How Ethereum is Scaling for DApps, DeFi and Beyond
Ethereum scalability, Layer 2 solutions, and multichains have been taking over the hottest discussions in crypto recently, and even making appearances in mainstream news – but what are they? How do they help Ethereum? What are the benefits to users? And how can you use these solutions right now for your crypto and DeFi goals?
Taking Ethereum to the next level
Ethereum’s road map has always been well-planned, thanks to an active community of developers. Unlike Bitcoin, the Ethereum blockchain was specifically created for complex smart contract operations that serve an entire ecosystem of interconnected decentralized apps. The community knew that someday Ethereum would need to handle a huge volume of transactions, which is why Ethereum’s transition to proof-of-stake was always part of the plan.
In its current state, with the proof-of-work model, Ethereum throughput (the number of transactions per second) is not sufficient to keep all the DApps, DeFi, and NFTs running smoothly, while maintaining transaction fees low enough for usability. This is why scalability is the most important issue for the Ethereum community today. When we talk about ‘scalability’ solutions, we mean that until Eth2 and proof-of-stake are ready (and perhaps even after that), Ethereum-compatible chains that run alongside the Ethereum mainnet can provide more blockchain ‘bandwidth’ for users and developers.
Layer 2, side chain, multichain
First let’s make sense of the terms. ‘Layer 2’ is often used to describe Ethereum scalability solutions, but you will also hear people refer to ‘side chains’ and ‘multichain’ ecosystems. The biggest differences among these types of chains are in the way they interact with the official Ethereum mainnet and the priorities they focus on.
Layer 2 rollups
Rollups are the most commonly mentioned Layer 2 solutions. Rollups create an environment where groups of transactions can be executed and processed quickly before making one bulk update to the Ethereum mainnet. By removing the need for constant updates to the massive, immutable blockchain, they increase throughput, but they are still connected to the Ethereum mainnet blockchain, sharing the same data and the same level of security. Two examples of widely-used rollup technology are Optimistic Rollups, used by the Uniswap exchange’s latest version, and zkRollups, used by Loopring exchange.
MEW wallet app users can access Loopring exchange’s Legacy version via direct connection through a QR code.
Multichain projects like SKALE, Polygon, or Polkadot don’t just offer one fast network to increase transaction throughput. Among other services, these platforms offer custom-made blockchains for DApps, building out entire scalability ecosystems. These are solutions which not only users, but also developers can benefit from. The ability to develop and test new Ethereum DApps without burdening the Ethereum mainnet is a sure way to boost innovation and adoption. Unlike layer 2s, chains like SKALE and Polygon are compatible with Ethereum, but they don’t rely on the mainnet for data and security. Instead, they have their own pools of professional validators and offer ‘security-as-a-service’ packages for users of the custom chains. Multichain ecosystems like Polkadot also have their own ways of securing data on the chain, unrelated to Ethereum.
MEW supports Polygon both in MEW web – where users of various hardware, software, and mobile wallets can access the network – and in MEW wallet for Android. SKALE rewards participants who help secure the network when they stake SKL tokens, and MEW wallet iOS users can stake SKL right in the app.
One of the more popular recent examples of a side chain is the Binance Smart Chain (BSC). This is a network developed by the large global crypto exchange Binance as a smart contract complement to its original, non-Ethereum-compatible Binance chain. Users of the Binance exchange can select which network to use for their transactions. If they want to hold assets in an Ethereum wallet like MEW, they would need to send them on BSC (provided that the wallet offers support for BSC, as MEW does). Again, unlike layer 2s, a side chain is completely independent and can exist without the Ethereum mainnet.
Binance Smart Chain is also supported on MEW web and MEW wallet app Android (iOS users can use the network on MEW web after connecting via QR code scan).
Bridges: moving assets between Ethereum-compatible chains
As you see, several types of scalability solutions are already available, and many more are in development. However, most of the time end users don’t need to know the technical details of the chain to utilize its benefits. All scalability solutions have two main user-facing goals – to increase speed and reduce fees for transactions. Unless you are quite familiar with the technology and have an informed preference for specific chains, the only difference in your experience with scalability networks is likely to be whether you need to use a ‘bridge’ to move your assets.
A bridge is just that – an application that helps you move assets between Ethereum and an Ethereum-compatible chain or a separate multichain ecosystem. Under the hood, the tokens are sent to a contract that locks Ethereum tokens and mints corresponding tokens on the other network (and reverses the process when you are ready to move back).
Ethereum is still Ethereum
At this point, you may wonder – where does this scalability business leave the Ethereum mainnet? It seems too good to be true – if transaction fees are so cheap on the side chains and layer 2s, why does anyone still use mainnet Ethereum at all? Are the coins and NFTs on other networks the same as they are on Ethereum, or are they knockoffs? What’s the catch?
The catch is that Ethereum mainnet is still the original network for decentralized applications and decentralized finance. It’s still the main source of truth and security for smart contract data. So, it’s likely that if you want to trade your assets on a popular exchange or marketplace, or cash out to fiat, eventually you will need to move assets back to Ethereum and pay the gas fees for the transactions involved – or the Layer2/sidechain/multichain network that you are using will still need to enter a packet of data to Ethereum to secure it.
That being said, plenty can be done on layer 2s, side chains, and multichains – like earning DeFi rewards, executing trades, collecting NFTs, and using DApps. You can bypass Ethereum mainnet fees for many of the things you want to do in crypto, but Ethereum isn’t mad about it at all. Scalability solutions help sustain development, innovation, and adoption in the space as Ethereum is getting ready for its big proof-of-stake entrance. While we don’t know when this will happen exactly, you can sign up for our MEWsletter to stay on top of all the important developments in Ethereum. Meanwhile, download the MEW wallet app to start exploring scalability options today.