The Modular Era - The Daily Gwei #438
Let a thousand execution layers bloom.
Urbit, a crypto project that’s been around for quite a while now, announced yesterday that they are deploying their own layer 2 rollup that will be secured by Ethereum. I think this is just the beginning of projects spinning up their own layer 2’s and I very much welcome it as I believe the best path forward for Ethereum scalability at this point is to let a thousand execution layers (layer 2’s) bloom.
My thesis is that over the next few years, we will see plenty of layer 2 solutions bloom and they’ll be securing themselves using the world’s best settlement layer - Ethereum. Many of these layer 2 solutions will be forks of existing rollup codebases, some will be new constructions and some won’t even be rollups at all. The through-line here is that the era of the “monolithic blockchain” is now over and we’re now moving into the era of the “modular blockchain” which I’m sure you’ve all heard about a lot over the last few months.
The modular blockchain design separates concerns into three main buckets: settlement/consensus, data availability, and execution. The brightest minds in the crypto ecosystem have quickly come to a consensus that this is looking like the best path forward to achieve maximum decentralization, security and scale. Of course, there are other designs that are being experimented with as well, but I do truly believe that the modular design will be the one that wins out over the long-term because it just makes the most logical sense. This means that, much like how the era of spinning up a new PoW blockchain is over, the era of spinning up an entirely new monolithic layer 1 is also coming to an end - and this is a good thing for everyone!
On that note, spinning up a layer 2 rollup (the “execution” part of the modular stack) is much easier than spinning up a new layer 1 blockchain (the “settlement/consensus” part). This is because a rollup can basically “outsource” its security to whatever layer 1 blockchain it wants with Ethereum being the most-obvious choice for maximum security and decentralization (and in the future, the cheapest fees for layer 2’s). Ethereum will also be the best, most secure and cheapest place for execution layers (rollups and others) to post their data to once sharding is implemented (hopefully sometime in 2023).
Obviously I’m making some assumptions in this piece about how the next few years are going to play out, but I think that the assumptions are based on sound logic. One thing I’ve learned over my years in this ecosystem is that you should never bet against exceptionally smart people - they are usually 100 steps ahead of everyone else. Though at the same time you should still keep an open mind and check your biases from time to time else you end up in an echo chamber and miss out on the “next big thing” in crypto.
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.