How The Layer 2 Race Is Scaling Ethereum Before ETH 2.0 | Forkast.News

[Music] by introducing smart contracts ethereum has changed the world of finance but as voltaire said with great power comes great responsibility as revolutionary as ethereum has been its popularity has been its own kryptonite network congestions has led to high gas fees but also brought a historic race for us to experience the layer 2 race the race to scale ethereum welcome to word on the block the series that takes a deeper dive into blockchain and the emerging technologies that shape our world at the intersection of business politics and economy it's what we cover right here on forecast news i'm forecast editor-in-chief angie lau so can ethereum's scalability puzzle ever be cracked is layered to the answer and how can eth2 push d-phi and nfts to the next level joining me right now is the co-founder and ceo of enya ai that has partnered with omg network that scales and augments ethereum playing a critical part in the evolution he is also the co-president at stanford angels and entrepreneurs and also a great friend alan chu welcome to the show thanks for having me angie so happy to be here i've i've wanted to chat with you uh for a while i heard about the enya ai and the omg tie up and this is really our first opportunity to dive a little deeper uh let's explain the problem at the moment okay scaling ethereum that's something that vitalik buterin and other developers are aiming to solve with eth 2.0 but how are already developers trying to solve that problem with layer two what is layer two that's a great question to start us off ethereum has a rather limited capacity for computation and this is a known problem for several years and vitalik and team have been working on potential solutions since then and e2 is certainly on the horizon and it's going to be really helpful in solving this problem but the original version for ev2 was quite ambitious we were trying to both scale both computation and and data at the same time what happened more recently is vitalik and many other ethereum researchers have come up with an alternative solution rather than trying to do everything in ease to scaling both computation and data we are going to scale computation through an architecture called rollups which is one form of implementing layer two a blockchain that is secured by ethereum but we're moving computation off the main chain performing the computation and then storing proofs back on the main chain to prove that the the computations were performed correctly and this actually makes e2 scaling much easier to implement and if you've for those who've been following the news vitalik has actually moved up the estimated rollout time frame for ev2 so the latest approach of scaling ethereum is through a combination of roll ups on layer 2 and ev2 itself so in fact layer 2 has even for the original smart contract blockchain really an answer to the scaling solution we know that computationally proof of work is so much heavier and and energy laden and all of those things that we've talked about um that that actually impacts the speed and latency rates and the transactions and the number of transactions layer two by removing some of these needed operational computational processes to another layer for lack of a better for a lack of a better description actually frees up the pipelines a little bit is is is this is this what the concept is is is this essentially what we're seeing right now absolutely by implementing computations on layer two moving them off the main chain we are freeing up the precious blocks on main chain so that in aggregate we can as an ecosystem handle a lot more transactions so without even waiting for ev2 to become broadly available we'll immediately start seeing lower transaction fees and many more transactions happening between combination of layer two solutions and the current implementation of ethereum and as we move forward to ev2 we will see an even greater increase in transaction rate as well as more capacity for handling more applications and hopefully lower lowering gas fees accordingly and and when you say we you're you're you're speaking from the collective as in all of us but i want to when but but i want to ask about you uh enya has recently launched the public test net of omgx which is layer 2 ethereum scaling solution for omg network um tell us tell us what work you're doing at this tie-up with omg and enya you're working on a layer two ethereum scaling alongside what eth2 is already working towards tell us a little bit about what you're seeing is necessary uh in this space not only really from you we're seeing so many more layer two solutions that are trying to solve this exact problem so let's take a step back and look at the the promise of ethereum and what decentralization offers a permissionless censorship resistant participation in decentralized applications and many of these that have taken off have to do with decentralized finance or participation in non-fungible tokens and that's revolutionary because you don't need anyone's permission to participate and take advantage of these applications however because of their popularity ethereum has become cost prohibitive for a lot of mainstream users and that and that prevents a lot of new users from even just trying out what it's like to use these applications now this problem is well known but there's an even bigger danger to the health of this decentralization movement and that is the barrier to entry for developers to join the movement and build decentralized applications because if as as we as many attempts have been um many attempts at scaling ethereum have led to increasing complexity in code bases and that means unless you are a real expert who's been following these movements for a long time it's really hard for you to contribute to improving and maintaining these code bases and on top of that