Unchained - ETH Is Down Bad, While Layer 2s Are Ripping. Are L2s Parasitic to Ethereum? - Ep. 701

Episode Date: September 10, 2024

Ethereum's Layer 2 solutions are booming, but are they inadvertently holding back the value of ETH itself? In this episode, Justin Bons and Ryan Berckmans engage in a heated debate over whether L2s are enhancing Ethereum's ecosystem or siphoning off its potential. They discuss the impact of L2s on decentralization, network effects, and whether Ethereum L1 can scale on its own or if the base layer and the rollups now have different incentives. Has Ethereum scaled appropriately for future usage, or was scaling via L2s the wrong roadmap for Ethereum? Show highlights: 02:43 How Ethereum's rollup-centric roadmap consists of a decentralized Layer 1 (L1) for security with Layer 2 (L2) providing more transaction throughput 04:53 Why Justin is so critical about how L2s centralize Ethereum 14:53 Why, according to Ryan, Layer 2 solutions aren't parasitic to Ethereum but instead enhance its network effects, decentralization, and long-term value 25:35 Why Justin criticizes Ryan’s reliance on "trust me, bro" arguments, questioning the tribalism and authority in claiming the superiority of Ethereum researchers over those from other blockchains 28:15 How Justin thinks the Ethereum L1 could scale and what the tradeoffs are  39:58 Justin’s argument that Ethereum is stuck in the past and his claim that the blockchain trilemma doesn't exist anymore 46:30 Ryan’s take on Ethereum's L1 scaling focuses on solving bandwidth limitations and addressing whether L2s are going to fully decentralize 51:01 Whether SNARKS is the way that Ethereum scales the L1 59:24 Whether L2s will start accepting other tokens to pay for gas 1:05:23 Why Ryan predicts Ethereum's L2 adoption will surge, driving up L1 fees and boosting Ether's value as the leading digital money 1:05:39 Whether based rollups are a good solution for Ethereum to scale without losing all the fees  1:13:21 Why L2s would even try to decentralize and why Justin says that Solana has a better roadmap than Ethereum 1:17:54 Concluding thoughts from Ryan and Justin  Visit our website for breaking news, analysis, op-eds, articles to learn about crypto, and much more: unchainedcrypto.com Thank you to our sponsors! Polkadot Mantle Stellar Coinbase Guests: Justin Bons, Founder & CIO of Cyber Capital Previous appearances on Unchained: Is Bitcoin Doomed to Fail? Eric Wall and Justin Bons Face Off Ryan Berckmans, Ethereum community member and investor Links Previous coverage on Unchained of ETH and L2s: Are L2s 'Parasitic'? Analysis Shows Ethereum Only Gets a Tiny Percentage of Fees Are Solana's 'Network Extensions' Just Like Ethereum's Layer 2s But by a Different Name? Ethereum Has Had a Banner Year in Most Areas. Except Price. Should Ethereum Layer 2s Urgently Decentralize Their Sequencers? Others Justin’s thread on whether L2s are parasitic Tweet by Zach Rynes, aka ChainLinkGod Adam Cochran’s tweet on based rollups Ethereum Foundation September AMA Vitalkin on L2s How do layer 2s really differ from execution sharding? Layers 2s as cultural extensions of Ethereum  Learn more about your ad choices. Visit megaphone.fm/adchoices

There's two blockchains, arguably more, but let's say two blockchains that have fully implemented sharding, which in my view proves that we can do L1 scaling. And if we can do L1 scaling, why, for God's sakes, why would we accept all this centralization? For God's sakes, why would we accept all this fragmentation? Why would we accept all of those fees? Hi, everyone. Welcome to Unchained. resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started

covering crypto nine years ago and as a senior editor of Forbes was the first matri-trimed reporter to cover cryptocurrency full-time. This is the September 10th, 2024 episode of Unchained. If you're envisioning ways to make an impact on transforming global systems through blockchain, the Stellar Meridian 2024 conferences for you. Get $50 off your ticket now at meridian.stellar.org by using the code Unchained Pod. Are you looking to level up your crypto? With zero trading fees, boosted rewards, and priority support, Coinbase 1 is your answer.

Learn more and get a free month with promo code Unchained at Coinbase.com slash 1. Mantles Ameth is now the fourth largest LST with $1.3 billion in TVL. Ameth offers holders cumulative incentives and airdrops, in addition to native ETH POS yields. This includes exclusive, rewards like Eigen and Cook. Check it out at mith.mantle.xyZ slash campaigns. Pocodot is the original and leading layer zero blockchain with over 2000 plus developers.

And the Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem, making it faster, more secure, and adaptable. Perfect for GameFi and DFI to build, grow, and scale. Join the community at Pocodot.network slash ecosystem slash community. Today's topic is Ethereum's roadmap and the role of layer 2s in the ecosystem. Here to discuss are Justin Bonds, founder and CIO of Cyber Capital, and Ryan Bergman's Ethereum community member and investor. Welcome, Justin and Ryan.

Thanks, Laura. Great to be here. There's been a lot of consternation this whole year about the price of ether and how it's vastly underperforming both Bitcoin and Solana. The eth to BTC ratio has dropped by about a third, over the last year while the salt to ETH ratio has quintuples. And recently, there's been a lot of questioning about whether layer twos are parasitic to Ethereum layer one. So all of this has raised questions about whether Ethereum is following the right roadmap.

And I believe the two of you have different positions on this. But before we dive into all the details, why don't we just make sure everybody kind of understands the architecture of Ethereum so they can kind of follow the slightly technical discussion. Ryan, why don't we start with you? Ethereum's now following what's known as a roll-up-centric roadmap. Can you explain what this means and where Ethereum is in terms of that roadmap? That's right, Laura. About four years ago, Ethereum made the decision to pursue what we at the time called the

roll-up-centric roadmap and still call it today. It's also called increasingly the L2-centric roadmap. And that idea is that the Ethereum Layer 1 specializes as a maximally decentralized, an incredibly neutral-based layer. And instead of serving mass-market users directly, the primary customers of the L-1 become Wales Corporation governments and L-2s. And then the world comes on-chain on Ethereum through the layer two, you know, the marketplace of layer two's,

which instead of being essentially planned scaling roadmap where L-1 developers or any given person or authority dictates, who can offer a layer two. Instead, anybody around the world can step up and say, I think I'd like to make a layer two for this purpose, for my country, my city, my domain of specialty, my existing customer base. And then they can pick and choose from a toolkit

of emerging tech stacks in middleware to really design the custom solution that works best for them. And so it's this power of the L2 marketplace combined with the maximum decentralization and credible neutrality of the L1 that really forms the basis of Ethereum's scaling strategy moving forward. And so, Justin, we're now in this current state where this kind of divide that Ryan has described does exist. And that not only percolates out to kind of how the users are sort

of separated, but also how some duties and revenue are divided between the layer two's and Ethereum layer one. Can you describe how that works and also the role of the Dengoon upgrade in that setup? Sure, but I'll move a bit more away from descriptive and start talking about some of my criticisms of this because, no, I do think that this is just a travesty, really. I mean, I just want to point out that all these layer twos that Ryan is referring to, like if we just look at the top 15 alone, they're all centralized, right? So like, what is it? a layer two scaling roadmap, I think it's just not scaling the layer one. And I have a real problem with just not scaling the layer one at all and allowing these kind of private, for, you know,

for-profit, you know, in seeking L2s to basically, you know, take all of the Ethereum users away. I think, I think that is really disgusting. And I think that's really a betrayal of the cyphopunk dream. I mean, that's where we are today. Yeah, but just from like a technical perspective, Like what activity is happening on the layer two's and what activities happening on the layer one? Right, right. So the layer one capacity is obviously very low. So the idea behind Ethereum's layer two roadmap to now steel man the argument is that basically almost all of the usage is going to move to layer twos. That's the idea.

If you do execution is moving to layer twos. That means smart contracts. That means apps. That means value transfer. that means basically everything is basically being pushed to layer two's by the economics of the layer one basically becoming unusable and too expensive. And basically it's part of the Dinkoon upgrade and this was known as data, also known as data sharding. This is where L2s are able to post data on the layer one. And they pay a small fee to the layer one for that.

And that fee only represents a tiny fraction of the total. total fees, these layer 2s are collecting that are just going directly into their wallets. And in this sense, I actually think that, you know, this configuration is highly extractive. And, you know, as you said, parasitical. Yeah, and what they're obtaining for that fee is security. And as far as I understand, I think also data availability is happening on layer one as well. That's right. Okay.

All right. So we did already start to move into your criticism. But, you know, you had a tweet thread that began. Ethereum is dying while L2's dance on its grave. So can you, yeah, lay out? Yeah, you have the most descriptive language, Justin. I've always liked that about you. And I've been a fan for years, you know.

