Why rollups balance scale and security

Transcript

what's up friends welcome to web3 Academy a place for entrepreneurs creators and marketers to explore and learn how to use web3 to transform business models and create thriving communities enjoy this next episode GM GM Welcome Friends to another episode of web3 Academy on the podcast today we are talking about blockchain trade-offs why Roll-Ups hit the sweet spot for scale and security we try to talk about blockchain as much as possible because this is the underlying real estate that everything is going to be on that you're going to build on that you're going to hold your assets on that you're going to have your identity on and it's really important that we know where we are keeping our assets right and that's why

we want to make sure that we are explaining to you where is the most secure places but also where is this heading in the future so that you can you know not start working on what's working right now but on where the future of this Tech is going okay now before I get into that because I'm going to read an article that um a community a Community member from Webster Academy wrote dinox.eath I highly recommend that you follow him on Twitter um he is a part of polygon Dao and is tweeting out a bunch of cool and interesting stuff on on Roll-Ups and just sort of the future of where blockchain is heading but before we get into the details of this article uh there's just a few things I want to

address one if you have not yet taken uh our Rabbit Hole course I highly recommend you do there's actually in the second module of this course we're going to dive super deep into uh into blockchain and roll ups and actually uh into a lot of what we're going to talk about here in this episode but then there's also the application layer which is what's being built on top of these and how that's going to look and then just understanding um the sort of truths of web 3 the ethos behind it and where that whole Space is going that's what the web 3 Rabbit Hole course is all about it's free you just go in you sign up and there's a course and you get to Mint an nft at the end to prove uh that you've completed the course and this will come in handy when

you are looking to get a job and potentially for other things that happen inside the web through Academy Community as well as potentially other things throughout the larger ecosystem so highly recommend you go and you complete that course if you have not yet the link to the course is in the show notes below um and finally uh as I mentioned follow Dino uh dinox.eath on Twitter uh give me a follow as well Kyle reedhead um k-y-l-e-r-e-i-d-h-e-a-d I tweet a lot about web3 uh mainly in how you can um use web3 to transform business models and transform communities so do follow

me on Twitter uh and while you're there follow web3 Academy as well it's web Theory Academy with a dash underneath or an underscore again all of those links are in the show notes below okay without further Ado let's get started on blockchain trade-offs why Roll-Ups hit the sweet spot for scale and security um so layer twos side chains and Roll-Ups it's all so new and confusing you know realistically they've only arrived on everyone's radar in the last few years um but ultimately l2's side chains and Roll-Ups are the technologies that can scale a blockchain without compromising security right which is why it's so important

um this is the key is we don't want scalable blockchains if they are not secure and decentralized okay we've gone through many iterations of l1s that have came and gone and didn't make it because they were not secure there's no point in a blockchain that is scalable that is not secure you might as well just use a centralized database it defeats the purpose of this whole Space so the blockchain trilemma of accomplishing decentralization security and scalability seems to be unsolvable at the moment um but the only visible solution to this right now is Roll-Ups and layer twos and the grand scheme of things decentralization and security is important when dealing with you know large valuable assets and scale does doesn't matter so much when you're moving millions and billions of dollars

but when you're building applications for the masses we need scalability as well so let's dive into the current adoption of scalable Solutions and the different Alternatives that are available to us right now now I understand that this is a very confusing topic and that's actually why we wanted Dino to write this article for us so let's cut out some of the noise you know web 3 is full of jargon so let's first set the stage and offer an easy way to think about the space if you've scrolled through crypto Twitter you've likely heard people mention layer ones like Bitcoin or ethereum layer twos like optimism and arbitrum and and different versions of polygon um like polygon Hermes and if you've

listened a little more closely you've likely heard people mention side chains like polygon POS or again Roll-Ups like optimism and starknet which are just another type of layer two if you're further down the rabbit hole you likely know that there are many other flavors as well however for this article in this podcast episode we are going to ignore all of that instead we are going to Simply think about each solution as just a blockchain and actually this is how I typically refer to it as well as everything is just a blockchain and whether or not l2s and Roll-Ups are technically blockchains is esoteric topic and Up For Debate but it's useful to think about them this way just to understand things and simplify a little bit I am not a tech person and developer many of you listening are not as well so