if we want more developers to be able to build decentralized applications we need to enable them to take what they already know what they've already learned in their computer science classes what they've the skills that they've picked up building web applications to use as many of those skills as possible in building decentralized applications and that's really the vision that we went into this space with is how do we build a more inclusive ecosystem that could bring in more developers and more users at the same time so in other words i am no developer but i mean you know sometimes i don't even know how to reprogram my microwave um and yet potentially i could also participate in this new ecosystem in d5 by um easier user interface that you're going to design on the front end so front end it's going to be easier for me but on the back end you know the enter button might have all of the functionalities the coding that allows me to execute you know one thing or simple instructions but on the back end you might have already taken care of that is that the concept absolutely so for you as a user to take advantage of these new decentralized applications not only do we need to lower the cost for performing these transactions we actually want there to be as many of these applications as possible so that you as a user would have more choices and competition leads to ever better crop product quality and that's why we want to be able to bring in many more developers to help build out the decentralized application ecosystem and that's why we decided to work with omg network together and to build on an optimistic roll-up architecture that has been created by the optimism team and we looked at many other options too decided to build on optimism because optimism itself is just a modified version of ethereum which means going forward it is so much easier to stay in sync and ensure forward compatibility of with ethereum even though you're running your smart contracts on our platform and so that's critical because that will make the job of developers so much easier to migrate the smart contracts onto us but we're not stopping here we're also researching and investing in capabilities so that you can perform more complex computations of chain and then bring the results back to your smart contract and that means the latest advances in machine learning in risk modeling and in many other fields of computer science including what anya brings to the table which is secure privacy preserving computation you can now take advantage of all of these complex computations in the context of a smart contract which you couldn't do before there's so many layer two branches that are that are kind of growing out of ethereum omg starting its test net uh about to launch me net if there's so many layer two solutions why are we still seeing congestions in the ethereum network as a opposed to you know other blockchains when there were when there are other options out there first of all ethereum has really earned the trust of a lot of users and developers because of its scale because it's been battle tested and the fact that there are many other options actually it's great it pushes the whole decentralized movement forward but ethereum still has the largest mindshare amongst developers and by all developing on ethereum these different projects d5 projects for example can build on each other's work and that's and that and that's one of the key benefits of staying within the ethereum ecosystem now why are we still seeing congestion yes there are many layer two solutions that have been in the works but most are still in the test net phase but this summer is going to be an exciting period where many of these projects are finally coming to fruition and becoming ming net ready so over the next several months there will be a lot of well still with several layer 2 solutions that will be moving into mainnet and will it will be an exciting time we'll see how how that changes the gas fees that people have to pay to use these d5 projects we'll see how that helps drive user growth and also create even more opportunities for d5 developers i want to ask you about the privacy aspect that you're really bringing on um with with enya uh do you i mean increasingly as as all of us have experienced either on an individual level or you know part of a group that was exposed to a bigger hack of a corporate um how important is privacy uh and and as a value uh proposition for either a token or a platform or even a layered two solution in your view where do you see the role of privacy the role of privacy is is essential to protecting individual users from being exploited by most sophisticated actors with ill intent on the network after all ethereum is a public blockchain any transactions that you propose and want to be included in the in the network are visible to anybody as a result front running for example is rampant currently in d5 where there are these bots basically software programs that monitor orders and if they spot an order that is worthwhile front running they will do that and i know many folks have lost money to front-running bots and there's a school of thought that believes that you know what this is the price we pay for transparency for operating on a public blockchain based computation platform our philosophy is that's not necessarily the case we can actually provide privacy preserving capabilities to smart contract developers so that they can protect these orders from being front run now this is is the knowledge so widespread that any developer can just start doing it using cryptography to protect these orders or other pieces of sensitive information no but that's what we're trying to do here is to make it accessible and easy for developers to take advantage of crypt of cryptography yeah to put privacy where it matters i mean i guess that's one of the reasons why uh the tie up with omg i