You're a lot of great threads, and I'm not sure we've ever disagreed before this issue. Okay. Yeah, but so, Justin, why don't you kind of lay out your argument a little bit more piece-by-piece? No, that makes sense. And just for a bit of history, and I think me and Ryan have probably agreed for most of our history. That's because I was a huge Ethereum supporter about two years ago, you could say, is when I was still gunho and going hard for Ethereum because I believe it still would scale. And my position basically flipped when I realized that it did this pivot towards layer one scaling.

And to me, that very much echoes the, you know, what happened to BTC as well. And I also don't agree with what happened to BTC. You meant layer two scaling. Yes, yes. Well, basically the sacrifice of layer one scaling for the sake of layer two scaling. That's the part I have a disagreement with. The thing is I'm not against layer two's per se by themselves. What I'm really against is arbitrarily limiting layer one scalability. That's really what I have a problem with. And I think that is the part that is highly problematic. I would say if we look at one-to-one basic value transfers, as Ethereum can do maybe 100 TPS, right, or 120, depending on how we calculate this.

Now, I think this is way too low compared to the new technologies that are coming down the pipeline. And I think that makes Ethereum extremely uncompetitive. And, okay, the layer two critique is very extensive. I'll maybe just give you some bullet points and you can attack which one you best see fit. So one, it's economically extractive, right? because instead of having, say, all of the usage happening on a layer one, right, you're basically outsourcing it to these private enterprises that are able to skim fees off the top, right? VCs and investors and private companies are literally skimming fees off of these layer twos.

That's literally impossible to do on a layer one, right? That's the part where it becomes extractive and it's not a net good anymore, right? And at the same point, fragmentation, right, is destroying the UX. Fragmentation is destroying composability, liquidity. You know, all of these things are just going down a terrible direction. And as I also mentioned before, it's all centralized. And I don't believe it will actually decentralize on mass. We have no good reason to think that.

We actually have a good reason to think the opposite because of the incentives. So for most of these altus to, quote, unquote, decentralize, they'll have to sacrifice millions of dollars of revenue. I think that's completely unrealistic. I'll let you respond to that, because I already gave a lot of different points for you to unpack. Well, wait, but before we do that, just out of curiosity, Justin, because, you know, there was a time in the past when fees on Ethereum shot up as high as about $72. So, you know, that was kind of during a bull market phase.

But I wondered, like, what to you would be kind of an optimal fee or, you know, at that time when the fees were that high, what did you think would be the best way to scale Ethereum? So I think there's many ways to scale. I think it very much depends on how you view the tradeoffs. So I would say you have DAGs, you have different forms of paralyization. And a DAG is something acrylic graph. Yeah, direct. I'll just use the acronym, but it's a form of scaling technology that allows for high

paralyzation. But it's actually one of my least favorites. There's also direct forms of parallel. like you have that what like what you see in salana. I might point out the research that monad is doing very interesting because monad is actually doing this in a way where the EVM is still it's still EVM compatible. So monad is looks like they could probably do around 10,000 TPS and a lot of paralyzed systems today are sitting around 20, 40,000 TPS. If you're willing to sacrifice some speed, then I think sharding is is an excellent option considering that Ethereum block times right now. now are 13 seconds and we can build shouted systems with six second block times and that would

give us current TPS exceeding 100,000 with theoretical TPS potentially going above a million. And this is all while keeping node requirements low, which is one of the advantage of sharding, which is why Ethereum was pursuing it for all of those years. So I think when Ethereum decided to pivot away from sharding, they said this is too hard, but in the meantime, competing blockchains have implemented it. And I think that's one of the reasons I'm so gung-ho on this as well. It's like, you know, Ethereum stops scaling too soon. You know, the technology that's coming around is just so powerful.

Okay. And the last question before we go to Ryan for his rejoinder, I asked on Twitter if there was a specific number or metric that people would use to determine whether an L2 was parasitic. Interestingly, not that many people voted. And then the people that commented could not agree on what that metric might be, of any. But Justin, it sounds like for you, your issue is the fact that Ethereum chose to scale via layer twos at all. And it's not like you think that there's any world in which you could

have this plethora of layer twos and have them not be parasitic. Is that, am I understanding that correctly? Yeah, I think the reason why I'm calling it parasitic, if I'm being very specific, is we're L2 scaling the narrative and the political lobbying, influence the layer one. in such a way for it not to scale. That's where I think it's parasitic, because that's the part where actually Ethereum is being held back, right? Like, I think I don't have anything against layer two. If we scale the layer one,

if we can get Ethereum up to 10,000 TPS or something, which I think is perfectly reasonable, right, if we were able to do that and we also had layer twos, like that's not parasitic. The parasitic relationship comes in actually purposefully bottlenecking the layer one for this layer two vision. That's really, I think, where that comes in if we're being precise with our words. Otherwise, it's just extractive.

It's not parasitic, right? Okay. And last thing I will say before we turned to Ryan is that at Unchained, we did do an analysis about Ellie's fees in particular because that was, you know, one of the metrics that might be possible to look at as a way of judging whether an L2 is parasitic. And so, you know, obviously it's like since Dan Kuhn and every month is different. But just as an example, in August, OP Mainnet retained $321 for every $1 that they paid to Ethereum L1 for security. Base came in second place at $226.

So obviously, those are those are, that's a really high ratio. I think for Arbitrum, it was more in the $20-ish-dollar range. But anyway, okay, so Ryan, now there's plenty of points that. Oh, just. May. My basic argument around the economics is that $320 that you mentioned, in the scenario of layer one scaling, all of the money would just be in the layer one. And that to me is clearly superior. Right. But as we mentioned earlier, if the fees get too high, then it's a suppressed activity. So, okay, Ryan, go ahead. A scalable system would be a large number of

transactions each paying a small fee. I don't believe in high fees at all. I think that's a bad idea. Okay, got it. Okay, now Ryan, please go ahead with your, you don't view it, view them as parasitic. So go ahead. What's your argument? No, Laura, certainly not parasitic. I mean, even the word parasitic was chosen by Ethereum proponents to emotionally conjugate the L2 roadmap as some kind of L1 rug. But it's just not the case. You know, you look at a number like $321 retained by O.P when they paid a dollar to Ethereum. And some folks look at this. And, you know, the blob data availability system on the Ethereum L1 is about six months old. And so they look at this and they say, hey, this is It's extractive. It's proof the value goes to layer two. It's proof this was a mistake. And yet what I really see is network effects piling on to the Ethereum L1. We're not in this for the season. We're in this for the big picture of as the world economy is increasingly on-chain and larger and larger entities are trusting more and more important systems and capital flows in the on-chain context, you know, be that tokenization or, you know, be that tokenization

or defy or various other structures, where are they going to go? And Ethereum's view is that having them all on a single-celled layer where you enjoy this trustless composability network effect that eigenlayers' three-room has written a fantastic article about, we think that's the big prize that we're fighting for. And so this $321 retained by O.P, I mean, the view of the L2 model is fantastic.

great. That $321 represents optimism's opportunity that others are seeing, other corporations, other governments, other NGOs. And so that's why we're seeing such fantastic L2 growth, both in terms of net new users as well as just the number of L2 is rising. And so just to respond to some of justice points there, we have to trust the research community. Like I have a computer science degree, you know, from a pretty good school that Vitolik dropped out of. And one of the main things I learned at school is that it is unbelievable how smart the smartest people are. And Ethereum has wonderfully attracted this rich research community, not just in the EF, but in many different satellite independent organizations, academic research labs, you know, folks with their

own research budgets who choose to study Ethereum's, you know, because they can, because there are these PDF protocol specs that drive neutrality. And so when these research community comes to us and they say, we can choose between maximum decentralization that can form the world's settlement layer for all the world to come on chain in the same zone of sovereignty, the same settlement zone, to have risk-minimized interoperability for this century's global economy. That's what they say. And they say, look, we can have that or we can have high TPS.

And they tell us, and I trust them, that we can't have both. That there's not, you know, while there are a frontier of technology that can create like a net, a net free lunch, that it's strictly better technology that provides similar or better decentralization with similar or better TPS. The fact is that the folks who are designing Ethereum have heard of all this stuff and invented much of it. And so they haven't stopped scaling the L1. It's simply that by focusing on the L2 roadmap, they've spent time investing in data availability and in maximizing decentralization with stuff like the merge and the switch to proof of stake, which increases security efficiency, which helps prepare Ethereum to be the foundation of the global economy. And so when we look at this L2 transition, it's not really that the L1 decided to forsake scaling.

