Unconstrained Innovation - The Daily Gwei #215

An entirely new frontier is about to be opened up to builders on Ethereum.

One of Ethereum’s key innovations in the crypto ecosystem is that it brought expressive programmability to blockchains - something that Bitcoin didn’t have and was not open to embracing. Now, Ethereum is bringing another key innovation to the ecosystem - a highly scalable layer 2 ecosystem that is secured by a fully decentralized base layer.

This new layer 2 ecosystem is going to essentially be unlocking an entirely new design space on Ethereum and bring the use-cases that have been priced out back into its ecosystem. One clear example here is NFTs - a game like God’s Unchained was priced out of Ethereum because it made no sense to trade the in-game items (trading cards) for a few dollars when the fees per trade were $30 or more. Now, with the Immutable X decentralized exchange launching soon, God’s Unchained players and many other NFT-based apps will have a home for cheap and fast transactional activity to take place.

Now of course, layer 2 is going to be an absolutely massive boon to the already bustling Ethereum DeFi ecosystem. Think about how many new users we can now onboard that’ll be able to experience the Ethereum many of us did from back in the days of 1-5 gwei gas prices. What’s even better is that they’ll be experiencing near-instant transactions with ~0% failure rates - no “out of gas” errors for them! I have to admit that I’m a little jealous thinking about this but I think we all should be pretty happy that we’ve been pioneers all this time - we’ve certainly been rewarded handsomely for it!

This new design space on layer 2 is also going to allow for apps that have never really been possible on layer 1 Ethereum such as the web3-related apps like decentralized social media or music streaming services. Though to be honest I’m not sure if we’ll be there for a while because these kinds of services are very data hungry and we’ll probably end up seeing hybrid models form (such as the token and user accounts on Ethereum layer 1 and/or 2, web-app on IPFS and file storage on Filecoin or Arweave).

On top of all of this, I’m sure there are plenty of apps that are going to be built using all of this new design space that we can’t even think of right now. I mean, most people had no idea what we’d be able to build by harnessing the power of “money legos” in DeFi so I’m sure we’re going to be pleasantly surprised by what a relatively unconstrained design space will enable builders to do.

Finally, tying all of these layer 2 solutions together will be bridges like Connext and Hop Protocol. These bridges will essentially be used to transfer liquidity from various L2’s in a speedy manner for a small fee (think: cross-L2 Uniswap) and enable a composable DeFi environment similar to what we all enjoy on layer 1 today. This is yet again a brand new design space for builders to explore and I’m keen to see what they come up with!

The layer 2 ecosystem is just so very exciting, isn’t it? It feels like an entirely new unexplored frontier that we’re all going to get to be pioneers of (without having to pay the high price this time)! I honestly haven’t ever been this excited about the future of Ethereum and I hope you all feel the same way!

Have a great day everyone,
Anthony Sassano

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All information presented above is for educational purposes only and should not be taken as investment advice.