There are many advantages in implementing a blockchain strategy, but its restrictions must also be evaluated. What solution to limit the latter?
Beyond the many advantages offered by blockchain technology, such as auditability, security and data distribution, it is also important to evaluate its limitations. Fortunately, a solution intends to limit the latter, and facilitate the implementation of blockchain.
In October 2021 we wrote a column on Allnews (1) about the wide range of decentralized technology solutions. Blockchain is not just about Bitcoin, Ethereum or a handful of high-profile competitors. On the contrary, a library of solutions is available to different industries, offering technologies specific to certain use cases.
That being said, it must be admitted that one solution powers a large part of the Blockchain ecosystem: Ethereum. With its famous smart contracts, the technology launched by Vitalik Buterin after an ICO of US$ 18 million in 2014 is running at full speed. The latest offshoots, the popular NFTs are also based on this technology.
Under the aegis of this drastic increase in the number of users, the growing variety of use cases and the growth of the associated ecosystem, comes the inevitable dilemma of ecosystem congestion. As a result, transaction fees, known as “gas” in Ethereum jargon, often reach new records, burdening exchanges with fees that can, in some cases, reach several hundred dollars.
The Ethereum ecosystem has been proposing ideas for several years to reduce the load supported by partially shifting it off the main chain.
This problem is now a common challenge for several increasingly popular blockchains. Well aware of this sword of Damocles, the Ethereum ecosystem has been proposing ideas for several years to reduce the load supported by partially offloading it from the main chain.
These so-called “layer 2” solutions historically revolved around the concept of sidechains, chains evolving in parallel with the parent chain. Without going into technical details, the question of digital trust and decentralization, the great assets of blockchain, as well as fundamental questions from game theory concerning the availability of data were often questioned by the existence of these parallel chains.
Thus, an innovation respecting the DNA of the blockchain, while allowing the optimization of transactions, appeared recently: the rollups.
Rollups are also layer 2 solutions, but with hybrid characteristics. They allow a symbiosis between off-chain data, i.e. data stored outside the Ethereum chain, and on-chain data, on Ethereum.
This method offers several advantages. In addition to transferring some of the computation and validation away from the blockchain, it also compresses the data stored on-chain and, in doing so, reduces the consumption of Ethereum-specific gas needed for storage.
Rollups do not record every transaction in the blockchain, but only the root state of a smart contract, i.e. the cryptographic proof of account balance.
In concrete terms, rollups do not record each transaction in the main chain, but only the root state of a smart contract, i.e. the cryptographic proof of the account balance. These rollups therefore aggregate several off-chain transactions into one, publishing only the latter on the main chain at a predefined rate, for example every day at the end of the day.
Sorare, the French blockchain flagship and record holder of the largest fundraising in French tech with its $680 million (2), uses a rollup system to optimize its sports NFT transactions.
Another example is Loopring, which is aimed at crypto-currency trading organizations. The company offers to create trading platforms built on rollups in order to reduce transaction costs. Finally, our company, Wecan Group, is also building its own rollup to optimize the implementation of its solution, Wecan Comply, on a dual blockchain system to offer auditability and speed.
Although they are more recent than other layer 2 solutions, rollups seem to have won over specialists in the field. In just a few months, they have gained considerable interest. Contrary to historical solutions that were often confined to the status of projects or research, rollups are now used in concrete cases, lowering the barriers to adoption. It is a safe bet that the financial industry will benefit from this innovation in the fintech ecosystem.