They’re a hot topic.
The NFT craze has exploded into popular culture, and with it comes conversations around blockchains. The conversations about what they are, how they work, and what their potential holds for our future.
The “how they work” part is only dimly understood by a non-technical person like myself. And that’s okay, as I don’t really need to know how every aspect of the piping works. I don’t need to know how to code in Solidity or write a smart contract. I just need it to work.
But the story of blockchains is still a very young one. As such, it seems my understanding does have to extend deeper into the plumbing than say the World Wide Web. I have no idea for instance what the “http” protocol is, and I don’t need to know. I type a website URL in, and it takes me there. It just works.
In blockchain land however, things don’t work as well just yet. They’re clunky, slow, and still have a long way to go.
One of the key points of clunkiness for many of us is this thing called “gas”.
You go to Opensea to buy an NFT. You find something you love that is within your budget, click buy, and boom! You get hit with this transaction fee called gas that’s just obnoxiously expensive.
In a lot of ways, the Ethereum blockchain does work. There are lots of applications being built on it today that are fun to use and have many people using them (which adds to the fun). Where it gets real clunky is at the point of transaction. They simply cost too much and take too long.
Well, this is the billion dollar question. The problem of scalability is one that many many people are working tirelessly to solve.
So how do we solve this?
Well, there are a bunch of potential answers to that question. But most of them can be boiled down to two different routes: 1) build better blockchains or 2) make Ethereum better.
Option 1: Build Better Blockchains
One set of people say the answer is different blockchains. That the scalability problems of speed and cost will be resolved through the use of application-specific blockchains that are built for specific use-cases. For example, blockchains for buying and selling NFTs will be built in such a way that makes those behaviours seamless.
These answers tend to fly in the face of Ethereum’s intent to be the settlement layer for all applications. To subscribe to this view is sometimes referred to as an Ethereum maximalist viewpoint.
This debate goes deep and has many facets to it, with technical depths that reach far beyond my paygrade. (For a more technical discussion of the environmental impacts of ETH, check out this piece.) That said, here is what I do know…
For most of us, blockchains are pretty boring. Most people do not care to know how the settlement layer beneath their favorite apps work or even what settlement layer they’re on. They just care that it works. That it’s safe, dependable, and trustworthy.
The same way people don’t really care how the search layer of the Internet works. They just care that it works. And Google works.
Yes, there are other search engines. Some of those other search engines may in fact be better for certain use-cases. But that hasn’t stopped the world from mostly just using Google. Everyone is there. If there is a way to make search engines better, we just want Google to do it. We don’t want to start using 17 different search engines for all our needs. Is this Google maximalism? Perhaps. It’s also simply the state of the world.
So, does this Google analogy perfectly port over to Ethereum? Well, I’m not entirely sure. Again, I don’t have a deep grasp of the technical layers of this stuff. It’s also too early to tell how this will all play out.
I just know that in these early days, from a user’s perspective, many aspects of Ethereum seem to just work. So if that is true, then the solution to our scalability problem may be to simply make Ethereum better.
Option 2: Make Ethereum Better
A lot of people and projects are working on just this — to make everything on Ethereum, namely transactions, work a whole lot better.
Perhaps the biggest solution in the works today is Ethereum’s plan to move to a Proof-of-Stake system with Ethereum 2, better known as Eth2.
This change, along with a number of other technically-complex changes that the ETH2 update brings, are meant to make transactions on the blockchain faster, cheaper, and cleaner for the environment.
While Phase 0 of this upgrade launched in December 2020, network-wide deployment of Eth2 is still years away. At the rate of adoption we are now seeing, years away feels a lot more like decades. We need solutions today.
The other place these problems are being chipped away at are known as Layer 2 solutions. Currently, when you make a transaction on most platforms — say you buy an NFT — that transaction is recorded and validated directly on the blockchain, which we could also refer to as Layer 1. All the costs associated with that transaction are incurred by you, the user, in both gas fees and wait times.
Layer 2 solutions allow transactions to take place a layer above the blockchain. These layers use math and cryptography to validate transactions securely without sending as much information to the blockchain. It’s like batching together a thousand transactions for the cost of one, without giving up (too much) security.
There are many different versions of these Layer 2 solutions. Some examples are Zero-Knowledge Rollups, Optimistic Rollups, Plasma etc. Each of them come with different tradeoffs. Some are faster than others, some are more ironclad secure than others.
As these solutions are implemented and proliferate across the entire Ethereum network, we can begin to see a future where all of these complex things are abstracted away from the end user. Transactions simply become free, instantaneous and safe.
Not only are we headed there, but some of these solutions are already in place. For instance, Loopring uses Zero-Knowledge Rollups (or ZkRollups) to make exchanging tokens on its exchange platform free and instant. Their platform has been live for over a year now, and more decentralized exchanges are now adopting these solutions.
Next up is solving this problem for NFTs, and it sounds like this may just be right around the corner. Immutable is building the “first layer 2 solution for NFTs on Ethereum”. They recently announced that this technology will be rolling out onto Opensea soon. I’m definitely watching this closely..
When these solutions reach any and all NFT platforms, then we’re in for a whole new world.