wanted to get more of uh the origin story of of how that happened this is a this is an asia-born partnership um but do tell how how did inya and omg get together um it's a great story actually so we've known the omg network was acquired by gbv uh towards the end of last year and this is genesis block ventures yes that's right okay out of hong kong yep they're based in hong kong yes another part of the asia story and we've known the team at gbv for several years and we have a lot of respect for them not only for their savviness but for how they treat their partners how they've how they've supported the portfolio companies that they've invested in and after the acquisition um they came to us and said you know we saw this potential synergy between what you guys are doing at enya and the potential here omg network we should talk and one conversation led to another we believe that especially given this the timing of this partnership where ethereum is is going through some growing pains massive congestion and at the same time we're seeing a lot of issues such as front running that that have the root causes in the lack of privacy preserving technology in these decentralized applications we thought it made perfect sense to bring the two together you know in in blockchain and you know with uh a lot of the conversation has centered around the scalability problem uh the scalability trilemma is a phrase coined by vitalik budum himself to describe what is not possible you can't equally maximize three desirable attributes of blockchain they are decentralization scalability and security if you're going to dominate in one you cannot dominate uh if you're going to dominate in two you you've got to scale you know you've got to scale back on one um so for example so many you know cases of that finance smart chain for example gave up decentralization for scalability uh where where are we on the the scalability trilemma i do know of a number of projects uh that say they are solving it and they have solved it but where where are we in terms of the next phase of technology the trilemma is very real and the trick in navigating through this dilemma is try don't try to optimize for all three dimensions with one solution but rather come up with solutions that are complementary and bring them together it's like putting a puzzle together roll ups is a great roll ups and e2 actually would be a great complementary example where optimistic roll ups let's focus on that because that's the the omgx architecture um there are sacrifices that the architecture has made on the dimension of decentralization there's a single sequencer that controls the block order or the transaction order and that allows optimistic rollups to optimize for security and for scalability now how do we make up for the sacrifices in decentralization well one there are fraud proverbs and verifiers monitoring this single sequencer to make sure the single sequencer doesn't commit any fraudulent transactions and then of course because this layer two ultimately is secured back to the main chain ethereum which is decentralized right so we're bringing a the main chain which is decentralized and secure but not very scalable and combining that with a layer two solution that is scalable and secure but not decentralized so between the two we're hitting all three dimensions how important is that for esg for sustainability a lot of the uh recent narrative especially tied into the market crash that we saw in crypto this past couple of weeks really centered around the uh carbon footprint issue uh and there there is a root cause i guess uh there uh that that potentially explains a little bit of the market uh pullback um where where can technology play here and does scalability also play a part here you know i'm talking about reducing the latency by reducing the computational requirements and all of those things that actually take up a lot of energy no you're absolutely right in a proof-of-work protocol the reason it's so con energy intensive is because we're replicating the same computations across all the nodes in the network which is overkill frankly um by moving computations off chain to layer two solutions for example we are eliminating a lot of that duplication we're performing the computations off-chain and then only storing the the state rules back to the main chain and that dramatically reduces a lot of eliminates a lot of the wasted and duplicate computations and of course as ethereum itself moves to ef2 and transitions from a proof-of-work model to of proof-of-stakes model that will further reduce its energy for print but even before that happens simply moving a lot of the transactions from main chain to layer two solutions will dramatically redo the energy footprint per transaction required yeah and and this this also ties back to the fundamentals of the actual crypto market that we've often talked about which is it's really technology based rather than you know ebitda based uh if you will uh for more you know inequity based uh fundamental analyses um so you know if you were to take a look at the recent pullback that we saw in the market a lot of people said that it reflected the technology is no good yeah i don't believe in the space what you know it's speculative it's x it's x it's x um you're you're in it you're participating in it you're building in it you're developing products in it uh where where's the technology here what is the application and use case that actually is the true underlying technology of a lot of the things that we're talking about asset prices often run ahead of what's happening on the ground in terms of technology development and adoption and and that's a part of the natural cycle of price discovery of investors trying to figure out how much is an asset worth at the end of the day and when there's something new on the horizon what the future holds is often hard to predict and