let's try to make this is easy on us as possible so evaluating blockchains now that we have a bunch of blockchains which ones are the best well each blockchain can be evaluated based on different properties and here are the major ones there's performance right which you can think of as speed there's cost right your gas fees there's security and then there's decentralization now let's unpack them through a non-technical end user lens so performance refers to both bandwidth and throughput so basically what that means is how many transactions the blockchain can process at once and the speed at which they are being processed so this is analogous to how many lanes a highway

has you can think of that as bandwidth and what the speed limit is and that's throughput so as far as an end user is concerned performance is how fast the application runs whether the application is sending someone money trading one asset for another or posting a tweet on the web 3 version of Twitter right cost is pretty straightforward I think we all understand that it's how much the end user must pay in blockchain fees to use the application or to use the blockchain performance and costs are sexy to talk about and they are the things that make all the headlines we often forget about decentralization and security unless you are an OG in this space then this is really probably all you care about um you know the headlines we typically

see are new supersonic L1 or layer one raises a billion dollars with one billion TPS transactions per second is what that means in zero fees this is what we heard all through 2021 with the likes of Solana and Avalanche and all these different eth Killers as we call them in turn many people entering the web3 Space Place a disproportionately large value on these two properties sometimes people only consider one of the two right simply looking at one blockchain is cheap and another as expensive In fairness this is how most of us are accustomed to evaluating technology products but with blockchain there is a lot more to it when we're securing assets right the security the decentralization matters the other two

properties security and decentralization are and security can be confusing since people use it to mean all different things and you commonly see blockchain experts talk right past each other when discussing it um and uh this Twitter thread which is being shown on screen um and you can link to if you're uh in the article um but Paulina uh does a good job breaking down breaking security down into three components two are quite hard to build so let's let's look at this Economic Security in proof of stake blockchains if a user owns the majority of staked coins they get meaningful control over the network since the system relies on coins accruing value

the more expensive the coins the harder it is to buy the majority of them of course it is important for for blockchains to have a sound monetary policy and build up their currency's credibility over time so that's Economic Security okay then we have protocol uh protocol security or protocol stability so Protocols are implemented in software and software carries the risk of bugs right in software development there are best practices to minimize bugs such as keeping the software simple so fewer lines of codes code means less room for error and keeping upgrade processes conservative so more time for testing examples in a blockchain context include protocols deciding not to add

functionality for on-chain governance and taking longer to upgrade as the total value locked rows uh this what comes to mind here is the ethereum merge this has taken a very long time we've all been very patient here but the reason is because um we need it to be secure and we have a lot of value on the ethereum blockchain so that's security let's talk decentralization which is hotly debated and like security can mean a lot of things but Balaji I think is how you pronounce his name wrote a comprehensive article on this topic breaking down uh blockchains into subsystems okay however he does acknowledge that some of these decentralized subsystems may be more essential than others and for Simplicity

we will just focus on nodes and ownership um for example Paulina also wrote an article highlighting these two critical aspects by the way if you don't follow if you want to learn about Roll-Ups follow polyniah it's p-o-l-y-n-y-a um he does a lot of great tweets to help you understand Roll-Ups it's really really good but let's dive into some of these critical aspects here these subsystems so we have node decentralization which means how easy is it for the average person to run the blockchain software so to become a network node and verify transactions right and how many people are actually doing it if you run a node no one can change the protocol rules on you because your computer will reject invalid transactions if the software can run in

the background on a laptop or a phone more people will run it right it could even become something that's integrated into a device like a phone if the software requires an expensive server in the cloud fewer people will run it right so this is one of the big differences between things like Solana and ethereum ethereum is very easy to run a node you can just use a laptop Solana you have to have a bigger more um a bigger sort of like database and machine to be able to do this so now let's look at a few examples now that we know the evaluation criteria we can look at some of these examples so Solana is great at performance and cost ethereum great at security and decentralization and then we have Stark net which is great at performance costs

security and decentralization okay let's see we'll dive into what that is uh by the way if as we get into this I know it's going to get a little bit more complicated so if you want to discuss this topic further and maybe highlight other Alternatives or ask questions on things that we're talking about here join our disc Discord community and ask away share your thoughts whatever you want the link to our Discord Community is in the show notes below there's plenty of entrepreneurs business professionals marketers creators in there all helping each other understand and go down the web 3 rabbit hole so Solana has developed a strong brand around speed right and it lives up to the hype when using Solana you feel like you're using a typical web 2 application you still must pay transaction fees of

