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The Ones and Twos about L2s

Get an introduction to L2 rollups from leading web3 builders

Earlier this year we invited some of our friends to participate in a panel to learn about L2s. We were joined by Bartek, Lead Researcher at L2Beat, Diana, Founder of Rehash DAO, and Isaac, Project Manager at Token Engineering Commons. Below is a summary of the insights they shared.

You can listen to the conversation in its entirety on Twitter Spaces:

Highlighted moments

Humpty intro: 10m24s-10m58s

Bartek ZK vs. Optimistic Efficiency: 30m50s-31m05s & 31m26s-31m38s

Dave on L2 token use: 47m46s

Diana on L2 token use: 50m07s-50m29s, 50m21s-50m46s

Isaac on building the next big thing: 59m15s-59m28s

Thanks to our partners and sponsors for making this conversation possible.

Bankless DAO is a media and social DAO onboarding 1 billion people to crypto.

Ontology is bringing trust, privacy, and security to Web3 through decentralized identity and data solutions.

Goshen is a fully Ethereum-equivalent L2 blockchain that makes it easier and inherently more secure to scale.

In the world of web3 and blockchain, we hear a lot of talk about mass adoption and what it means to provide services and solve problems such that our newly founded systems gain users on a level not yet experienced. While mass adoption may not be one of the primary goals, it’s certainly a signifier that we’ve likely begun to achieve those goals. But what happens when huge masses of users arrive and the technology isn’t fully ready to handle the lift? This is where Layer 2 solutions, also known as L2s, come into play.

An L2 solution is a chain that allows a Layer 1 (L1) such as Ethereum to scale. Thousands of transactions can be thrown at these other specialized chains such that they can bundle up those transactions into one package that can then be validated by the base blockchain— allowing Ethereum to use far fewer computational resources than managing all of those transactions on its own. In order for this to be effective, we’d need to scale responsibly and carefully so as not to lose the decentralization inherent to Ethereum.

Diana suggests we think of a layer 2 solution as the raised rail-line shuttling people back and forth above the crowded city streets, reducing congestion on the main roads.

The two main styles of L2s to be discussed are optimistic and pessimistic (zero-knowledge) rollups. Optimistic rollups hit the scene first due to their more simplistic structure, as they require significant computational power for the L1 to receive. This optimistic bunch is, more or less, correct until proven not to be, so the burden of this proof on the L1 to check. Quite the opposite, ZK rollups do most of the heavy lifting on their side such that the L1 can digest it using much fewer of its resources to do so. This pessimistic style of rollup is incorrect until it proves itself correct through a series of zero-knowledge proofs. Also known as ZK proofs, these can prove that something is valid or true without having to expose the data that make it such. Each system has its benefits and drawbacks, and its own range of applicability based on the desired use-case.

While some L2s like Optimism want to be as close to Ethereum as possible and even use ETH as an operational token in order to encourage smooth interoperability, others like Starknet operate on a fully different setup, which allows it to be fully excluded from any gas fees associated with the Ethereum blockchain. On the topic of tokens, we find ourselves asking if L2s even need tokens to operate, and if so, whether airdrops are helpful tools for effectively targeting possible users. There seems to be a bit of disagreement on this topic, as evidenced by the many models used by L2s– but the consensus seems to be that L2s can effectively operate without their own token, using one of their own, or even potentially using two in order to clearly divide utility and governance. Weighing simplicity and complexity against utility and use-case will show over time which models are effective for which purposes.

With regard to functionality of token distribution airdrop has long been the popular method. The engagement-farming made possible (or even mandated) by an airdrop campaign might be useful for short-term excitement, but that’s not all it can muster. Using an intentional set of data and benchmarks, truly valuable future users can be incentivized to test out the network in exchange for the ability to use it at a drastically reduced cost. We’re too early to have enough success and failure stories to really know whether or not L2s absolutely need a token or whether an airdrop is effective, but over time we’ll likely see both models used when applicable.

To sum up, there is no clear winner or definite path in this area. However, we shouldn't be discouraged by this uncertainty. Rather, it should motivate us to investigate more, to try out new builds, and to change direction when needed. By doing so, we may uncover fresh opportunities and challenges that we didn't even know existed. This is why we are so enthusiastic about this field - the endless possibilities it provides. Therefore, let's embrace the unknown and start this journey with open minds and hearts full of excitement.

Want to learn more about L2s? Stay tuned for the second part to this conversation where we take a deeper dive into Optimistic rollups.

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