Live data from Hacker News

Why should you care about Ethereum Layer-2?

thecryptojournal.substack.com

21–30 of 69 posts

Re: Why should you care about Ethereum Layer-2?

#21
post #6

As a tl;dr for people not familiar with web3. Doing things in the web3 that change the Blockchain (like buying nfts for example) has a large cost on "gas" (ie fees you pay for your transaction to be included in the Blockchain). These are more that $30 euros and may go up to $80 euros (depending on what you want to do). So if you want to buy an nft for like $30 you will pay $30 more for the ethereum fees. This makes w…

> This is possible because polygon uses a different concencus model (proof of stake) than ethereum (proof of work).

Does this mean Polygon will become obsolete when Ethereum moves to PoS?

Re: Why should you care about Ethereum Layer-2?

#22
post #14
post #9

Earlier quoted context omitted.

The primary function of finance is to enable economic agents to trade future consumption for present consumption, by means of debt. And debt requires a trusted third-party that has the capacity to re-allocate assets. Otherwise the borrower can simply walk away with the money, and never repay the debt. Now, blockchains, not only lack a trusted third-party that can re-allocate assets, but they are designed with the exp…

Loans are an important concept, that's true. Do blockchains inherently prevent loans? I'm not sure, I think Ethereum smart contracts enable the concept of loans. The 3rd party here is the contract itself, as I understand it.

If I lend you 1 ETH, I have no means to make you pay me back. Smart contracts can't do that either. A smart contract cannot seize 1 ETH from your wallet and send it back to my wallet. Blockchains are designed specifically to prevent that.

Re: Why should you care about Ethereum Layer-2?

#23
post #9

Earlier quoted context omitted.

The primary function of finance is to enable economic agents to trade future consumption for present consumption, by means of debt. And debt requires a trusted third-party that has the capacity to re-allocate assets. Otherwise the borrower can simply walk away with the money, and never repay the debt. Now, blockchains, not only lack a trusted third-party that can re-allocate assets, but they are designed with the exp…

Are you saying that most loans are uncollateralized?

I'm saying that blockchain technology is inherently incompatible with financing, which is the basic and most important function of finance.

Re: Why should you care about Ethereum Layer-2?

#24
post #6

As a tl;dr for people not familiar with web3. Doing things in the web3 that change the Blockchain (like buying nfts for example) has a large cost on "gas" (ie fees you pay for your transaction to be included in the Blockchain). These are more that $30 euros and may go up to $80 euros (depending on what you want to do). So if you want to buy an nft for like $30 you will pay $30 more for the ethereum fees. This makes w…

Why isn't etherium deprecated then and everyone moves to polygon? What's the catch?

Because Polygon is a different chain and people have billions locked in Ethereum. Layer-2 allow users to transfer their tokens to the Layer-2 without trusting a third-party bridge. Funds on L2 are secured by L1.

Re: Why should you care about Ethereum Layer-2?

#25
post #6

As a tl;dr for people not familiar with web3. Doing things in the web3 that change the Blockchain (like buying nfts for example) has a large cost on "gas" (ie fees you pay for your transaction to be included in the Blockchain). These are more that $30 euros and may go up to $80 euros (depending on what you want to do). So if you want to buy an nft for like $30 you will pay $30 more for the ethereum fees. This makes w…

Why isn't etherium deprecated then and everyone moves to polygon? What's the catch?

I can perhaps shed some light on this. I am the founder of Moonstream (https://moonstream.to). Our customers use our API to consume on-chain events from their off-chain infrastructure. We currently support Ethereum and Polygon, and run our own nodes on both blockchains.

Polygon is much less decentralized than Ethereum. There are 100 validators on the network. In the future, there will be some sort of scoring and auction mechanism to ensure only healthy validators. Currently, this mechanism has not been deployed. All 100 slots are taken by an in-group of node runners. It is not a pleasant experience to run a node on Polygon and not be in this in-group because the team does not communicate well with anyone outside the in-group. For example, in December, we experienced several days of downtime after the Polygon team made an emergency security patch that took down almost all nodes on the network but only communicated it to the in-group. This outage hit us, Polygonscan, and many independent node operators and was not a pleasant experience. The Ethereum team, on the other hand, is excellent about communicating upcoming changes, even emergency patches. Things really feel much more open and accessible as a node operator on Ethereum than they do on Polygon.

It is hard to transfer value to Polygon. Most exchanges do not support moving value directly to Polygon (Binance is the notable exception). Most use the Polygon bridge (https://wallet.polygon.technology/bridge). Using the bridge to move from Ethereum to Polygon requires submitting a transaction against the bridging contract on the Ethereum mainnet and current gas costs make this very expensive relative to the value most people want to transfer. You pay roughly $100 for any transfer of value, but most people are transferring less than $10,000 in value per transaction. Also, this bridge went down for over 24 hours last week when Polygon released EIP1559 support. I believe this is a major obstacle to Polygon adoption.

