Ethereum will complete the Merge in the third quarter. In the fluctuating market for blockchain games in August, I will bring you a dedicated report on Ethereum.
As the largest public chain in offline applications, ETH has the most applications and DApps online, and what we are currently using is ETH layer 1.
What is ETH layer 1?
Layer 1 refers to the underlying blockchain; both Ethereum and Bitcoin are layer 1 blockchains. They are the foundation for other layer 2s. However, layer 1 has many problems, one major issue being congestion, which results in high transaction fees. When I first encountered Ethereum, I spent an entire afternoon trying to transfer money to buy Axie, and the transaction fee was several hundred dollars.
So why does this situation occur? This brings us to the famous blockchain triangle dilemma. This triangle dilemma is very well known; all public chains are actually searching for balance in this triangle, namely: Decentralization, Security, Scalability. See the diagram below:
These three characteristics restrain each other; pursuing any two points will inevitably sacrifice one point, which is why it is also known as the impossible triangle.
The current problems with Ethereum are all based on the triangle dilemma: decentralization is the core of blockchain and must be preserved; this is what makes cryptocurrency highly attractive. The security of the currency must be guaranteed; safety is the foundation of trust, and trust is the core of financial markets.
Under these two cores, efficiency must be sacrificed. The result is a very slow transaction process and high transaction fees. This is the result of Ethereum's compromises and also its persistence. Last week, Solana was attacked because it ensured decentralization and efficiency while sacrificing security.
Looking at ETH again, we can find that it has many regrets, but ETH also explains its vision, which is to improve efficiency and security. However, this is a trilemma. Although Ethereum is the leader in the entire cryptocurrency market, and Vitalik Buterin is the second most important figure in the cryptocurrency world, second only to the legendary Satoshi Nakamoto, they have also found it impossible to solve the triangle dilemma. This is a key reason why ETH 2.0 has been delayed.
"Vitalik Buterin, a Russian. He established ETH at 19 years old, owns over 300,000 ETH, has cash assets exceeding 30 million USD, and cryptocurrency assets of about 100 million USD. He is regarded as a spiritual leader in the crypto field, participated in discussions in Beijing on the crypto sector, and suggested earlier that the crypto field would first develop in the finance circle and then expand into the gaming circle, and he is referred to as V God."
Since there are problems, there must be ways to solve them. In fact, there are three solutions: one is centralization, but ETH will not accept that; they would rather be a bit slower and wait longer than to become centralized. Another method is to establish layer 2, which is also the approach ETH is currently taking. The last option is to upgrade layer 1. That is what ETH is going to do next.
What is layer 2?
Describing it in general terms, layer 2 is the scalability of ETH. Layer 1 and layer 2 are not united; they are two separate chains. I understand layer 2 as the younger brother of layer 1. Layer 1 is the big brother, collecting protection fees for the whole area, but he cannot collect so much alone, so he gives some to layer 2. After layer 2 collects the protection fees, it makes a ledger to tell the big brother how much it has collected. They are two independent individuals, but their hearts are the same; they are both collecting protection fees. That is, layer 1 gives tasks, and layer 2 provides results to share the workload of the big brother.
So how does layer 2 solve problems? It uses roll-up technology, which translates to 'rolled up' in Chinese. In blockchain terms, it means bundling; that is, bundling hundreds of transactions on layer 1 into one transaction.
The current mainnet of ETH can handle 15 transactions per second, but how many people are using ETH for transactions every second? This is completely insufficient. Its solution is to bundle hundreds of transactions into one transaction and hand it over to its younger brother to process. For example, if it bundles 500 transactions into one transaction, then 15*500 equals 7500 transactions, and with so many transactions, the transaction fees can be shared, significantly reducing the GAS fees.
Roll-up processes these transactions outside of layer 1, not on layer 1, but its transaction data will be sent to layer 1.
There are two types of roll-ups: one is called optimistic, and the other is called zero knowledge. Their difference lies in how to return the processed data to layer 1.
Optimistic represents the chain optimis; previously optimis issued airdrops, and many people went crazy for it because it is the little brother of ETH. The other one, zero knowledge, represents the chain Arbitrum One. Arbitrum One has not issued its own token yet, but it is said that it will issue its own token, and it is very active, even organizing an Arbitrum One Odyssey event.
Imagine if layer 2 grows up; it will have fast transaction speed, low fees, and inherit the security of ETH. Many DApps would transfer from the ETH layer 1 mainnet to layer 2. Therefore, to some extent, ETH also feels the threat of these layer 2s, which are actually separate from other layer 2 chains.
The younger brother may also develop into the big brother, taking down the original big brother.
For ETH, layer 2 can only provide a temporary solution but cannot fundamentally solve the problems faced by ETH. ETH has only one path to take, which is to upgrade itself.
After the upgrade, ETH will be called ETH 2.0, which is very simple but also very important.
ETH 2.0 progresses in three steps: the first step is called the beacon chain, which is already in operation; the second step is the Merge, which officials say will be completed in the third quarter of this year; the third step is sharding, which is expected to be completed between 2023 and 2024.
What we often see online about the Ethereum Merge is actually an incomplete statement, because the upgrade of ETH is carried out in three steps. The reason it is called a merge is that it is the task for this quarter and is already imminent. So what is the merge? It is the merging of the ETH mainnet and the beacon chain, and its core is the transition from PoW (Proof of Work) to PoS (Proof of Stake).
The first step of the beacon chain went live on December 1, 2020, and is the heart of ETH 2.0, which belongs to the on-chain scaling sharding technology. I do not fully understand this sharding technology from a technical perspective yet, but I am learning. Its meaning is to allow the beacon chain to serve as an intermediary linking the ETH mainnet and the data.
The current Merge refers to the combination of the mainnet and the beacon chain, and the result of the merge is the change in the consensus mechanism, which is the transition from PoW to PoS, and this is also the key to this transformation.
In the triangle dilemma, ETH gave up efficiency, leading to congestion and high transaction fees, and if ETH does not solve this problem, it is likely to lose market share to other public chains or even be replaced. There are three solutions: centralization, layer 2.0, and ETH upgrade. The first option abandons ETH's faith, the second creates enemies for ETH, and only by starting from itself can it solve the problem, so ETH chooses to upgrade to break the dilemma. The upgrade of ETH is to solve many current issues, and the merge is the combination of the mainnet and the beacon chain. The upgrade is not a direct process but a continuous process.
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