The Symbiotic Relationship between Ethereum L2 and L1

Recently, some people are concerned that as the number of L2 users and transaction volume increases, Ethereum L1 may be weakened. However, from multiple perspectives, this concern is unnecessary.

First, the security foundation of Ethereum L2 is Ethereum L1. Even without L2, the processing capacity of Ethereum L1 is limited. In fact, Ethereum really needs L2 to expand the attractiveness of its ecosystem; otherwise, it may be surpassed by other public chains.

When L1 transactions encounter bottlenecks, rising fees can lead to a decrease in network effects. In the long run, excessively high fees are not beneficial for Ethereum L1. Although a small scale of L2 transactions may impact L1's fee revenue, as the L2 application ecosystem flourishes, large-scale transactions will also bring more security fees to L1. Only by becoming a prosperous ecosystem and gaining the favor of users and developers in a broader space can organic development be achieved.

Ethereum L1 should not be limited to a small scope, but should look at a larger picture.

Ethereum L2 expansion is an inevitable trend

The expansion of Ethereum has formed a horizontal and vertical network. The vertical includes L2 and even L3, while the horizontal includes sharding and other EVM-compatible public chains. Ultimately, the expansion of Ethereum will form an interwoven network structure.

This architecture combines, to some extent, a model that provides shared security for L2, as well as a loose alliance model for other public chains. With the improvement of scalability, the Ethereum network will be able to support large-scale applications, with TPS potentially exceeding 100,000, and even higher processing capabilities may be achieved in the future.

Currently, Ethereum has formed a scaling path centered around Rollup. L2 combined with danksharding can basically meet the needs of a large number of users, but this process may take 3-5 years or even longer.

L2 enhances the competitive advantage of Ethereum L1

L2, as a chain that shares Ethereum's security, has a competitive advantage in terms of security, along with lower fees and higher throughput, making the advantages of other public chains less obvious compared to L2. Without L2 scaling, L1 may lose its moat and network effects, ultimately being replaced by other public chains.

L2 transaction volume will surpass L1 and most public chains

Due to the significant reduction in transaction fees, the future transaction volume and number of users on L2 may surpass Ethereum L1 itself, as well as most other public chains. This trend could be significantly accelerated, especially after the implementation of EIP4844 at the end of 2023.

Although early L2 may lead to a decrease in L1 transaction activity, affecting fee revenue, as the scale of L2 transactions increases, the proportion of fee revenue from L2 will gradually rise. In the future, L2 will not be limited to just a few players, but there will be more participants joining, and the landscape of L2 is far from being determined.

Summary

Ethereum and L2 have a symbiotic relationship, mutually beneficial. L1 provides high security and settlement services for L2, while the large-scale trading activities on L2 bring more fee value to L1, creating a larger network effect, thereby enhancing Ethereum's competitive advantage.