Developing Several Layer-2 Solutions: ‘The Real Solution’ to Ethereum’s Scalability Issue, Says Ken Timsit

The recent surge in Ethereum gas fees can be attributed to the rise in decentralized finance (defi) activity and the growing popularity of layer 2 (L2) chains such as Arbitrum and Optimism, Ken Timsit, managing director of Cronos Labs, has said. Timsit however agreed that the recent Dencun upgrade to the Ethereum network has helped reduce the transaction fees of L2 roll-up networks.

Long-term Impact of Dencun Upgrade Remains Unknown

Timsit explained to Bitcoin.com News that the Dencun upgrade, also known as EIP-4844, has introduced a new, more affordable fee mechanism for storing L2 transaction data on the Ethereum chain. Although the upgrade has been associated with the recent 90% decrease in gas fees, Timsit said it is too soon to predict its mid to long-term impact.

Commenting on Ethereum blockchain co-founder Vitalik Buterin’s proposal for a 33% increase in the gas limit, Timsit said such a step would be a positive move as it indicates the network’s ongoing progress. However, the Cronos Labs managing director believes the development of numerous L2s or even Layer 3 (L3) solutions to be the “real solution” to Ethereum’s scalability issue.

In his written responses to Bitcoin.com News, Timsit also briefly discussed the adoption of cryptocurrency by institutions and the growing likelihood of their participation in the Ethereum ecosystem. He identified key areas likely to change in the next two years. Below are Timsit’s answers to all the questions sent.

Bitcoin.com News (BCN): What factors led to the recent surge in Ethereum gas fees, and how can the industry mitigate them? Given that the recent Dencun upgrade is expected to boost growth on L2 networks like Arbitrum and Polygon by lowering fees, do you believe this upgrade can maintain low gas prices and efficient settlements for end users during this bull market?

Ken Timsit (KT): Ethereum transaction fees are driven by the network’s utilization, given that base fees can increase or decrease depending on how much block space is filled with transactions. On a quiet day, the base gas price can be between 10 and 30 gwei, whereas on busy days it can vary between 50 to 150 gwei. The recent spike was primarily due to increased defi activity, but the growing popularity of L2 networks played a big role as well, with Arbitrum and Optimism ranking among the top gas spenders before the recent Ethereum upgrade.

The Dencun upgrade is helping to reduce the transaction fees of L2 roll-up networks because it introduces a new and cheaper fee mechanism for the storage of L2 transaction data on the Ethereum L1. Data storage drives the majority of L2 transaction fees. Since the Dencun upgrade, we have seen a fee reduction of more than 90% on some L2 networks, but it is too early to say what will be the impact in the mid to long run. Meanwhile, alternative Layer 1 networks like Cronos continue to offer transaction fees of a few cents per trade.

BCN: In the previous cryptocurrency bull market, prices soared despite the lack of underlying infrastructure. The market was driven primarily by speculation and the ‘endless possibilities.’ Now, as another cryptocurrency bull run is underway, do you believe that the necessary infrastructure is now in place to realize these possibilities?

KT: The number of robust blockchain networks has increased dramatically since 2021. Additionally, there is greater variety in the type of networks. each with its own compromises, from layer 1s to layer 2s to application-specific blockchains. Overall, the performance of blockchain networks is not currently a big limiting factor for crypto adoption.

BCN: Earlier this year, Vitalik Buterin, co-founder of Ethereum, advocated for a 33% increase in the gas limit to enhance network throughput. Notably, the gas limit has remained unchanged for nearly three years. Could you explain to our readers what the gas limit is, why it’s necessary, and whether a further increase would be a reasonable solution?

KT: The block gas limit, which stands at 30 million currently, is the maximum amount of computing power that can be used to process all the transactions included in a single block. It is the main determinant of the total number of transactions that the Ethereum network can process daily, which is around 1.2 M transactions per day. The actual maximum number of daily transactions varies slightly because the amount of gas used by each transaction depends on whether the transaction is simple or complex.

My interpretation of Vitalik’s comment is that it would be healthy to increase the gas limit, both because it would show continued progress and because the network has performed well at the current limit, while other L1s like Cronos and BSC have already adopted higher gas limits. However, I feel that there is consensus that the real solution to Ethereum scalability is the development of many Layer-2 (and Layer-3) on top of the base settlement layer.

BCN: According to a Coinbase survey, institutional adoption of crypto is growing. Indeed, spot bitcoin exchange-traded funds (ETF) have helped institutional adoption but they are certainly not the only cause of this growth. In your view, what is causing the surge and what can boost it further?

KT: The approval of bitcoin ETFs in January 2024 led to the creation of institutional distribution channels to broaden the ownership base of Bitcoin in the USA. The effect of this approval was compounded by macroeconomic factors such as the upward trajectory of stock markets and the expectation of interest rate cuts, although the latter remains a moving target.

The next step for institutional investors should be increased participation in the Ethereum ecosystem and particularly in decentralized finance. A number of institution-grade products and platforms have been built since 2021 to facilitate institutional access to defi, and these infrastructures are now ready to welcome these investors back to Web3.

BCN: Cronos Labs recently launched zkEVM as a hyperchain using zkSync’s ZK Stack technology. Could you tell us what a hyperchain is and how it could help fix scalability and accelerate mainstream adoption?

KT: Cronos zkEVM is a zero-knowledge-powered layer-2 blockchain network on top of Ethereum mainnet. It benefits from the security of Ethereum while offering faster transaction throughput and lower transaction costs than Ethereum. However, scalability is not the only value proposition. Cronos zkEVM will introduce zkCRO, zkETH and zkUSD which are natively yield-bearing cryptocurrencies, as default base tokens to be used by the defi protocols on the chain. This means that users can expect 3 sources of cryptocurrency yield on top of each other: staking yield, defi yield, and of course additional user incentives.

BCN: Decentralized application (dapp) development is often more difficult than traditional development mainly because of the challenges posed by smart contracts, on-chain activity, and lesser-known programming languages. Has Web3 development become easier and more streamlined and what bottlenecks do developers still face?

KT: Building great products is hard in any industry and any stack, not particularly in Web3. In crypto there are lots of open-source repositories to draw from, and now AI coding assistants. The quality of the documentation is pretty good in the Ethereum / EVM world.

The main challenge and differentiator between products is security, given that many Web3 apps handle hundreds of millions or billions of dollars of user assets in a self-custodial way. As an industry, we have made a lot of progress on this front thanks to the decreasing cost of audits and the vast number of contributors who are monitoring blockchain activity and reporting vulnerabilities on Twitter (X). I also love that we have crypto wallets like Rabby which highlight relevant security information to the users before transaction signing.

BCN: Looking ahead, which key areas are likely to undergo significant changes in the next one to two years?

KT: During the first quarter of 2024, much of the crypto user activity revolved around two popular use cases, Bitcoin investing and meme coin trading. There is a large developer community working on broadening the number of use cases to achieve product-market fit with a mainstream audience, such as defi of course, but also gaming, social media, decentralized storage and compute, and the economy between AI agents.

During the next two years, we are going to see product utility catching up with the expectations created by the underlying protocol tokens. This will help to tame the industry’s volatility and make it less intimidating to a broader audience. While the Cronos ecosystem has its fair share of passionate, “degen” users, whom we love, we are not losing sight of the mission which is to make self-custodial Web3 accessible to everyone.

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