Differences and uniqueness between different public chains

The continuous development of blockchain technology has brought diverse designs and applications to different public chains. In order to gain a deeper understanding of the differences and uniqueness of these public chains, Web3KeyTalking #1 invited KJ, a PhD in cryptography, to discuss with us the "Differences and Unique Expenses between Different Public Chains", through the characteristics of OP, Ethereum, Polygon, Binance Chain and many other public chains, to explore the differences between Layer 1 and Layer 2, analyze decentralization and security issues, and the challenges and explorations of stablecoins in blockchain.

Author: KJ, Punkcan

Typesetting: Cikey

Cover: Photo by Batyrkhan Shalgimbekov on Unsplash

This article will be divided into the following sections:

• Basic Differences between Layer 1 and Layer 2
• Differences between Layer 2 and Sidechains
• Chain fees and centralization issues
• The development and challenges of stablecoins
• Pursuing theoretical breakthroughs
• Opinions on the development of practitioners’ choice of blockchain or AI
• Views on the development of public chains in China
• Views on traditional business today

The fundamental difference between Layer 1 and Layer 2: consensus algorithms and centralized sequencers

What is the difference between Layer 1 and Layer 2? Is Layer 2 an independent public chain? This is also a point that many people who are new to blockchain are easily confused about.

Teacher KJ pointed out that Layer 1 public chains such as Ethereum and Bitcoin usually use independent consensus algorithms, such as POW (Proof of Work) and POS (Proof of Stake). The role of the consensus algorithm is to ensure that the entire network reaches a consensus in a decentralized environment. This mechanism ensures the transparency and immutability of transactions.

In contrast, Layer 2 solutions (such as OP) do not have their own consensus algorithms, but rely on centralized sequencers to process transactions. Teacher KJ explained: The centralized sequencer is not a consensus algorithm, but it plays a role in consensus to some extent. Just like only one member of a committee has the right to issue a block, this member can unilaterally decide the content of the block and the order of transactions.

Centralized sequencers greatly simplify the consensus process, but also sacrifice some of the decentralized features.

The consensus algorithm of Layer 1 requires the participation of a large number of nodes in the entire network, and the maintenance cost is high, while the centralized sequencer of Layer 2 only requires one online computer at a minimum, which greatly reduces the operating cost. Nevertheless, in order to ensure that the data cannot be tampered with, Layer 2 still needs to write some transaction information to Layer 1 in the end, so as to ensure the integrity and security of the data with the help of the decentralized security features of Layer 1.

But some, like Ethereum, use EVM but are not Layer 2, such as Binance Chain, which uses DPOS (delegated proof of stake) consensus algorithm. EOS also uses a similar consensus algorithm. The number of nodes in this type of consensus algorithm is relatively small, usually only a dozen or even dozens, which makes them more efficient than POW chains in performance, but also more centralized. Teacher KJ described: "They are no longer the kind of chains with thousands of block-producing nodes, but a centralized solution oriented towards efficiency."

Differences between Layer 2 and Sidechains

Before the emergence of L2, sidechains were a special existence, represented by Polygon. Although it has its own coin and consensus algorithm staking system and more than 100 nodes, its security is still far inferior to Ethereum, but its design also writes data into Ethereum to ensure ultimate security. Therefore, Polygon is defined as a sidechain.

Polygon was born from the overflow of Ethereum traffic. It is neither Layer 1 nor Layer 2. It strikes a delicate balance between cost, benefit, and security.

In the early days, Polygon focused on its low prices, but with the current competition from Layer 2, Polygon may not really have a price advantage in comparison.

Chain fees and centralization issues

The transaction fees of blockchain have always been a hot topic of community concern. Professor KJ pointed out that with a more centralized consensus mechanism such as DPOS, it is easier for chain operators to control verification nodes to adjust transaction fees. Although this behavior improves commercial competitiveness, it also weakens the decentralized nature of blockchain. For example, it can open up lower fees to specific partners, while also raising the threshold for opponents. Although these adjustments to fees are all through so-called community resolutions, with a quasi-centralized consensus such as DPOS, the project party has a relatively high voting advantage, and security relies on the premise that the project party does not do evil.

Thinking from this perspective, why do we need "decentralization"? Teacher KJ emphasized that decentralization is only a means, and the real purpose is to pursue asset security. Decentralization is a means to ensure asset security, which increases the difficulty of doing evil. Pursuing decentralization is pursuing asset security. Although traditional centralized systems (such as banks) have higher efficiency, they also face the risk of single point failure and management decision-making errors. The goal of decentralization is to build a system without a single manager. For Bitcoin, at least we can ensure that assets are still safe even after 100 years.

However, in practical applications, in order to improve performance and reduce costs, a compromise has to be made between decentralization and efficiency. The design of the Layer 2 chain is the embodiment of this compromise.

The development and challenges of stablecoins

In the interview, Mr. KJ discussed the development of stablecoins, especially the challenges faced by decentralized stablecoins. He pointed out that the design of decentralized stablecoins is a grand subject, involving theoretical breakthroughs in multiple fields such as finance, economics, and algorithms. Taking MakerDAO's DAI as an example, he explained: "Although MakerDAO maintains the stability of DAI through over-collateralization, the stability of DAI still faces challenges when the market fluctuates violently. Decentralized stablecoins require a mechanism to maintain price stability without the intervention of centralized institutions, which is much more complicated than imagined."