It's that we believe in maximum decentralization because we think that's where the value is going to accrue in being the global settlement layer. And then now that we've, we think, have nailed this overall model, it's time to continue improving it with technologies like the upcoming peer-to-peer data availability sampling that for the first time will allow an Ethereum home staker to not have to download 100% of the data blobs that layer twos are settling on Ethereum. So there's going to be technologies like that, along with applying zero knowledge technology directly to the L1 in the coming years. It will, allow for L1 scaling, but without loss of the decentralization and credible neutrality that comes

from simply cranking up the gas limit, you know, as for example, Binance smart chain did with their EVM or as we're seeing being done now by the base layer two run by Coinbase, you know, they're specifically able to ramp up their scalability because they've offloaded the settlement to Ethereum. And they've written about this division of labor between the L1 and base extensively. So I think, you know, there's a couple things going on here as it relates to was this a good decision for Ethereum and Ether the asset. And I think there are two primary things. One, eth is money. The value of ether is related to confidence in Ether, just as it is with Bitcoin. Bitcoin's confidence comes from this 21 million hard cap. It comes from this long-term belief in Bitcoin being

hardened and not having a lot of change. That drives neutrality. Well, we think Ethereum's confidence is going to come from the Lindy effect of on-chain economy and the sheer amount of on-chain economy on-chain economy on-thereum. Some of the research work I do is around the total app capital of how much money is just on each chain. Like who is trusting their money on which chain? And today, Ethereum, as of my data snapshot on August 31st, Ethereum had about 13 times more total app capital than Solana, including great diversity of these capital sources in terms of like which tokens? Are they all meme coins or where are these coming from? 13 times Solanas. And Solanas is about over half meme coins as of this data snapshot. And so people are trusting their

money to Ethereum. And we think that as the on-chain economy on Ethereum grows to global ubiquity, you know, because of the investment in maximum decentralization, we're going to see this confidence in Ethereum continue to rise as we just post these fantastic numbers. And that really brings us, you know, Laura and Justin to fees. Nobody can argue that the fee collapse in L1 is spectacular. We're something down like over 99% in, you know, some days in dollar terms to last bull run. About six months before all-time highs before 1559 kicked in, I think in spring of 21, one day the L1 posted 118 million in daily fees. Like, this is a big staggering number. This came primarily from extractions from leasing coin traders on their swaps. And so you look at that fee

collapse today and you think, oh God, will Ethereum ever get back to having high fees? Well, A, absolutely. I'm 100% in the camp. And even proponents of the L2 model do not agree on this, you know. But I absolutely think that high L1 fees will recover. And I'm happy to get into that in greater detail. But much more importantly, fees support ether as money, but don't define it. Ether is money because Ethereum is where the world's next generation economy is going to be. Not because of value accrual. Ethereum is not a business. High fees don't cause Ether to be valuable.

It's either being valuable and Ethereum being having a massive on-chain economy that causes fees in the presence of congestion, which today we don't have congestion because Ethereum is successfully scaling. And so I think the TLDR here is that this concept of L2's being parasitic directly ignores this evidence that we were trying to move activity to L2s. You have L2 customers like Coinbase explaining that the reason they use L1 is specifically because it's decentralized and they have no plans to spin out into their own chain or run their own consensus. And they talk about decentralizing their sequencers. Look, not every L2 is going to be decentralized. The marketplace of L2s means that if an L2 wants to become decentralized, because that's important to their business case, as it is with Coinbase, as it is with optimism, then they will.

And Coinbase is going to be very, very happy to give up their sequencer revenue in exchange for all of the on-chain products they have currently in the pipeline, which they've discussed as well. And so really, it's not about whether L2s are centralized or decentralized, because the most centralized ones are going to be incredibly fully centralized. The most decentralized ones are going to be almost as decentralized as decentralized as the L1. It's about having a massive on-chain economy in a single L1 settlement layer that drives confidence and use for ether as money. And eventually, that confidence and activity will be supported by high L1 fees, both in terms of execution,

as well as data availability, those so-called blob fees that today are like practically zero. I know, wait, before just in response, I just wanted to make sure I understood. So you were saying that it doesn't bother you if some of the L2s are centralized. You are saying there's going to be a range of them. Some will be extremely centralized in others. Oh, wow. Interesting. That's right, Laura. We predicted the rise of centralized L2s years ago because the incredible thing about the L2 model is it lets you eat your cake and have it too. There was a boom of private blockchain about five years ago where like every single large org on the planet had like a blockchain division and it was going to change everything.

And then what they found is that a chain that's on its own is an empty economy and it's just a crappy, you know, or a crappy slightly different database than, you know, your classic MySQL. The L2 model is going to see a resurgence of private blockchain in the form of L2s that get to trustlessly settle on Ethereum while retaining private off-chain data, Data can be private either from keeping it off chain in a Validium zero-knowledge proof model or by using new ZK zero-knowledge app layer techniques such as Ernst & Young's Nightfall, led by Paul Brody, which is a fantastic state-of-the-art system that they've been working on for years.

And so centralized L2s are part and parcel with the marketplace of L2s in Ethereum-scaling strategy. It's not all about decentralization. They are yin and yang. decentralization is not the future version of centralization. They're just tools in the economic toolbox, and it's going to be the right fit for the right situation moving forward. Justin? Oh, wow, yes.

I've got so much to go on here. I've got a big page of notes. So I'm going to think I'll do this in order in the way that you brought up some of these concepts. And I spotted the first theme, and I was expecting this. If I were to be blunt, it kind of comes down to you saying, trust me, bro. It's a little bit like, oh, but you have to trust the science. I'm going to paraphrase you now. You have to trust the science community, right?

You have to trust the smartest people because they are right. But like what about the scientists over at Bitcoin? What about the scientists over in Salana? What about the scientists over in Manero? Like, are they wrong? And only Ethereum is right? Like, do you see a problem? Don't you see how, like, biased and, like, tribalistic it is what you're saying,

or Cardano, right? Cadano really prides itself in its scientific attitude. And they're like, gung-ho, that Ethereum is wrong, but the scientist that Cardano is right. Like, I mean, I mean, this argument, it's really just an argument from authority. It's an argument from, like, my tribe is right and your tribe is wrong, because we're the best, we have the most authority. We're the smartest. I mean, if you want to have a little back and forth on some of these points, I think that's okay.

I think it's more, more productive. I appreciate that, Justin. So I'll just, I'll pause you there. And so, look, none of us are world-class blockchain researchers, not only on this call, but in general, there's always going to be an aspect of trust me, bro. And I think that when it comes to the trustworthiness of trust me, bro, we have to look at the track record, as well as the supporting evidence from independent entities. So, for example, in Bitcoin, they have Trust Me, bro, around the $21 million hard cap. You can find Bitcoin maximalists like Udi and Eric Wall who are trying to get OopCat activated on the Bitcoin L1. And their shtick is the $21 million cap is going to be a false promise that gets exceeded unless

itself Bitcoin's transact. So Bitcoin, trust me, bro. Right. We agree on that. And if you look at Solana, they say, trust me, bro, the whole world can come on Solana. But in a recent week, Salana did 380 TPS and the whole, the full roll-up ecosystem did 100 TPS. But hold on. Full roll-ups are already doing a quarter of Salinas TPS.

You're reinforcing my point right now. You realize that, right? You're saying, no, the argument is, I trust these guys. These guys are the best. It's really an argument from authority or type of tribalistic argument that you make. And I just want to point that out. My point is that while I began with the shared elements of trust me, bro, for Bitcoin and Salana, what is what is different for Ethereum is when you get very serious actors like Coinbase

who come on Ethereum and say, we see a path here. Right, but you understand, I've heard this exact same narrative like 50 plus times from other blockchains. It's meaningless. Well, I don't know about that. Coinbase is the only company that has so many users and so much TVL. Like I just open L2B. Another great site is grow the pie, XYZ.

like base has today 6 billion in TVL and their whole company is aligned. You're dominating a little bit now. Let me go back to my points here. You know, I think you're both making valid points because, you know, another name I could add to the mix on the Ethereum side is Black Rock through Securitize. But let's move on from this. I think both sides have made their points. But I really want to talk more about the specific L2 structure.

Let's get into it. And I appreciate you biting the bullet on the L2 centralization path. But that's really where I'll go back to. And also, this argument from authority for you, it extends to the Ethereum developers saying L1 scaling is not possible. Right. So like, what will it take? Like, I actually think the technology is implemented today. Like we have multiple examples of far superior technologies deployed on blockchain today.

We have sharding fully deployed. We have paralyzed systems fully deployed. Isn't reality proving that position wrong? Aren't your experts, aren't the authorities that you trust wrong in this? And when they say we can't scale the L2 without sacrificing decentralization, I think that's a false dichotomy. This whole idea of saying, oh, no, if you scale the system, you sacrifice decentralization, I think that's not true at all, actually.