course but they are negligible the downside is this is accomplished by requiring very powerful and expensive computers as I mentioned to run nodes so this causes poor decentralization over time and unstainable token economics to subsidize the cost of running these nodes right um which as a result causes poor security over time so Solana also still has sub-optimal token distribution and protocol stability as a two-year-old project what that means is Salon is new there's a lot of investment from VCS and Salon in the beginning so they got a lot of the tokens a big a large share of it um I don't know the exact numbers in my head right now but it's a it's more than 50 percent and so basically what happens

is over time those VCS can start to sell those tokens and then it gets more distributed to kind of the masses to the users and so over time that may become more optimal the token distribution but right now it's not so great so ethereum makes the opposite trade-offs of Solana for the most part it is by far the most secure programmable blockchain both in its current proof of work form and soon as it moves over to proof of stake there's currently 23 billion dollars uh staked of ether it's sound monetary asset and the protocol has proven stable over the past six years ethereum also maintains low Hardware requirements to run nodes and a culture that promotes this Behavior the downside is that scarce

desirable block space causes congestion and thus High transaction fees dramatically limiting the types of applications and users that can leverage the network right many of us got um got pushed out of the ethereum network during 2021 because gas fees were just so high so for the past few years ethereum has worked uh well for high value low throughput use cases like financial services but horribly for low value High throughput use cases like social media gaming and things like that are both sets of trade-offs viable it's unlikely change that neglect Security Essential and decentralization will be unsustainable over the medium to long term a view backed by basic economics and predictable Hardware projections and

this enters Roll-Ups Stark net and other Roll-Ups AKA let's just think of them as blockchains solve this problem unlock the Best of Both Worlds right the way they do this is by focusing on performance and cost while using fancy cryptography to inherit security and decentralization from another blockchain we won't get into how Roll-Ups technically work but rather will Hammer home the benefits if you are using applications built in Stark net you are betting benefiting from the security and decentralization of ethereum behind the scenes uh as an example even if the Stark operators are corrupt it is mathematically impossible for them to steal your funds unless they also corrupt the ethereum network but we know

that that is very very very difficult to do because of the cryptographic assurances rollups can focus their energy on optimizing performance and cost to support high value and low value applications alike as a relatable example developers can Fork Solana and tweak it to be an ethereum roll-up if they wanted to better yet a bunch of developers can deploy a bunch of solanas all running in parallel and inheriting ethereum security and decentralization circling back to Stark net now developers can also design Roll-Ups from the ground up to be faster and cheaper than Solana which is of course what many are doing now the design space here is wide open so it's likely you're now thinking

yourself like that sounds great but what's the catch you know Solana pops up everywhere and it this is my first time hearing about Stark net Maybe why would people choose inferior Solutions well the reality is it's early days for most Roll-Ups and it's only becoming Vogue to build them over the past couple years right these are all very very new we just said Salon is only a couple years old before that VCS were more inclined to fund you know ethereum Killers than Solutions actually building on top of ethereum even polygon which has committed a billion dollars to roll up development had to someone embrace the competing L1 narrative um to get off the ground even more important to point out is that

the magic behind Roll-Ups is based on state-of-the-art cryptography it's really hard mood math it takes longer to deploy than simply copying the code of existing blockchains despite the above challenges some Roll-Ups are live with training wheels on which basically means that they have some centralized components to it just so the devs can keep things going and make sure it doesn't break um and there's plenty coming around the corner as well so let's talk about an early signal here developers and users can't be expected to sit still so naturally applications and supporting infrastructure so wallets and Fiat honors Etc are built around available Solutions fortunately some Roll-Ups are compatible with existing blockchains already making it easy for

developers to Port their applications in the same way it is Trivial to move from ethereum to something like Avalanche it will be trivial to move from Avalanche to evm Roll-Ups as they mature so do any Roll-Ups have traction today well yes quite a few actually and for example dydx um which is a uh I believe it's a derivatives trading platform um and options it has one billion dollars of tvl and it's decentralized exchange roll up already um immutable X I think it's now called immutable they've recently changed their name it's an nft specific roll-up and is working with some impressive names like MasterCard and GameStop um and it's building an NFC Marketplace

