Sharding. An Adversary or Friend to Layer-2s(L2s)?

I have been asked a lot of questions about Ethereum and the future of its Layer-2s or Sidechains especially, Polygon (Matic). And with the unrest with the indefinite delay to ETH2.0, there are questions about the reasons for the delay and will its delay be worth it in the end.

After what happened with the London fork, it's understandable why Vitalik and his team are taking their time on ETH2.0.?

What happened with the London Fork?

London Fork or London Hard Fork was the first step toward the ETH Merge(Move to PoS). EIP 1559, precisely was supposed to make ETH deflationary and its gas fees predictable and less volatile. Many were also expecting lower gas fees.?

In order for ETH to combat its rising inflation, they had to burn a lot of ETH combined with the strain on the blockchain, the prices of ETH spiked. And so did the gas fees and it led to a mass exodus from ETH to other blockchains that offer lower transaction fees like Solana.

I am going to give a quick breakdown on what are Layer-2 Protocols and Rollups for people confused with the concepts.

You might have heard the terms Layer-0, Layer-1, and Layer-2. What are the differences?

Layer-0 or the Protocol Layer is the first layer among all blockchain protocols, connecting seamlessly with all other protocols to build interconnected value chains, offering a more robust and evolved alternative to smart contracts. In simple words, Layer-0 allows multiple blockchains or L1 to be built, and operate independently, while staying connected to each other to solve 1 or 2 aspects of technology that we will be covering later. An example is the Polkadot Network

Layer-1 or the Networking Layer is the base network of a blockchain platform. Examples are Bitcoin, Ethereum, and Solana.

Layer-2 or the Application/Integration Layer or Sidechains are a set of off-chain solutions (separate blockchains) built on top of layer 1s that reduce bottlenecks with scaling and data. It is done by processing the transactions off-chain using its own consensus mechanism while maintaining the same security network and stability as its L1s. An example is Polygon.

Rollups or Blockchain Rollups is a system of rolling up or compiling a bunch of transactions into a single transaction, which maximized speed and cuts cost. An example is zk Rollups.

I have a post on Zero-Knowledge Proofs if you want to read more about it.

Now after covering the basic concepts, let's look at the primary thing that ETH2.0 offers, which might be a threat to L2s built on ETH like Polygon, Arbitrum, Optimism, and a few others.

Sharding.

To understand Sharding, one must first understand the aspects of technology especially Blockchain that are in constant Head or Tail conflict with one another. Security and Scalability, or Speed and Scalability, or in Blockchain, the trilemma of Security, Scalability, and Decentralization. An increase in Security or Speed means a reduction in Scalability and vice versa.

For example, a wallet and a bag, you carry more things in a bag than a wallet, but it's harder to conceal or move around without someone noticing than a wallet.

But Sharding is trying to offer the best of both worlds, by scaling and still maintaining its level of security.

Sharding is a type of data partitioning that separates large data into smaller, faster, more easily managed parts. These smaller parts are called data shards.?

ETH 2.0 has already stated that they will spread the network load across 64 separate shards. Which could do wonders for the high amount of gas fees and perhaps, its TPS.

So, what does this mean for L2 like Polygon which has recorded incredible successes in terms of new projects and general use??And also what role do rollups like Validium and zk Rollups have to play in all these?

U.Today reports that the number of unique addresses on the Polygon network passed the milestone of 200 million this week, reaching an all-time high of 201,024,643. The rest of Polygon's network indicators remain in a steady upward trend. For example, the number of daily active addresses on the network is approaching the 500,000 mark.

Polygon is steadily expanding its list of partnerships and supported sectors and has announced an official partnership to take blockchain into the music industry through NFTs. According to an official announcement, Polygon, Warner Music, and LGND will bring Music NFTs to the Web3 market.

Also, Loopring, a hybrid crypto exchange that uses zK Rollups scaling solution to provide swift, secure, low-cost, and private off-chain transactions. The layer-2 blockchain network addresses the shortcomings of a centralized and decentralized exchange, combining their pros and eliminating the cons for users’ benefit.

Loopring makes order execution highly efficient and increases available liquidity on DEXs. It has a low-cost native token used to pay network fees and leveraged for reward on the platform. Loopring token is one of the crypto assets that had a great boost in 2021, but its decline has equally been massive. But given, the distrust with CEx after the FTX debacle, we could see a resurgence in the future.

Sidechains and Rollups are known as scaling solutions, which in simple terms is they offer cheaper gas fees and faster transactions. And that's what ETH 2.0 aims to also tackle.?

But any boost to ETH is a boost to its Sidechains and Rollups. In other words, if a Sidechain processes data 5x faster than ETH. And ETH2.0 plans to make ETH 10x faster. That will mean the sidechain will be processing data 5x as ETH2.0 and 50x faster than ETH. Same with Rollups.

Now the question will be about how much speed is really needed and how cheap should the transaction fees be for a project to remain sustainable.

That's where the actual threat lies. And that question can only be answered by the adoption rate of Blockchain and Web3, ETH 2.0 and the other Blockchains that will be available at that time.

And perhaps, time will let us see where it all comes together.