What the Ethereum Merge means for the blockchain’s layer-2 solutions

What the Ethereum Merge means for the blockchain’s layer-2 solutions

Experts share their views on how the Merge would impact Ethereum’s scalability solutions in the form of layer-2 chains.

Ethereum is just over a week away from officially moving to a proof-of-stake (PoS) blockchain with the Merge slated for completion around Sept. 13–15. With the transition, Ethereum would abandon its current proof-of-work (PoW) chain, eliminating miners from the ecosystem. 

Ethereum is a vast ecosystem with thousands of decentralized applications and decentralized finance protocols working on top of it. Additionally, there are several layer-2 solutions, i.e., solutions built on top of the blockchain itself, the layer 1, to facilitate faster transactions and make Ethereum more scalable.

The Merge would mark the completion of the second phase of the three-phase transition process. The upcoming event will only see the official change of consensus, where the Ethereum blockchain would start processing transactions on the PoS chain. However, there won’t be much impact on scalability or gas fees.

The scalability fixes are meant to arrive after the completion of the third phase, which would introduce sharding, a form of parallel processing that Ethereum founders and developers have claimed would increase Ethereum’s transaction throughput exponentially.

Will layer-2 solutions like Polygon, Arbitrum One, Boba Network and Loopering be viable after the Merge? Cointelegraph got in touch with industry insiders for insight into how these L2 ecosystems will be impacted by the Merge.

Bitfinex chief technology officer Paolo Ardoino believes the Merge won’t have any impact on L2s as the Merge won’t solve the scalability solutions immediately. He told Cointelegraph that even after the completion of the third phase of the Ethereum transition, when it becomes monumentally scalable, L2s will still find a place in the ecosystem. He explained:

Experts believe the environmental aspect of the PoS transition could pave the way for better adoption via L2s. Pat White, CEO, and co-founder of enterprise digital asset platform Bitwave, told Cointelegraph that the shift to proof-of-stake would be key to legitimizing the Ethereum network and bringing more enterprises to the blockchain. He said that a “substantial number of businesses have been sitting on the sidelines of digital assets because of environmental concerns. The Merge might be the catalyst to bring enterprise into the fold.”

Apart from efficiency and environmental benefits, the transition is expected to enhance the network’s security against coordinated attacks. White explained that PoW blockchains are vulnerable to reorg attacks, “while similar attacks are much more difficult to occur on a PoS blockchain since the attacker would have to burn two-thirds of the supply of ETH.”

This de-risking of ETH will open floodgates of institutional capital as the network is more secure and friendly to corporate environmental, social and governance goals, White added.

The Merge would mark the completion of the second phase of the three-phase process. A significant chunk of scalability features such as sharding and high transaction throughput will be achieved after the completion of the third and final phase, slated for the end of 2023.

Daniel Nagy, chief scientist at decentralized storage and communication system provider Swarm Foundation, shed light on a different aspect of the Merge and its long-term impact on L2s. He told Cointelegraph that with the introduction of long-term scalability solutions, many projects, especially nonfungible token (NFT) projects, might opt for L1 rather than L2s. 

He said that in more advanced L2 transaction systems, the rollups will be significantly helped by the Merge and might also eat into the current market share of side-chains. Nagy added that rollups, both the optimistic and the zero-knowledge kind, will vastly benefit from sharding, even in its most primitive form, where it is only useful for storing guaranteed-availability data.

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This will also not materialize immediately with the Merge but can be expected soon thereafter. He explained, “rollups will probably gain adoption, while side chains can be expected to lose popularity both to rollups and to the more scalable L1 enabled by the Merge.”

Many industry insiders have indicated that L2s will continue to thrive and gain traction on the Ethereum blockchain irrespective of how scalable the network becomes, predicting that even though the Ethereum mainnet might see some traction after the completion of all phases, L2s will continue to be the execution layer.

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