly selected nodes from around the world, operated and owned by individuals who are almost entirely unconnected.
This decentralization relies on three pillars: inclusion, ordering, and execution. The degree of decentralization of a network depends on its weakest pillar. When any one of these is entrusted to a single decision-maker, the "trustless" label becomes a marketing gimmick, and rollups simultaneously undermine all three pillars.
Rollups do not provide decentralization guarantees in terms of inclusion and ordering, and in the case of optimistic rollups, they do not guarantee the correctness of execution. Layer 2 rollup networks are undoubtedly a bane to cryptocurrency.
Currently, there are two main types of rollup layer 2 networks: optimistic rollups and zero-knowledge (ZK) rollups. Both are dominated by networks where a single sequencer makes all decisions. Since placing this critical task in the hands of a single entity is problematic, these rollups do make some weak attempts at correctness guarantees in execution.
Optimistic rollups rely on a "challenge period" of up to a week, which is a countdown inviting chaos. If even one fraud proof is established, millions of transactions will be reversed, and funds and confidence will be locked for days.
For ZK-rollups, they do guarantee the correctness of execution through ZK proofs.
However, when an isolated sequencer can simply refuse, delay, or reorder transactions for advantage, perfect execution proofs become useless. Without a public, immutable record of who is trying to trade and when, censorship cannot be proven and thus cannot be punished.
If a network cannot guarantee the transparency, fairness, and correctness of inclusion and ordering, then what use is an execution guarantee? Since you can only execute what has been included and ordered, execution fundamentally relies on inclusion and ordering. The lack of any guarantees in inclusion and execution makes execution guarantees untrustworthy.
The market is starting to notice this. Liquidity is splitting between bridges that inherit the weakest link assumptions of each rollup. The resulting custodial multi-signature and emergency pause switch networks create systemic risks, which traders are now factoring into asset valuations. If the discount for "sequencer risk" widens further, Ethereum's monetary premium will be affected.
A common rebuttal to the fact that layer 2 networks are centralized chaos is that they will decentralize at some future date. This is a self-defeating argument.
If you take a layer 2 network and transform it into a truly decentralized sequencer network, where sequencers collaborate through decentralized consensus to provide strong guarantees in inclusion, ordering, and execution, what do you end up with? You ultimately get a layer 1 network.
Anyone claiming that layer 2 networks can eventually decentralize is saying that they will at some point turn into a layer 1 network, siphoning liquidity, fees, and total value locked (TVL) from the layer 1 network they claim to help scale (essentially Ethereum).
The vested interests operating today's profitable single-sequencer stacks see little incentive to dilute their power.
Ethereum does not have to be slow and expensive. Many newer consensus designs on mainnets can serve as references to improve the network's technical capabilities.
As TVL rapidly approaches $100 billion, it is entirely reasonable for Ethereum developers to be particularly cautious when implementing fundamental changes to the network's core architecture. However, there needs to be positive progress in scaling Ethereum itself, rather than merely focusing on these parasitic layer 2 networks that are only role-playing as decentralized networks.
Funding key upgrades in production, execution, and consensus will strengthen Ethereum's neutrality, protect its fee revenue, and restore user confidence without the bridging risk tax imposed by rollups.
Let’s abandon layer 2 networks and prioritize scaling Ethereum's layer 1 network.
Author: Steven Pu, Co-founder of Taraxa.
Related: Google outlines "Universal Ledger" plan as institutional blockchain competition heats up
This article is for general informational purposes only and does not constitute legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original: “Opinion: Layer 2s are destroying crypto by eroding decentralized trustlessness”
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