Layer 2 is just the beginning and Ethereum will eat up all blockchains

Author: Paul Brody; Compiler: Block unicorn

History shows that all second-layer solutions will gradually migrate to Ethereum, the global blockchain leader at EY said. Ethereum is eating all blockchains, no problem.

**If history is any indication, Ethereum will gobble up the entire blockchain space and not parts of Ethereum will end up being second layer solutions to Ethereum. **I believe the recent decision by CELO stakeholders to transition its operations to a second layer solution for Ethereum is just the beginning of a similar consolidation and transformation that will ultimately lead us to Ethereum becoming the first layer solution for all blockchains end state.

There is ample precedent for this kind of consolidation in the technology industry. One of my favorite examples is the gradual convergence of an extremely diverse online world into a single global standard over the course of about 15 years.

The network story goes like this: A long time ago, around the dawn of human civilization (the 1970s), we had a lot of different data networks. A wide variety of networks serve various companies and governments, from the Advanced Research Projects Agency Network (ARPANET, the precursor to the Internet) to IBM’s Systems Network Architecture (SNA), Xerox’s Internet Datagram Protocol (IDP), and many others. . The result is a tangle of incompatible networks that make it extremely difficult to connect business and government systems.

From a connecting link to a global standard

Beginning in the 1970s, efforts began to create a protocol that could work across multiple networks and handle interruptions and changes in network operations smoothly. Eventually TCP/IP was born, whose full name is Transmission Control Protocol/Internet Protocol. In its early days, TCP/IP did exactly what it was supposed to do: connect all these different networks.

Originally, TCP/IP was just used to connect different network standards, and it did this task very well. However, over time, the inexorable logic of standardization and scale transformed TCP/IP from a link of connectivity into a global standard. IP networks have swallowed up network services, and almost no non-IP networks exist today.

This shouldn’t be surprising given the tech industry’s love for standardization, and similarly we shouldn’t be surprised if the same happens with blockchain networks. Since the value of any network grows with the interconnection, this approach is likely to be a lifesaver for layer 1 solutions that were struggling not long ago touting themselves as “Ethereum killers.”

L2 Private Network

Not all L2 (Layer 2) solutions and sidechains are the same, and lately I’ve been thinking about the different ways this Layer 2 ecosystem might develop. There are many highly specialized sub-ecosystems that may emerge. For example, at EY, we see industrial companies as users of our OpsChain solution, helping them manage inventory and track carbon emissions. When we were planning for expansion, we were talking about very high transaction volumes. For example, one of our customers asked us to consider how to handle 500,000 units per day (each unique and serialized) of a single product line.

For these 500,000 units moving every day, with an average of 3 to 4 moves between production and final consumption, we can consider an average of 2 million NFT transactions per day for a single product line. For this type of customer, privacy (keeping detailed business operations data private from competitors) and scalability are top priorities—they need reliably high throughput and low transaction costs. Not surprisingly, Nightfall, the L2 network developed by EY and contributed to the public domain, is designed to achieve this goal.

**Say goodbye to those cool proprietary blockchains we use today. **

Financial transactions will have very different second-tier solution needs. Some transactions, such as exchanges, may simply be looking for high transaction volumes and low-cost rolling solutions, while complex DeFi (decentralized finance) smart contracts will also require a network that supports full Ethereum Virtual Machine (EVM) compatibility in order to Smart contracts can run on the blockchain.

And I wouldn’t be surprised to see the emergence of highly specialized national, regional, or identity verification networks where all participants are not only known, but identified and subject to the same regulatory rules. Imagine a second-tier solution that is only open to U.S. “persons” (citizens or residents). This would allow a wide variety of asset transactions between all these people with minimal additional verification checks, and they may soon appear within the EU or other major jurisdictions.

The value of the Internet

With all of these specialized networks emerging, you might be wondering if connecting them all via Ethereum is necessary. Beyond pure EVM compatibility, the value of interconnectivity lies in the ability to flow products and services from one ecosystem to another. No real, modern economic system is truly isolated. Every commercial contract ends with a payment, various types of financial services support all of these contracts, and financial flows between countries and ecosystems underpin all trade and investment.

Moreover, we may never be able to build a single network capable of supporting all different types of transactions and transaction volumes on a global scale. So there will always be multiple networks, and there will be friction between the networks even when just connecting between layer one and layer two. Even so, using Ethereum as the first layer to connect multiple specialized networks will bring huge benefits. For example, an industrial product token could leave a professional manufacturing network in exchange for payments from a financially oriented second layer, but have a continuous digital record between the two second layer networks, connected by Ethereum as the first layer , an order of magnitude higher than any integration that exists in the business world today.

One downside to Ethereum eating the world is that, similar to the web industry today, some of the network features available will change less. To achieve interoperability, tokens and smart contracts must essentially be the same everywhere, and every chain must be an EVM chain. While you could have a cross-chain development system that could run on a diverse ecosystem, that wouldn’t be of much use as your tokens and smart contracts would become unusable, and the unique and special features of a particular network would actually Will never be used.

An important lesson from the technology world is that time and time again, general-purpose infrastructure is more successful than specialized infrastructure, even if specialized infrastructure is actually better suited for a specific job. Before TCP/IP swallowed up the entire networking world, there used to be private networks dedicated to voice calls. They are called circuit-switched networks, and they guarantee the quality of phone calls. No delays, no interruptions, no lost packets, just a constant circuit between the two phones. VoIP phone calls have taken a huge step back in quality by comparison, but they now account for more than 99% of all phone calls.

So say goodbye to those cool proprietary blockchains we use today, I bet they will soon be a thing of the past.