and plenty uh more over there on immutable it has I think one of the highest um transactions of nfts of any blockchain right now starknet recently launched their Alpha product on ethereum mainnet which already shows impressive adoption and we have a picture up here which um just shows in the last you know 60 days maybe even 30 days we basically went from zero all the way up to 620 000 of tvl uh in uh oh sorry it's in seven days um so it's happening uh very rapidly so if the early activity is an indication the future looks bright for Roll-Ups so why does this matter well the need for strong and decentralization

sorry the need for strong security and decentralization is intuitive when dealing with valuable assets but less so when playing games or scrolling through social media feeds when you recognize the connection to application sustainability over the medium long term it starts to make more sense if you knew that social media platform a would be going out of business in two to three years in social media platform B would last decades you would likely start posting and building your reputation on social media platform B right so I just want to give a quick summary here before we before we wrap this uh this article up basically what we're saying here is that we have this trilemma right and it's impossible right now anyway to build a

single blockchain that is secure decentralized cheap and fast and so these roll ups like we've been speaking about through this um through this episode so Stark net immutable the ones that weren't mentioned here is optimism Avalanche or sorry not Avalanche optimism arbitrum um are basically blockchains that just plug into a layer one blockchain and all of these ones plug into ethereum and so ethereum can focus on security and decentralization it doesn't need to focus on speed and cost okay so the ethereum L1 is going to remain expensive it's going to remain slow but at the same time it's going to remain secure and decentralized and that's what we need but because we have that layer that settlement layer all of these other

blockchains don't need to worry about security decentralization they can build a blockchain that focuses on speed and cheapness and just plug into the ethereum L1 and use that for security decentralization to settle their transactions instead okay and so that is really the idea in the future of blockchains now down the road we won't probably won't really know what blockchains we're using as a user um because that will just be within the app it'll just kind of manage it all for us but as a developer or Builder you will want to know and you will want to build in the right places and that's basically what Dino's getting across here is look a lot of these other layer ones that aren't maximizing for decentralization and security they're

not going to be here in the future unless they can figure that out but right now no one has and so if you are building if you are holding assets if you are creating assets you want to do it where on something that's going to be around for decades and decades to come and right now all the research best research in the space is showing that's going to happen on Roll-Ups like Stark net okay now the technology is still new and it's developing and growing there still has its pains but it's coming and it's coming really fast okay so hopefully this uh article on this episode helps guide your thinking whether you're looking to build or use blockchain applications now or into the future I just want to say a quick thank

you to dino again it's Dino eggs dot eth uh for writing this article for web Theory Academy um he has been writing about web3 infrastructure for a while now he's been in our community for a while and uh and you know we talk about Roll-Ups a lot on the podcast and just really wanted to get a deep dive into understanding what this stuff is um so do follow him on Twitter um and uh and uh and make sure he's he's got a I believe it's a medium uh newsletter you can check that out as well be in the show notes below um and yeah enjoy his writing and continue to learn and understand where this technology is going because I think it's going to be very important for us

in uh in the future again if you have any questions please feel free to join our Discord um and uh we will have tons of conversations in that around blockchains Roll-Ups and all that kind of stuff there and finally if you are also a writer and you have something cool you want to write about and it doesn't have to be about blockchains maybe it can be about an application or an nft or marketing or growth or whatever if you think that it will help um the the community of web3 Academy then we would love to share your article just like we did here with Dino okay so if you're interested in publishing either message one of the team members inside the Discord or DMS DMS on Twitter and we'd be happy to help you with your

article cool we'd love to share it in our newsletter and by the way if you are not subscribed to our newsletter it's about time you do show notes below you will see subscribe to the newsletter just click there toss your email and uh you'll get an article uh three of them every single week along with these podcasts thank you friends for listening today I really appreciate you listening this podcast and I hope that you all learned something today and hope that you have a wonderful day or night or evening whatever it is wherever you are thank you friends I'm Kyle and all the best thank you for listening to web3 Academy we hope this helps you along your web 3 journey and if it does please share this episode And subscribe so you don't miss the next one by the way if you have yet

to join the Discord Community you are missing out this is where all the magic happens this is where we learn where we ask questions where we network uh you want to be in there the link to join is in the description below and finally a quick disclaimer nothing in this podcast was Financial advice crypto and web 3 can be risky you can literally lose it all in fact if you invest on account of what we say you probably will lose it all so don't do that in all honesty the point of this podcast is to remove the noise of markets and price and focus on utility and implementation anyway so you should not take any of this as Financial advice thank you for friends and see in the next one