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Ethereum: Permanently more transactions offchain than onchain

 


The L2Beat.com website has a new graph showing the ratio of onchain to offchain transactions on Ethereum. The scaling of Ethereum through "Layer 2" is therefore already in full swing. And with bitcoin?


Some sentences are heard so often in the crypto scene that they only seem like empty phrases, like sentences that do not contain a program, but only hide the lack of one.


One of them is that cryptocurrencies did not scale onchain, only scaled offchain, or in other words: Crypto does not scale to “Layer 1” (L1) but to “Layer 2” (L2). The basic blockchain is not intended for real transactions, but only to anchor the accumulated transactions of higher layers.


As it now looks, this promise is being realized on Ethereum. Since mid-2020, transactions have increasingly shifted to a bundle of L2s, which primarily means " rollups " of the various forms. With a rollup, a central server collects the transactions and ultimately only presses their result into the blockchain. A rollup thus saves at least 99 percent of the space that a transaction requires; thanks to a cryptographically sophisticated construction, the operators of the rollup cannot embezzle any funds, but block a maximum of one payment.


Rollups have become THE scaling method in the Ethereum community. They are fast, transparent, smart contract-enabled and user-friendly.


The success confirms the rollups. A chart from the L2Beat website shows the ratio of L1 to L2 transactions. From mid-2021, L2 will slowly pick up speed, which is no coincidence, but is due to the fee explosion on Ethereum due to the NFT hype. Ethereum became so expensive that every user was literally forced to deal with L2. And that apparently happened.



Since the spring of 2022, it has repeatedly happened that there are more transactions on the various rollups than on the main chain. But until recently, this was a rare exception. From September, however, the gap between L1 and L2 continued to close; since October 12, L2 has consistently outperformed L1.


The highest traffic during this period was recorded on October 13 at 31.36 TPS. This means transactions per second and corresponds to about 2.8 million transactions. In the last few days, this metric has dropped to a good 13 TPS, which still equates to a good 1.1 million transactions.



The two most important rollups are Arbitrum and Optimism. In the last few days, these have processed 4.3 and 3.3 transactions per second, which is roughly the capacity of Bitcoin. Arbitrum and Optimism are open rollups with no functional limitations; they have long been supported by most platforms in the DeFi ecosystem.


Immutable X and dYdX are followed by two rather closed rollups that have no freely accessible API and are only made for special functions. Immutable for blockchain gaming, dYdX for cryptocurrency derivatives trading. Next comes zkSync, a slightly newer full-feature rollup technology with an open API that claims to be faster and more secure than Optimism and Arbitrum.



Together, the rollups have already tied ether, stablecoins and other tokens worth almost 3.5 million ether or a good 5 billion dollars. These tokens are frozen in smart contracts on the mainchain and can then be moved on the rollups.


With Optimistic, zkSync and StarkEx, Ethereum has three technological models to form rollups, open or closed rollups, multifunctional and special rollups. These three technologies are greedily promoted, and multiple service providers compete to provide the best user experience and monetize as much capital as possible on their own rollup. A token launch, as demonstrated by Optimism, promises that the success of its own rollup will subsequently be gilded.


The situation is different with Bitcoin. Here, the Lightning network has established itself as the only relevant L2 since the beginning of 2018 and attracts all users and developers. But the onchain transaction fees have been so low since 2021 that there is little incentive to get involved with the Lightning network, especially since it results in significant sacrifices in user experience, security and autonomy for most users.


Bitcoin transaction fees according to blockchain.com.

Accordingly, Lightning has never achieved success in its history that is even remotely comparable to that of rollups. The capacity of the network is constantly increasing and has now reached almost 100 million dollars with a good 5,000 bitcoins . But what is this compared to five billion?


Capacity of Lightning according to bitcoinvisuals.com

It is difficult to provide valid information about the transaction volume at Lightning. The latest reliable estimates that I know of are from April of this year. In a study , Arcane Research assumed that around 500,000 transactions go through the network every month. That's not even half of what rollups on Ethereum are doing on the worst days since October 13th.


To be fair, Lightning's capacity has increased by about 50 percent since the study was published, and Arcane Research is only providing a qualified estimate. But it's hardly possible to appreciate so generously that Lightning doesn't look like a complete wasteland compared to rollups.


L2 happens. But much more on Ethereum than on Bitcoin. You have to face this truth.

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