Finally, as a developer, Polygon frequently experiences deep reorgs - up to 40 or 50 blocks deep in my experience. This makes it really difficult for conventional servers to work with on-chain state. Ethereum is really much more stable as a blockchain.

Anyway, I'm not really shitting on Polygon. We do deploy all of our own smart contracts to Polygon before Ethereum because it is a production environment and allows us to incubate our on-chain features with real customers and real feedback before we take them to the show. It also gives us ample time to figure out where we need to optimize gas before moving to Ethereum.

The only part that pisses me off is the in-group/out-group dynamics around running a node, but mafias exist everywhere and no blockchain will change that.

Re: Why should you care about Ethereum Layer-2?

#26
post #9

Earlier quoted context omitted.

The primary function of finance is to enable economic agents to trade future consumption for present consumption, by means of debt. And debt requires a trusted third-party that has the capacity to re-allocate assets. Otherwise the borrower can simply walk away with the money, and never repay the debt. Now, blockchains, not only lack a trusted third-party that can re-allocate assets, but they are designed with the exp…

There is no reason that the third-party cant be a contract with globally accessible permissionless apis, that let you borrow peer2peer or peer2protocol against your assets, and that upon you not repaying your debt liquidates your position (by other people/protocols bidding for the assets that are out of position, usually over-collateralized at 150% min). Most of defi is structured in this way and it is working fine,…

You don't seem to get it. If the borrower has to put up 100% collateral it means that their buying power remains the same. Borrowers borrow money in order to increase their present buying power (at the expense of future buying power). You can't do that with overcollateralised loans, smart contracts, or blockchain technology.

Re: Why should you care about Ethereum Layer-2?

#27
post #26

Earlier quoted context omitted.

There is no reason that the third-party cant be a contract with globally accessible permissionless apis, that let you borrow peer2peer or peer2protocol against your assets, and that upon you not repaying your debt liquidates your position (by other people/protocols bidding for the assets that are out of position, usually over-collateralized at 150% min). Most of defi is structured in this way and it is working fine,…

You don't seem to get it. If the borrower has to put up 100% collateral it means that their buying power remains the same. Borrowers borrow money in order to increase their present buying power (at the expense of future buying power). You can't do that with overcollateralised loans, smart contracts, or blockchain technology.

> You don't seem to get it

No, you are only describing a part of what borrowing is about. Your use case is valid, but it is just one of many use cases. Consider the following:

I own a a long-term retirement account, but I need to pay an emergency medical bill and don't have cash at hand. Obviously I don't want to liquidate my savings account, but I can put it up as collateral to go to a bank and get a cash loan. If I'm unable to pay the account may be liquidated. That's an overcolleralized loan. It's useful. The same is happening when you put up your house as collateral, or arguably even your reputation.

The blockchain equivalent of this is the same. You put up one asset as collateral e.g. Bitcoin, and you can get another more liquid asset.

Another use case for this is simply market exposure and hedging. You can put up Bitcoin as collateral, still having exposure, and then use the loan to buy another asset to get exposure to, creating a more complex structured exposure. This has nothing to do with blockchain, it's the same in traditional finance.

Re: Why should you care about Ethereum Layer-2?

#28
post #26

Earlier quoted context omitted.

You don't seem to get it. If the borrower has to put up 100% collateral it means that their buying power remains the same. Borrowers borrow money in order to increase their present buying power (at the expense of future buying power). You can't do that with overcollateralised loans, smart contracts, or blockchain technology.

> You don't seem to get it No, you are only describing a part of what borrowing is about. Your use case is valid, but it is just one of many use cases. Consider the following: I own a a long-term retirement account, but I need to pay an emergency medical bill and don't have cash at hand. Obviously I don't want to liquidate my savings account, but I can put it up as collateral to go to a bank and get a cash loan. If I…

An overcollateralised loan is equivalent to a swap (a type of derivative). Swaps have their uses, and are used in finance, but they don't provide financing. The point is if blockchain technology can't be used to do financing, and it definitely can't, just don't call it the "future of finance", because it is not. It can't perform the basic function of finance, which is financing.

Re: Why should you care about Ethereum Layer-2?

#29
What's the relation between L1 sharding and L2 off-chain solutions? If sharding will be implemented will the L2 solutions still be necessary? Is L2 just something to help in the meantime until the harder to implement sharding is working or both will be used on top of eachother to help scalabilty?

Re: Why should you care about Ethereum Layer-2?

#30
post #29

What's the relation between L1 sharding and L2 off-chain solutions? If sharding will be implemented will the L2 solutions still be necessary? Is L2 just something to help in the meantime until the harder to implement sharding is working or both will be used on top of eachother to help scalabilty?

No, sharding will increase the throughput but not enough. Ethereum are all-in on L2s long-term for scaling.
Post reply on HN