different investors could come up with very different predictions and that's what drives pricing volatility while in the in the meantime technologists continue to build and if we technologists are building something valuable users will continue to come and so what we can look at is forget about price volatility let's look at actual adoption let's look at total value logged in d5 projects total number of uh group the growth in the number of wallets the uh the amount of assets that are participating not just on ethereum but across different chains the growth has been more than steady has been explosive in the past couple of years and so while pricing will continue to fluctuate i believe that as long as as long as we continue to build something that people want yeah the whole ecosystem will continue to grow and investors over time will find the right prices for different assets over time yeah it's it's you know prices up or down is not the story this is the story here what is the most frustrating headline that that you read recently and you just want to debunk um you can only pick one i i write one that that blamed um ransomware on crypto and and the write the writer that article argued for banning crypto because people are demanding or or nefarious actors are demanding to be paid in crypto for for ransomware and i'm like the whole notion of holding people hostage for ransom has been around long before the invention of cryptocurrencies so blaming this new currency or blockchain technology in general for an age-old problem seems off to me even if we ban cryptocurrencies worldwide today or if cryptocurrencies never were invented to begin with there would still be nefarious actors who would hold companies and hold people ransom they would just ask for whatever they want could be us dollars or whatever form of payment they desire crypto just happens to be uh in the headline and um the attackers that held colonial pipeline hostage they wanted bitcoin that's why it made it into the news but to connect the two and then blame crypto for the the emergence of ransomware to me didn't make any logical sense you you know you're you're there in silicon valley right now but you know pre-covered i i saw you a lot in asia and the us i mean when the world was a little bit different what where do you see asia's role uh in defy in particular uh as as we see this space continue to grow there's a lot of d5 actions in asia which is why we actually love the position that we're in where we're able to bring the best of both worlds together the innovation and the drive of silicon valley with with the innovation in asia and the hustle and and and strong work ethics across asia and we're benefiting from both ecosystems my co-founder is a stanford professor we have very strong ties to stanford and silicon valley we can recruit the best engineers in the world here we also have access to talent in asia and in europe and with the broad net combined network of genesis world ventures as well as omg network we really are able to we are in very enviable position to really bring the best together and just to speak to the importance of asia in d5 i know a lot of my crypto trader friends in the u.s who actually would become very active right around dinner time which is when asia wakes up and they monitor the market until until asia goes to bed that speaks to the pull and the importance of of asia in the whole d5 space we also saw asia's role in uh you know the latest market volatility and and i guess this last question you know we're seeing a lot of policy pullback uh from korea from china uh that uh that seems to make a lot of people nervous would you explain that a little bit in from your perspective how you view how you feel some of the the policy changes in asia might impact the market i think we're still going through this phase where collectively we're learning how to best protect consumers and protect the stability of existing financial systems while still encouraging innovation in d5 and the broader blockchain space and a lot of regulators themselves are still learning and some are further ahead than others so we'll continue to see i think policy position changes over time as regulators learn about the the risks and also potential benefits and it's incumbent upon industry actors like ourselves to engage with regulators and keep them informed and and not try to leave them behind while we just continue pushing forward and ex and and pushing the frontier of innovation without bringing the regulators along i think i think if we if we continue to live in separate worlds it won't be the best for for our industry it won't be the best for other mainstream participants that we want to bring into the ecosystem we really need to work much more closely with policy makers i i i think for sure there has been a parallelism that we've experienced for a long time legacy systems and then in parallel emerging first bitcoin and then blockchain technology and then all of these kind of parallel systems and now we're seeing convergence um and this is also what explains uh a lot of the viewership uh that that is joining us right now um they're not necessarily crypto natives or you know uh crypto converts uh of which we welcome as well and and super hanging on to every word but it's it's this combination of interest um and two worlds merging together that that's that's the future alan chu you are part of that future and i thank you so much for sharing a little bit more insight into what you're doing at enya dot ai in d5 space and also with omg and uh we're going to welcome you back again next time for deeper insights on word on the block thanks ellen looking forward to it thanks again for having me and thank you everyone for joining us on this latest episode of word on the block i'm forecast news editor-in-chief angie lao until the next time you

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