I think it's just that these gigabroons. have looked at the menu of research options as they understand it. I'm a cryptocurrency researcher. I've been a crypto, full-time professional cryptocurrency researcher for 10 years. I can make up my mind. And I'm here to debate you. Not what, like, if you keep making these arguments from authority, I'm not debating you. I'm debating Justin Drake or something.

If you don't allow me to finish my sentence, then it sounds like an argument from authority. But I'm really trying to explain a structural point here, which is that, you know, you give an example of sharding. An example of an L1 in production was starting for years is NIR. I'm not familiar enough with the nearest architecture to get in the weeds, but I am familiar enough with Solanas. And I can say that what Solana has done to achieve high TPS under global synchronous atomic composability is they have a single client chain that it's a leader-based design. It's not possible for them to pursue client diversity the way Ethereum does.

This is a storming argument. I'm not saying Ethereum needs to adopt a design. to say that Ethereum's high TPS competitor is, is, is demonstrably more centralized. If you don't like the tradeoffs of paralyzation, if you don't like the tradeoffs of Solana, don't adopt their technology. Adopt sharding instead. There's perfectly viable technologies. You know if Ethereum just adopts paralyzation, right, and does not increase the gas limit,

right? No requirements would go down, right? It makes the system more decentralized. Why would you not implement that? Why? Look, you're exactly right from an absolutist standpoint that parallelization may be a net win for the L1 in an abstract kind of alternate reality counterfactual sense, but they had to make a choice. And they chose two things.

They chose blobs, which are currently newly live and scaling up using the P2P technology that's currently scheduled to come in next year's hard fork, Pectra. And the P-to-P technology is key because it allows us to increase the number of blocks. And I also have to say here, like you actually claimed I have a lot of... You ask me why they don't do parallelization, right? And the answer is because they did, they did P-to-P data sampling and ZK and L1 instead of parallelsation. And like if I'm letting you do a back and forth of my bitches, please keep it short. Look, and you also...

Justin, before you... I'm not going to do it back and forth if you don't let me finish my sentences because then I don't get a chance to really respond, right? So, I think that's, why don't we do this? We're going to take a quick break to hear from this month. We'll make this show possible. When we return, we'll have Justin finish out his, I guess, responses to Ryan. And then Ryan can respond to those responses. Mantle LSP is a permissionless and non-custodial ether liquid staking protocol deployed on Ethereum and governed by Mantle.

Ameth serves as the value accumulating receipt token of Mantle LSP and is now the fourth largest ETH LST with $1.3 billion. in TVL. In addition to Native ETH POS staking yields, M-Eath holders can access various yield opportunities across DAPs on Mantle Network L2 integrations and more. M-Eath holders have previously received over 1 million in Icon token air drops. With the upcoming October 24 launch of Cook, the new governance token of Mantle LSP, M-Eath holders can start accruing powder rewards under season one, methamorphosis, which will be convertible to Cook. Visit mith.mantle.xy-y-s slash campaigns to learn more. Pocodot is the original and largest layer zero blockchain with over 2,000 plus developers,

and the anticipated Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem, upgrading the infrastructure with eight times higher transaction throughput and twice as fast block times, perfectly tailored core time for the needs of every protocol, trustless bridges internally and into Ethereum, Cosmos, near, Binance smart chain, and revised tokenomics and the implementation of a token burn to reduce the inflation. Perfect for GameFi and Defy to build, grow, and scale with one of the most active crypto communities in this space. Pocodot recently announced a partnership with mythical games, bringing top games like NFT rivals with over 650,000 players and 43 million transactions to

pave the way for GameFi and the Pocod ecosystem. Get your Web3 ideas to market fast with economics that work for you. Think big, bills bigger with Pocod. Join the community at Pocodot. slash ecosystem slash community. Coinbase 1 is the ultimate crypto membership, now with a community of 400,000 worldwide. With Coinbase 1, you enjoy zero trading fees, up to 5.6% APY on USC, 24-7 priority support, and exclusive partner deals. Coinbase 1 members also get higher reward rates on Solana, Cardano, Cosmos, and Tasos, earning even more while putting their crypto to work.

experience it free for 30 days with promo code unchained at coinbase.com slash one. Stiller invites you to join the discourse at the sixth edition of Meridian, a Web3 conference hosted by the Stellar Development Foundation in London, England, from October 15th through 17th, 2024. Meridian is where developers, builders, policymakers, and business leaders convened to discuss the present and future of everything from tokenization to defy. Get $50 off your ticket now at meridian.stellar.org by using the code unchained pod. Back to my conversation, or shall I say debate, with Justin and Ryan.

So as we are saying, Justin, you want to complete your response. Yeah, and you mentioned like multiple times that the L1, Ethereum's L1 is scaling, and that's simply just not true. Like, you know, I've studied the roadmap pretty extensively, and at least for five plus years, there's no... I mean, they literally took increased gas limits off the roadmap, right? That's the only thing they need to do. And obviously, some proper scaling technologies would be great.

But that's just, it's not being pursued. So I just, I reject this notion. Like, I'm not going to let you get away of saying Ethereum is scaling the L1. It's just not true. There's no plans. There's no commitment. Nothing. Okay?

So, you know, and you also make this argument of maximum decentralization. I say, like, I don't think that's true. If you look at current technologies, right, in order to create the most decentralized blockchain, you don't do single core processing, just for the audience at home to understand this as well. Because Ethereum lacks paralyization, it needs to process things in sequence, certain things in sequence with a single process, with a single core. That's extremely inefficient. Like, all of our modern devices have multi-core functionality.

So, I mean, that's just an example of how archaic the technology. technology is and that layer two is just this band-aid that's being slapped on that that that cannot replace the functionality of the layer one. I mean, when it really comes down to it, I mean, the layer one gives you maximum decentralization. The layer one gives you those, those, those, those guarantees of financial sovereignty. And if you if if if if you're telling the majority of users to go use layer twos, that don't give you anywhere near the same guarantees, that's a downgrade. Like, that's a major betrayal of the cypherpunk principles. You went from everyone's decentralized, everyone has the same power of central banks.

So, oh, no, no, no, you're a second-class citizen and you can be censored. You can have your funds frozen, stolen, you know, censored the works. I mean, basically crushing the cypherpunk dream under the weight of KYC and AML and institutional censorship. Like, that is not the vision of blockchain for me at all. And this is what I feel like what, that is what you're defending. right now. And a lot of this rhetoric, I think, strikes me as being circular. You know, we say, if is the next generation economy, quote unquote, or, you know, if is money. These are the type of circular arguments that I see from Bitcoiners all the time. There's no substance to it. Anyone can say

these words. They don't actually mean anything if you don't actually dig down and actually have actual utility. You know, and this whole idea as well, you defended this idea of high fees. Yeah, I think this idea of fees is utterly ridiculous. It really is. It's a really ridiculous idea to think that people, even Al-2s over the longer run, would be willingly pay for high fees. Because I think ultimately, in order to achieve maximum decentralization, you need to achieve the right balance between node requirements and scalability. Because if you put the node requirements at the absolute minimum and you have a chain that no one can use, it will just slide into irrelevancy. Like 10 guys, running nodes out of their basements, like, is not very decentralized, even if they can do it on their raspberry pies.

Okay. And so, Justin, just to be clear, so you think the L1 should scale by parallelizing or using sharding. And then what role would the L2s have? Or do you feel like Ethereum went to L2's too early? Or do you think L2 shouldn't exist? Like, what do you think would be optimal setup, even in terms of kind of like minimum requirements for nodes? Right. And I think the minimum requirement, I think most of us can agree.

if you can run it off just a normal gaming computer, for instance, like I'm fine with that if you make that the kind of minimum spec. That's personally, or like a, you know, recent laptop or something. And how does that compare to the current minimum requirement? It's lower. The minimum requirement's lower right now. So you could run it off a Raspberry Pi, I believe, today.

But the thing is, like, I'm not even against scaling Ethereum. Like with Shadding, you could achieve 100,000 TPS and still run it off a Raspberry Pi, right? because that's a form of horizontal scaling. So I think Ethereum is kind of like trapped in its past. It's trapped in the past. It still thinks the classical blockchain dilemma is a thing. It's not. There is no sacrifice between security and decentralization anymore.

Within the trade-off space, if you compare a purely paralyzed system with a shattered system, there is a compromise between speed and capacity. That's a legitimate trade-off. Ethereum is not even in that trade-off space anymore. They've given up. Like 100 TPS, 13-second block times. It's pathetic. It can't compete over the long run.

