The Symbiotic Relationship Between Ethereum L2 and L1

Recently, some people have expressed concerns about the development of Ethereum L2, believing that with the increase in L2 users and transaction volume, it may weaken the position of Ethereum L1. However, this view may overlook the symbiotic relationship between L1 and L2.

First, we need to recognize that the security foundation of Ethereum L2 is still Ethereum L1. Even without the existence of L2, the processing capacity of Ether L1 is limited. To enhance the ecosystem's attractiveness and avoid being surpassed by other public chains, Ethereum urgently needs L2 to expand its capabilities.

When the transactions on L1 reach a bottleneck, leading to increased fees, it will reduce the network effect. In the long run, excessively high fees are not beneficial for Ethereum L1. Although it may affect L1's fee revenue when the transaction scale on L2 is small, as the L2 application ecosystem flourishes and develops, when the transaction scale is large enough, it will also bring more security fees to L1. Only by becoming a prosperous ecosystem that attracts more users and developers on a broader scale can it be a healthy development direction.

Ethereum's L1 should not be limited to a small scope, but should look towards a broader future.

Ethereum L2 scaling is an inevitable trend

The expansion of Ethereum is forming an intricate network. Vertically, there are concepts of L2 and even L3, while horizontally it includes sharding and other EVM-compatible public chains. This expansion model allows Ether to simultaneously provide shared security for L2 and a loose alliance for other public chains.

As this multi-dimensional expansion reaches its peak, the Ethereum network will be able to support large-scale applications, with TPS expected to exceed 100,000. Furthermore, with advancements in ZK Rollup technology, it may achieve even higher processing capabilities in the future. Although this will require a long evolution, the Rollup-centric scaling path has already become an inevitable choice for Ethereum's development. L2 combined with danksharding can basically meet the needs of large-scale users, but achieving this goal may still take 3 to 5 years.

L2 builds a stronger moat for L1

As a chain that shares Ethereum's security, L2 has a security advantage in competition with other public chains while providing lower fees and higher throughput. This makes the advantages of other public chains over L2 not obvious. Without the scalability potential of L2, L1 would lose its moat and network effects, and could ultimately be replaced by other public chains.

L2 trading volume will surpass L1 and most public chains

Current development trends indicate that due to the significant decrease in transaction fees, L2 will surpass both the transaction volume and the number of users of Ethereum L1 itself, as well as most other public chains in the future. This trend will be significantly accelerated, especially after the implementation of EIP4844 at the end of 2023.

Although the early development of L2 may lead to a decrease in transaction activity on L1 and affect fee revenue, this situation will change as the scale of L2 transactions grows. The proportion of fee revenue from L2 will gradually increase.

It is worth noting that the landscape of L2 is far from being determined. Currently, there are several L2 projects in operation, and more L2s may join the competition in the future. It is expected that there will be 3-5 dominant L2s, while many niche L2s will also exist.

Conclusion

Ethereum and L2 have a mutually dependent and beneficial relationship. L1 provides L2 with higher security and settlement services than other public chains; while the large-scale transaction activities on L2 bring more fee value to Ethereum L1, creating a larger network effect, thereby enhancing Ethereum's competitive advantage. This symbiotic relationship will promote the continuous development and growth of the entire Ethereum ecosystem.