There are currently about 61 layer 2 networks, 18 layer 3s and about 79 anticipated to launch in the near future, bringing the total to 158.
Of course, this number is going to blow past 200 in no time. Ethereum is a favored ecosystem, a VC-favored ecosystem to be exact. The funny thing is that these projects launch and function so similar to the last, yet, something new is always promised.
The major focus for layer 2 networks was to lower Ethereum fees. Anyone who cares to pay attention to the system would know that Ethereum fees are not a hard fix, it's just not what the network wants at the moment.
That said, layer 2s barely fix this problem from the way I look at it.
How?
The concept of a layer 2 in its very design introduces centralization to the system just to offer a very “temporary” fix to a problem that is a feature in a network.
To understand what I'm talking about, let's have a look at how layer 2s handle transactions.
Using Arbitrum for example, to transact on Arbitrum, you typically need ETH. This means you ought to purchase ETH on the Ethereum network and deal with the cost of moving it around then through a bridge onto the Arbitrum network before you effectively escape the fee problems.
This very reality is why I called it a “temporary” fix.
The need for cheap transactions is so that day-to-day transactions can scale. The very idea of bridging from Ethereum to Arbitrum is not a solution for this, rather, it is a solution for big pockets users who would move assets in large volumes rather than small bits here and there.
The average user is a fish in the sea who has to deal with these things.
Now, some people may be tempted to say: well exchangers solve these bridge problems.
Well, you would be correct to say so, however, this creates another problem: centralization.
The whole premise of building a blockchain network that facilitates financial transactions is to escape centrally managed money networks. Having to rely on buying ETH from a centralized crypto exchange to escape bridging and paying fees simply introduces a central point of failure.
Access is centralized, and KYC’d in addition to liquidity and reserve also being centralized.
Speaking of centralization, how decentralized are these layer 2 networks in their immediate premise?
Multisig, ZK-rollups and Optimistic rollups
This is the whole security structure of most if not all layer 2 networks.
Polygon, one of the most famous early-days layer 2 network uses multisig to secure its network liquidity.
As of today, it takes 5 of 9 signatures to make upgrades to the Polygon contracts on Ethereum.
Ethereum Layer 2s are not safe. They are permissioned networks. Stop the narritive. They are the biggest risk in all of crypto.
To steal all the liquidity aka rugpull the L2's lets analyze how many anonoymous wallets need to agree.
@blast 3 of 5
@Optimism 5 of 7
@0xPolygon 5 of 9
@arbitrum 9 of 12
@base 4 of 9
Usually when builders on these networks come across tweets like this one, you see attacks like “are you a developer?” or responses like “we are working on transitioning to governance models with timelocks.”
Well, cool, we may not be developers, but we sure as hell can read to understand. Also, no one is against “multisig wallets” managing project funds when processes are being implemented to move to a more secure design, what we however do not appreciate is the practice of promoting these networks as some “solution” to a problem when it really just creates new ones that are practically worse.
Why call layer 2s decentralized protocols when they are just bridges handling transactions off-chain and on third-party protocols?
Arbitrum currently controls about 39% of liquidity in the layer 2 ecosystem and it is yet to function on a permissionless fraud-proof system.
Layer 2s are effectively custodians and they don't really fix the fee problem on Ethereum if they cannot deliver that without the inclusion of centralized systems as primary access protocols.