And just saying, oh, no, all going into L2s. No, these L2s are just taking all the users, their parasites, they're taking the fees. Eventually, you know what? They're probably going to be an L2 on a blockchain with better security because it's scalable. And if you ask, if Ethereum were to scale today, which it absolutely could. And if it did, what would happen to all these layer twos? I'll tell you what happens. All these layer two tokens, all this equity, literally billions of billions of dollars are just going to go bankrupt.

Because there's no point to them if the layer one scales. I mean, I do think there is a place for layer two's, but it's a small niche compared to what a fully scalable layer one is capable of. So that, to me, is just the travesty. That's the betrayal. That's why it's tantamount to treason. You're basically selling out Ethereum to these VCs who can now reinckechew. over former Ethereum users. And eventually the network effects move somewhere else.

I mean, that's why Solana to today often has more TPS than Ethereum and all layer two's combined. I mean, read the writing on the wall. Okay. This is what's happening. Before Ryan gives his full rejoinder, I just have to ask you, Ryan, you made quite a face when Justin said that the blockchain trilome doesn't exist, that there's no tradeoff anymore between security and decentralization.

You definitely made a very notable, you had a notable reaction to that. So why was that? Well, Laura, following the Ethereum core dev activity and speaking regularly with D5 founders and L2 founders and prospective customers and, you know, reading like vision manifestos written by very serious L1 customers, again, like base, but not just base companies like like Arbitrum or ZK Sync, they don't see security as this kind of flattened triangle point. They don't see it as this as this. They believe the trilemma is alive and well.

It's not a widely shared view that the scaling trilemma doesn't exist anymore. Okay. And one question before you give your response to Justin that I did want to ask was, you know, when you were making your points, it almost felt to me like you were saying that Ethereum at this point in time has built and scaled for a future that is going to come but hasn't yet arrived. Is that kind of what you're, if we were going to like summarize what your stances, is that fair to say?

That's certainly my point. Oh, I'm sorry. I thought you were asking Justin. That is one last. Yeah. Oh, did I say Justin? I met Ryan. Yeah, pardon me.

Totally agree. Ethereum is, you know, we all saw June 2, hopefully, fantastic movie. You know, our plans are measured in centuries or at least decades. We're ready for the whole world to come on, Shane. We're ready to see a Cambrian explosion of highly diverse L2s in the coming years. It's not just about what text act they're using. It's not even just about, you know, which industry they're in. It's going to be everything.

You know, for example, recently we have a founder working on a halal finance L2, which is an L2 specifically geared towards Islamic finance. I think that's a beautiful thing. You know, it's like Reddit. You know, you see a subreddit. Make a subreddit for anything. Your sports team, your pet fish, your town, your occupation, your hobby. L2s are the same way.

It's not just going to be L2 specialization in a small number of dimensions like tech or geographic region. It's going to be this beautiful, multifaceted kind of hyacian marketplace of choose your own adventure on Ethereum. I think that's what people don't get about L2's, you know. They just think it's only supposed to be an. extension of the L1, but it's really about providing an economic system, an economic toolkit of Legos for the world. And you said earlier that you think L1 fees will definitely increase again.

How do you see that happening? Well, L1 block space, to Justin's point, is going to remain with a relatively inelastic supply. While, as I'll get into in my kind of main segment next, L1 scaling is on the roadmap, and we will see L1 execution block space increases. in the coming years, it's always going to be relatively small as an overall of the total block space in industry. And it's always going to be relatively inelastic. So as adoption grows, an important thing to understand about L2 is that L2 activity causes L1 activity. L2 is like, you know, call it United States of America on Ethereum. And L1 is like New York. The two economies complement each other. And so when you see an increase in L2 activity, on average, you're going to see

an increase in L1 activity from, you know, the key customer segments of Wales, corporations, governments, and roll-ups. It's because it's a great example would be the recent BlackRock win. Like, why do they launch that on Ethereum? Because it's dirt cheap for them and it's extremely reliable and proven. And their instrument can then be distributed to this full on-chain economy of L2s through the, you know, the system of trustless L2 bridging, modulo, the trading wheels, which are obviously a very serious deal, things like L2 security councils and the like. And so, like, Ethereum is scaling the way the world scales. Fragmentation is natural to humanity, globally synchronous atomic composability of having

the whole global economy in a single state machine where any piece of state can, in the same transaction, interact with any other as they can on the Ethereum L1, on the Solana L1. this is not actually that valuable. And that's something Vitalik's written about recently. And so I'll sort of pause there. And then I'd be happy to respond to Justin's points he made earlier. Well, okay, go ahead and do that because we're, we only have like roughly 20 minutes left. And I really want to ask some other questions about Ethereum itself.

So go ahead. What was your response to his comments? Beautiful. So in short, compute how fast the validator computer is and whether it's parallelized or anything going on inside that computer is no longer the bottleneck to Ethereum's decentralization. The bottleneck now is bandwidth. It's connecting that computer to the rest of the global network. And so that's what people who are trying to scale the L1 and they do exist are really focused on. We currently cannot increase the number of blobs, which is three blobs per block every 12 seconds.

We can't increase this number currently because already Dengoon has resulted in stress on Homestaker bandwidth. And so we're going to need to ship the new P-to-P blob system in order to unlock the ability to dramatically increase the blob count in the coming years. So it's really bandwidth. That's the problem now. And parallelization really can solve the problem inside the computer of being able to up that TPS on that machine. But it's not going to, it's not going to help you with your bandwidth problem because all those parallelized threads are still have to, you know, communicate with the broader network. And so L1 scaling is being pursued. The P2P blobs is a key part of that unlock. ZKing the L1 is something that a lot of researchers, especially Justin Drake, has talked

about for a long time now. Statelessness, which is a new system to try to limit the data growth in the L1. And then there's a massive internal change called Verkle Trives, which is just sort of this nerdy under the hood change, which prepares us for further L1 scaling. That's been been in the oven for some years now, Laura. And so this idea that L1 scaling is not being pursued is, you know, pardon me, Justin, literally incorrect. It's just that the L1 did not scale in the way that Justin would prefer, which is via parallelization. And so a couple other points here, like there will be L2s as decentralized as the L1. Arbitrum is three years old. It's the oldest generalized full roll-up, full roll-up. The L2 roadmap is four years old. Ethereum is like nine

years old, we need to give it time, you know, time for growth, time to evolve the L1 slowly to maintain maximum credible neutrality. And on this idea that Solana has more TPS than full L2s, in a recent week, about two weeks ago, I pulled some data and Solana did 380 user transactions per second by users, either humans or bots. And during that same period, full roll-ups did 100 TPS and the total L2 ecosystem, including those with off 1L1 data, which is the key validium category, such as a mutable X, which is a Titan in emerging gaming on Ethereum.

These chains are already doing like significant fractions of Solana's TPS. I have rollup.wop WTF, roll up WTF open now. This exact moment, we're doing 250 TPS, including off L1 DA, which is a big caveat. And if I switch it over to blobs, we're doing 120, you know, which is almost a third of the Salana data point that I measured two weeks ago. And, you know, I don't think Salana's done like above 700 user TPS on a sustained basis in years. So this idea that like Salana scales harder than the L2 ecosystem, it doesn't. It just has an advantage in global synchronous atomic composability. But even modern L2 stacks like Mega-Eath, which is the

the L2 that is unashamedly pursuing high TPS by relying on the L1 for settlement and relying on highly specialized like giant sequencer boxes that, you know, are kind of similar to Salana full nodes. And then a prover, like mega ether is going to be an L2 that's a volidium that is, you know, gunning for Salon's title of the most TPS in global synchronous atomic composability. So I just, I just don't see these ideas that the L1 isn't scaling. It's just scaling in a particular way that not everybody agrees with. And so I would sort of challenge Justin, like, you're, you're never going to be happy with our L1 scaling like in the next decade, is my sense. And, you know, I just want to, I just want to set that to the side. My question,

Justin, is what do you need to see from the L2 model to believe that L2s are not parasitic? Is it high L1 fees? Is it, is it a lack of L2s on other chains? Like, how can we convince you L2s aren't parasitic? Because from where I'm sitting, there's a hell of a lot of ether liquidity on base and Etheris uses money on base. And I just don't see this case for long-term parasitic L-2s. Yeah, but I do want to throw something in there, which is, I don't know if you guys saw this, but four days ago when the Ethereum Foundation did their AMA on Reddit, somebody asked about whether there were plans to scale Ethereum Layer 1. And Justin Drake responded, the long-term sustainable and elegant plan is to use the magic of Snarks to scale L1 EVM execution.

So Snarks, can somebody define that? Yeah. And that's the possibility of creating a ZK EVM, which I agree is very, very exciting. But the state of timelines are five plus years out. And I just do not consider that at all competitive. And honestly, as a cryptocurrency investor or any investor, if a software engineer tells you five plus years, I think they don't have a clue, honestly. Well, okay. But I think some people had thought that ZK.

Roll-Oves would be. further out than they ended up being. So, you know, timelines are wonky a little bit. Zika roll-ups is not quite the same challenge, though. It's a different beast. Okay. Yeah, I'm just going to read a bit more of what he wrote here, just to throw this into the mix. He said with real-time layer one, EVM snarking attesters can verify cheap snarks instead of naively re-executing EVM transactions. This would allow us to increase the gas limit by orders of magnitude without burdening validators. So I think this goes to the decentralization point. All the heavy. EVM execution would happen outside of consensus by specialized nodes operated by entities like

searchers, builders, explorers, users, and consensus participants would have it easy, for example, running their notes on phones or watches. It's kind of a fantasy to me, though, because again, five plus years, that's not a realistic timeline at all. Like, I mean, people, you can talk and you can talk, but, like, you know, I mean, Ryan keeps saying, oh, they're going to increase gas emit. They removed it from the roadmap, right? it's not on the roadmap.

And to answer, if I can answer Ryan's question, if now's a good time, yeah. Yeah, go ahead. You know, to answer your question, what would it take for me to not support layer two scaling? Sorry, to come to support layer two scaling as opposed to layer one scaling. I think I would have to be proven long when it comes to layer one scaling. I think that's the key attribute. Because I think even according to your own acknowledgments, there's a bunch of compromises that are being made.

Like you're saying, you expect a lot of it to be saying. you know, etc. Like so and I think I think there's a big mismatch. So that's why I want to bring it back to the blockchain dilemma. So when Vitalik, I think it was in 2015, 14, I don't remember, but when Vitalik first wrote that paper about the blockchain dilemma, he said the blockchain dilemma is something that applies to traditional blockchain designs because, you know, at that time, they were still looking at sharding as a form of horizontal scaling.

And, and I'm just going to call it out. I think, Ryan, that you're out of date. on some of the latest developments. Because it's fine if you don't accept the trade-offs of something like what Solana is doing. But sharding is a different beast, right? We can keep no requirements low and do 100,000 plus TPS, right? Like rendering, and this goes to why I don't think this will happen, especially not in five plus years, rendering all of these L2s, you know,

unnecessary, right, if we were to implement a technology like that. So, you know, I would really challenge. you on that because right now, let me just repeat, right now we can do over 100,000 TPS while keeping node requirements low. There's two blockchains, arguably more, but let's say two blockchains that have fully implemented sharding, which in my view proves that we can do L1 scaling. And if we can do L1 scaling, why, for God's sakes, why would we accept all this centralization? For God's sakes, why would we accept all this fragmentation? Why would we accept all of those fees, because the bottom line is still, the bottom line is still, if the L1 can scale,

all of the fees that the layer two is capturing actually should have gone to that layer one. Like, that is the real tragedy. That's the real disempowerment that's happening here. So, like, I actually think that is a really important point to acknowledge. Brian, when we literally have shouted systems deployed today. I feel like you're sticking, you're hidden the sand, yeah. Brian, yeah. Justin, I just think there's a certain amount of hubris on your side that you're saying we have this

100,000 TPS capability today. okay, Solana does less than a thousand user TPS and they're, there, you know, stormanning Salana here because I'm not making that argument. Okay, but Solana is up like 7X in ether terms from its recent low before, you know, they started their, this is not a counter argument to near an EGLD having fully implemented sharding, right? That's, that's the argument I'm presenting to you. Growing.

Maybe, maybe there are, maybe blockchain growth is a holistic concept that is more than just about TPS. the L1 has chosen to specialize in credible neutrality. They were looking at execution sharding for years. You can't say credible neutrality while pushing users on the sensor platforms. We say that we're accepting centralization and fragmentation, but we're not accepting centralization because the marketplace of L2s is literally decentralized. It's literally lots of different entities choosing to create L2s.

We're not accepting fragmentation because fragmentation is inherent to the human economic condition. Look at Solano now. They're adopting L2 specifically because. people want to control their own block space. They want to have customized chains to target their own use cases. It's not a question of whether there's going to be lots of chains. It's a question of whether there's going to be lots of AL1s and L2. I'm going to keep saying this.

You keep using Salana as an example. You're kind of associating. All the user are crap. They have no users, no growth. They've had years to make it happen. I'm showing you the technology is here, and that Ethereum could adopt that technology. Solana has nothing to do with that argument if I'm talking about child. I do have a question, I do have a question, though, because so, you know, I think what Ryan is referencing is Salon is quote-unquote network extensions, which is their phrase for layer twos. Apparently, they don't want to call them layer twos after having criticized Ethereum for having layer twos. But anyway, one question that I had, this came up on one of the recent podcasts that discussed this. But I think it was the one with Kyle Samani on bankless. And, you know, he made the point, which is a good point, that.

there was this notion that there was this kind of like app chain thesis and people could deploy their own layer two and have a B for like gaming or for this or that and it would be customized. But instead now we have all of these layer twos where, you know, AVE exists on all of them and, you know, makers on all of them or, you know, whatever. It's just like all of these different apps now have to deploy on every new layer two. And so you can't prevent people from deploying your chain, which makes it hard to kind of, you know, quote unquote, customize it. So, you know, is that kind of future that people described actually playing out? Absolutely.

If you look at, you know, I think, you know, I follow Kyle's work for years. And I think Kyle, who is somebody who has had a lot of great app player ideas over the years in my view, and that's sort of his strength of imagining what apps could be. But then when it comes to infrastructure, he has these, what I've called strong views strongly held, where like, okay, so today, generalized L2s are bigger than app chains. Does that mean app chains are dead forever? You know, maybe there are certain kinds of apps that make sense to deploy everywhere, like your Aves, like your infrastructure type foundational Legos,

and maybe there are other kinds of apps where it does make sense to have your own chain, like a friend tech or a polymarket or many kinds of potential business models in the future. So I just think we need to have a level of curiosity and you, about what we've seen so far versus what could emerge in the future. How can you say that are they and uniswop for that matter? And a lot of these L1 applications would have been far better off if the L1 just scaled. That's why a lot of the Dex volume is moving to Solana because it's all fragmented. And it's all like you have to like, it's all centralized on Ethereum now if you actually want to use those things.

Like, are you kidding? Like, come on, let's have a bit of a reality check here. We're talking about an ecosystem with the top 15L2s can all. steal user funds. That's what we're talking about here. So, I mean, just a bit of a reality check. Okay. One other thing that I wanted to bring up, because I did see that this kind of like underlying assumption was in a lot of the arguments of people who were talking about how L2s are not parasitic. And Zach Rines, aka Chainlink God, expressed it very well in a tweet. He said, what I see is the weakest argument here, though, is the value of ETH being a gas token.

This value prop will be abstracted to being worth almost zero. This is his opinion. L2 willups will increasingly start to natively accept tokens other than ETH as gas tokens. It's inevitable. And then he went on to give an example. He said, so for instance, base, quote, it would be in Coinbase's best interest to support USC as a gas token given, number one, the user experience of supporting USDC as a gas token is strictly superior to that of just supporting ETH, like only ETH.

So meaning he was saying, that they could add it as an option. And then he said, quote, we have been absolutely gaslit into thinking the awful user experience of managing L1 gas tokens for all these chains. In addition to the actual tokens you want to hold or use is somehow okay, but it's not. And then he went on to add that, you know, for instance,

like Coinbase generates yield off of its USDC reserves. And because it, you know, Coinbase itself is the one collecting the fees off base. And, you know, it's a U.S. company accounting in U.S. dollars, which could happen if they were doing this in EOSCC would be a lot easier. And he noted that base is only paying 1% of its fee revenue to Ethereum. So they don't need to hold the other 99% in ether. And obviously, if ether is fluctuating in value, it's not even good for them to do that. So, you know, what do you think of this notion that I keep hearing from L2s that, oh, but

you know, the value is going to accrue to ETH when nothing is preventing these L2s from adopting other gas tokens. I think it's all just very wishful thinking. And I think eventually Ethereum will no longer be the most secure L1. And at that point, it makes sense for these L2s just to move or even just become L1s on their own right, because now they have a user base that they got from F, right? Well, Justin, how is Ethereum going to no longer be the most secure L1 when we've pursued security in your view against scaling? Because security is our product. No, no, because again, you're again bringing up this blockchain Trilemma that I'm saying has been solved,

especially if I were to bring a concrete example through sharding, right? That's a best way to solve the blockchain Trilemma. Now, I think before, I think, you know, according to your own acknowledgement, you're not actually familiar with these technologies that are being developed. That's ridiculous. I've been full-time in this case for six years. I have a computer science degree.

Because NIR only implemented this like a month ago, right? I don't study near in detail, but I'm familiar with the Trilema, and I'm familiar with extensive efforts to pursue execution charting at the L1 level. So you can achieve 100,000 TPS with a Raspberry Pi. You know that, right? You disagree with our choice to scale through. Oh, hold on.

Can you agree with that? No, I'm not going to agree with that. You can find, show me somebody who does that in production today. Yeah, okay. By the time it's done in production, it's way too late for Ethereum. You realize that, right? This is the classic argument. You know, I remember talking to Bitcoiners in 2015.

And they were like, I can't take. You're talking over me. You're talking over me. Excuse me. But you didn't let me finish. In 2015, in 2015, I remember Bitcoin is telling me, oh, well, I'll believe it when Ethereum has more usage than Bitcoin, right? I remember those arguments. And you're giving me the same argument.

And once it does, the whole post just move again. Eat and Dune and Grow the Pie that shows the massive real world impact of the L2 ecosystem. I have Black Rock and Sony and, you know, a growing, a growing list of organizations that are seeing that L2 are. arguments from authority when the bottom line is they're all centralized. When there's data, Justin, you're the authority you're trying to say that just because we didn't pursue your chosen, because I can think for myself, because I don't blindly follow what your leaders tell you. I'm sorry, you think that hundreds of researchers who worked for years to determine that law. The fact is we have shattered blockchain. Not everything you disagree with is an

argument for authority. You are the authority that is claiming that because Ethereum did not pursue your chosen strategy of parallelization that are scaling, our scaling system. system is ill-of-chin. We're rehashing arguments from earlier, so why do we move on? But I did, you know, just want to ask, so when it comes to these arguments about all the activity on Ethereum accruing to ETH, do you think that that will happen, Ryan, or do you see that there could be a danger with L2s, you know, using other tokens for gas? I'm not worried about gas tokens, Laura, because ultimately, you know, folks are going to use whatever gas token is right for their particular customer savvy, depending on the business model of their L2. And for many L2s, that'll be either. And for many, they're just going to totally sponsor gas on behalf of their users as a sort of loss leader the same way that you don't pay to use Facebook or many, you know, Apple service. Well, Apple bad example because you buy the phone. And so Apple's actually a great example because you may have Apple sponsoring user gas transactions.

through a blockchain that's vertically integrated into the phone. So I don't worry about the gas. Sounds super decentralized. I'm speaking, Justin. What I do worry about is the use of ether as money. It is very important for ether to continue to be used in as many places as possible, in as many ways as possible, and with as much size as possible. Okay, but I feel like in the back and forth with Ryan,

at some point you said something about how the price of ether didn't matter for security, but because it is a proof of stake system, I think it does, right? It does matter. Yeah, the price, the price does matter because it determines the level of economic security, which determines how much it costs to extract, like, horrifyingly toxic levels of MEV from the chain through various attack vectors. Do you want to learn much more about that? You can see the Justin Anatoly debate recently. Yeah, I don't remember what was happening in the back and forth there, but you suddenly did say that at one point. And I was like, wait, I don't think that's true. I don't think that's true. But so at this point in time, like, you know, we're in this. situation where for this year, ETH as a layer one asset has not been able to retain value at the same

time that we are seeing these layer twos are collecting all these fees. They're paying almost nothing to Ethereum. And earlier you said, like, you felt like we're in this kind of period where Ethereum has been built for a future that you think is going to come, but it hasn't come yet. So do you just view this as kind of like temporary growing pains or, okay, so what do you? It is puberty, Laura. Okay, so then just describe how it is that if we're going to see that layer twos are taking other tokens besides ETH and that we're going to have, you know, all these different layer twos, especially if many of them are centralized, then how is it that the value of

ETH is going to go up again? You know, we haven't, ever since the DENCUNCUN upgrade, we have not seen ETH be in that deflationary state that we saw before. and just to make clear to people, because I don't think we got to this earlier in the episode, but the Duncun upgrade is what made it so cheap for these roll-ups to have all these transactions, because before then, we had been seeing that there was a certain amount of activity on the Layer 1 that was allowing much more ETH to be burned, which allowed the asset to be deflationary for actually a pretty good stretch in there. So, you know, Ryan, what do you think turns this around?

Laura, I'll tell you my prediction here. I predict that in the coming year, not 10 years, like one to three years, the level of L2 adoption in all key metrics, end users, new chains, corporate and government adoption, capital flows, trading activity. I predict that the level of Ethereum L2 adoption greatly eclipses that of Alt L1s as well as on other chains. That would be my first prediction. My second prediction is that Ether remains the number one trustless collateral and digitally native money on this new hyper-growing on-chain economy. And my third prediction is that

L-1 fees will again become extremely high, although I think especially for L-1 execution, that's going to take quite a bit longer. I think blob fees will be non-trivial even like a year from now. And so I really see the L2 model working out. And that's my prediction. It's that the whole world comes on Ethereum and Ether plays a major role in that as a digitally native programmable money and, you know, the L1 fees tick up, which, you know, as someone who studied fees for the last five years and, you know, wrote some pretty early viral material on it, Ethereum's not a business. We don't get the value of either from fees, but it sure is nice to see those high fees, and I believe we will, Laura.

Okay. I did want to ask you both about another solution that Adam Cochran tweeted about. He said, based roll-ups are what will solve the ETHL2 economic debate. and he said, first of all, they're two times orders of magnitude cheaper to run. They require being an eth valetator to participate. They require eat staking as pre-confirmation commitment. They create competitive auctions for MEV, which requires paying for gas. They can be interoperable without bridges, et cetera.

What do you think of that notion? So, actually, I was just writing that down. I wanted to touch on this before we ended this conversation. That's perfect. I love, if properly done, so properly done on like layer one kind of level, like enshrine slash based sequencing and enshrined slash based roll-ups, in theory, I actually love the idea. I actually do not consider that even to be a form of layer two scaling. I know that's a bit confusing because it has a roll-up in the name like based roll-ups, right? But I actually think that's a form of-

I mean, it's literally another blockchain using Ethereum for its sequencing. So I think the key of the L2 scaling model is that there are. other chains and not a single chain. So wouldn't agree with that. You doubt anyone else would either. The same is true for sharding. And we would refer to that as a layer one. Like for me, I think if the whole thing acts as a care and whole and they're shared

pure like shared security. The shards are under the same consensus. Yes, the shards are under the same consensus. In the case of based roll up, they'll also be under the same consensus. At least my understanding in terms of what I would see is a good type of design at least. I have seen other chains hold themselves based. The shards have. a synchronous settlement

of all the shards in that each new L1 block in the parallelized system updates the state of all the shards is not the case for roll-ups. But I actually think if you had base roll-ups

with base sequencing it's basically equivalent to a shouted system. And I would fully agree with that. This is why you've seen things like certain folks and this is definitely an argument for the authority,

but you have guys like Vatollick saying in a certain lens, roll-ups are execution sharding because they put their I think that's ridiculous, but I'm going to go back to the other argument. It has merit. I don't agree with it. I agree with you on that point, but it has merit, right?

I mean, who's to say that roll-ups aren't? On the surface, they look the same, but I think for me, the defining features, does it all tie together as a single whole? Because then you get all the security guarantees, and then you get all of the perfect UX, etc. That's why I like-myself and sorry. And this is why I like this idea of base slash enshrined sequencing and roll-ups. I think that's a great idea. However, let me explain why I think that will never happen.

I actually think the Ethereum ecosystem is too far gone and it's facing massive perverse incentives now, right? Because in order for these layer twos to decentralize, right, pretty much for all of them, they need to surrender a massive amount of power and revenue. And this needs to happen at scale en masse for a lot of people. And I just don't think that that is realistic at all. I think that is actually a bit naive even in the face of like all the experience we have with human history.

You know, this idea that, oh, we're all just going to volunteer, like, our optimism is obsolete, arbiterum is obsolete. And we're all just going to move to base roll-ups, etc. Right. And so just to respond to your remark about, you know, base roll-ups and decentralizing sequences and enshriment. Maybe I could finish this point first. Sure. So I would say like throughout human history, and this is my background as well, like throughout human history, we've seen that power crops and absolute power crops, absolutely. And you've basically now set up a system where you have private companies that are profiting of being centralized.

And what you're saying is all of these layer twos, or at least a significant amount of them, will be either replaced by decentralized systems or will decentralize, thereby going against their incentives. I just don't understand. Why would a private company give up on that? why when the ecosystem has chosen base as the biggest L2, and that's like the most centralized thing that will never decentralize, right? These are important questions. I totally agree.

Not with your point, but with the questions, the importance of the questions. And now I want to contrast that. This is really important to me. And then I'll let you respond. I'm sorry, I'm being a bit long-witted, but this is worth it. Okay, now I want to contrast that with the alternative, which is layer one scaling, which means you don't make the UX sacrifices, you don't make the sacrifices in centralization, you don't make the sacrifices in credible neutrality, you don't sacrifice your cyphapunk ideals,

you don't sacrifice the UX, you don't sacrifice composability, you know, you don't put up with freaking admin keys, you know, that can still use a fund. None of those things. It just works like it was always intended to do of layer one scaling. If layer one scaling is viable, the entire layer two roadmap is effectively. obsolete. And that's really my main message here. So, okay, and just to understand, so you feel like, and I know that was, so Ryan was bringing up Solana earlier and you kind of objected to that, but I was wondering, do you feel that

Solana has a better roadmap than Ethereum? Or near or, okay. Yeah, I would say Solana, just by virtue of it having like multiple orders of magnitude, more capacity. Yeah, it's better. And also, it's actually very similar to Ethereum. I mean, It has programmability, it even has the same economic model. Actually, the only difference is one is high capacity, other one is low capacity. And for years, even when it comes back to the Bitcoin debates, I've always argued the way layer one blockchain should be is a massive amount of transactions, all paying a small fee, that over the longer run, the blockchains that do this will be the most decentralized, will be the most censorship resistant, and will be the most credibly neutral. Unnecessarily bottlenecking Ethereum means it will never reach that. top in the mountain. You're handicapping it unnecessarily by not acknowledging the latest developments

in technology. And that's, again, a repeat of Bitcoin history. And it's beyond the scape of this discussion, but that comes down to governance. But Ryan, please respond. Okay. Well, Justin, I'll give you points for being consistent over a very long time frame. Thank you. Brian, go ahead. Justin asked good questions here. And, you know, I was hung up there a moment because, I mean, that's the thing about consistency. I mean, Justin, you have been consistent. But I think you've been a little dogmatic. I mean, you've been repeating the same arguments for years now, even as the L2 model is growing. And right now, the idea that, you know, folks used to say, they're not even going to want L2s. Okay, well, they want L2s, but now they're parasitic.

Okay, well, you know, in the years to come, if that gets disproven, you know, at what point are you going to change your mind, right? And, you know, that's a rhetorical, rhetorical question. So to jump into the meat of my response, I'll start at the end, which is that the only difference between Solana and Ethereum miscapacity. This is incorrect. I don't know. That's a gross oversimplification. I'm sorry.

Yes, let me clarify on your behalf. Yeah, which is that the biggest difference between Solana and Ethereum, and there are many differences, is that Solana has no formal protocol specification to be analyzed by an independent researcher community, and it has no real client diversity. Okay, I'm just going to remind you here. Arguing against Salana is not arguing against my arguments at all. Justin, you just brought up Solana yourself. I'm responding to your direct point you brought up.

I learned from your feet back. If I'm not mistaken, I responded. So go ahead. Okay, you said the only difference between Solana and Ethereum miscapacity, which you then called interrupting me a gross oversimplification. Within the context of which is better, yes, sure. I mean, but again, the argument is moot because I'm not here. And there's not an Ethereum versus Salana debate.

Justin, I'm not by them. not your turn. All right. Go ahead. Solana has no real client diversity. That is the biggest difference. They have no protocol spec and they have no real client diversity.

The problem with FireDancer is the difficulty of implementing a low-level hand-coded C module replica of the Solana Protocol, which exists only embedded in the Salana Rust client and not in a standalone PDF spec that the FireDancer people can copy. This has caused delays and challenges in the FireDanser. implementation. And this is not something that can be solved because by the time they produce a protocol spec, they need to then develop a research community. You know, I predict that on a recent space is that I said I would give Mert like a large sum of money if Firedancer had a fully independent code base and was in production by February because it's just, it's going to take so long because

of this lack of diversity and lack of protocol spec. And so that that is Salana's biggest difference, but far from the only difference with Ethereum. There's a stormman argument, just again. Okay, well, we've invested in client diversity, and it saved our bacon at least once, and a lot of key stakeholders say it's important. Client diversity is very important, and it's great. You know, you're sort of saying, trust me, bro, client diversity is not important. No, no, I'm not saying that.

You're again making a straw man. Why are you jumping to all these incredibly weak arguments and stormen arguments? Why is it going to say that having five different teams implementing. Go, go, Ryan. You made your point about that, the clients. Go ahead. Next point. Is this for me to make an...

No, no, Justin. I'm still like on one of five. By the way, just you know, we're at an hour and 15 minutes. We're going to wrap this up shortly. So, Ryan, go ahead and finish. Ethereum didn't pick L1 scaling, and that's something Justin's going to have to live with because we chose the L2 model. And as Justin said, if L1 scaling is viable, then the entire L2 models effectively obsolete,

his quote. Justin's right. But I'm going to put a lot of heavy lifting on the word viable there. If an L1 replicates the level of trust in Ethereum and its concomitant and its inseparable growth and network effects while having pure L1 scaling, like if they can do what we do with pure L1 scaling, then we have lost. We think they can't. And to comment on base roll-ups and shrym it and decentralized sequencers, base roll-ups are totally cool. They're not like a silver bullet. They're just going to be one of the ways in which the L2 marketplace has. high levels of diversity. On the topic of enshrinement, I do not believe we will see an enshrined roll-up or L2 for many years. And I think that's intentional to avoid a chilling effect in the marketplace.

We want to fertilize and support this marketplace and prematurely enshrining something that we can't even say is like the right thing to enshrine would be a great way to, you know, harm what is currently one of our key advantages in that L2 marketplace. And on decentralized sequencers, look, there's going to be some L2s, who's the business. model makes sense to actually decentralize once the tech is there. And there's going to be some that don't in terms of sequencer decentralization as opposed to just theft of funds. Coinbase, I'll put a flag in the ground and say that Coinbase wants decentralize your sequencer because control is liability and they intend to make their money by being the next generation bank and

FinTech not from sequencer fees. They're going to make their money in application layer fees. And so I think that's something that Max Resnick gets wrong. He says, why would people give up the sequencer money. You know, like L1 sequencers, or L2 sequencers made like 10% of L1 fees in a recent day. It's a lot of money. It's like half a million a day on some days. But it depends on the business model. There are some L2 customers, L2 operators, for which sequencer fees are genuinely unimportant, even if they seem like lots of money, Coinbase included. Thanks, Laura. Okay. Yeah. And just for people, the Max Resnick conversation was a bankless interviewer. Yeah, He definitely took the view that L2s are a parasitic.

Okay, so I know, Justin, I know you have responses, but we are at time. So you're going to have to, I guess, write them up for Twitter when this episode comes out, which will be tomorrow. So, you know, you don't have to wait too long. But you guys, this was a very wide-ranging and interesting episode. And thank you for making your points the way that you did. Where can people learn more about each of you and your work? I'll start. Sorry, you can find me on.

Twitter under Justin Bonds, Justin underscore Bonds. And my company, where I invest in cryptocurrency, according to some of the vision you heard here, is cyber capital. So you can just look that up, and that's where you can find me as well. So, yeah, and I just want to say thank you for Ryan. I think you did a really good job with this debate, and I really appreciate. And I also thank you, Laura, as well, for bringing this discussion

and, like, bringing attention to it. I really appreciate that from the bottom of my heart, because I think both me and Ryan do care about decentralization and really some of the cyphapunk underpinnings of this movement. And I do think our hearts are all in the right place here. So, thank you. Laura, thanks for having me on the show. And, you know, Justin, I think I think you're, you're somebody who has developed a thesis and invested against it. That's a beautiful thing. You know, I think your thesis is wrong. And it's going to be very exciting as we get to see what happens in the years to come. And, you know, it is possible you end up being correct in that the L2 model was a

mistake. But I certainly don't think so, and I don't think the latest data is showing that. And so you can find me on Twitter at Ryan Berkman's. I'm a payments builder, and I'm co-founder of a soon-to-be announced institutional business development arm for Ethereum. All right. Well, thank you both so much for coming on Unchained. Thanks, Laura. Thank you. Thanks so much for joining us today. To learn more about Justin, Ryan, and Ethereum's Roadmap. Check out the show notes for this episode. Unchained is produced by me, Laura Shin, with a friend Matt Piltered, Juan Aranovich, Megan Gavis, Pamajumdar and Margaret Curia. Thanks for listening. Unchained is now a part of the CoinDesk Podcast Network. For the latest in digital assets, check out markets daily, five days a week with host

Noel Atchison. Follow the Coin Desk podcast network for some of the best shows in crypto.