In contrast, centralized stablecoins (such as USDT) rely on the credit of institutions and fiat currency reserves to maintain stability. This approach is simpler and easier to implement, but there are trust risks. Therefore, how to achieve price anchoring of stablecoins in a decentralized environment is still a theoretical problem that needs to be solved in the blockchain field. This is the interesting part of the blockchain world. There are many uncharted areas. As long as a well-known problem is successfully solved, multiple academic and financial rewards can be obtained.

Pursuing theoretical breakthroughs

Precisely because the bottleneck lies in theoretical difficulties, real breakthroughs require seeking new possibilities on a theoretical basis. Although current technological innovations are mainly concentrated at the product level, compared to the incremental development of the Web2 era, the evolution of blockchain requires more innovation at the theoretical level.

Take Bitcoin as an example. The POW (proof of work) consensus mechanism and the concept of decentralized currency system proposed by Satoshi Nakamoto in the Bitcoin white paper have completely changed people's understanding and application of consensus algorithms. Teacher KJ said: "Before the release of Satoshi Nakamoto's white paper, people racked their brains but could not come up with a way to achieve decentralized currency. Once this theory was proposed, the technical framework of the entire industry was quickly established."

This is the reform brought about by theoretical innovation.

Teacher KJ encouraged practitioners and researchers to focus on theoretical issues, such as the improvement of consensus algorithms, the design of decentralized stablecoins, and cryptographic solutions designed for applications, to find breakthroughs.

Of course, the process of scientific research requires not only intelligence, but also a bit of luck. In the blockchain industry, it may take five to seven years to overcome theoretical difficulties, but once there is a breakthrough, it can bring great progress to the industry.

Opinions on the development of practitioners’ choice of blockchain or AI

Teacher KJ also gave suggestions on the development direction of individuals in the fields of blockchain and artificial intelligence (AI), analyzing the different characteristics of the two fields and how to choose a suitable development path.

The characteristic of blockchain is that it is easier to provide entrepreneurial opportunities for individual developers or small teams. With the emergence of smart contracts, developers can quickly get started and invest in DApp development, on-chain governance, DeFi and other projects. The development tools and environment of blockchain are relatively mature and do not require too much resource support. Individual entrepreneurs can quickly get started and try different business models through smart contract programming, application development, etc. Therefore, blockchain is more suitable as a direction for personal entrepreneurship, especially in consumer applications.

In contrast, AI projects usually require a lot of computing resources and data support, and the threshold for entrepreneurship is relatively high. AI projects have high requirements for computing power, data, and technical accumulation, and need to rely on cloud computing power and data services provided by large technology companies. Therefore, entrepreneurs in the AI ​​field are more suitable for teams with resources and financial support, or developers with deep technical backgrounds.

Therefore, when choosing AI as the main development track, you can comprehensively consider personal interests, resources, capabilities and industry trends. After all, interest will stimulate the motivation for learning and innovation, and the accumulation of resources and technology will affect the depth of development in AI or blockchain.

For students who are new to both or those who are interested, if you are interested in blockchain, it is recommended to start with smart contract programming, understand the basic principles and application logic of blockchain, and then gradually delve into advanced fields such as consensus mechanism, Layer 2, cross-chain, etc. For those interested in AI, Teacher KJ recommends two ways, the orthodox machine learning path or directly calling the large language model to develop applications for users, which can not only learn basic AI algorithms and models, but also directly find the application of AI in actual scenarios.

Views on the development of public chains in China

Teacher KJ believes that the use of public chains such as Ethereum and Bitcoin has never been banned in China. Although opening an exchange is not allowed and mining is also prohibited, holding tokens and technology development are not illegal. In addition, Teacher KJ also believes that public chains are the only technology direction in the world that has not been completely banned by too many countries, and it seems to have achieved a balance between privacy and permissionlessness.

If we conduct technical research on public chains in China, there is absolutely no problem, and even innovation is encouraged. However, due to the ban on ICO (initial coin offering) in China, the financing and development speed of public chains have been affected to a certain extent. If a public chain does not introduce a token mechanism (Token), then its development speed will be very slow. Tokens are like a "catalyst" for the development of public chains, which can accelerate the prosperity of their ecology.

Each generation of public chains is a reflection and improvement of the previous generation of public chains. It is obvious that there is a generation gap between each generation of blockchain. Since the new generation of public chains is to solve the problems of the previous generation of public chains, it is bound to have its advantages, but this is from a technical perspective. From a commercial perspective, there are no successful cases. Bitcoin and Ethereum established many advantages in the early days, and only a new paradigm and technological innovation can bring the next revolutionary success.

Views on traditional business today

Teacher KJ believes that the emergence of blockchain has made up for the shortcomings of banking business, mainly because the existing banking and financial systems cannot meet the needs of everyone. For example, the traditional banking system may be at risk of bankruptcy, and even in the face of extreme financial situations, banks and insurance companies may not be able to fully guarantee the safety of customers' assets. Therefore, the demand for blockchain is partly to make up for the shortcomings of the traditional banking system and provide safer and more reliable financial services.

However, whether traditional businesses are put on the blockchain does not entirely depend on the quality of the technology, but more on whether the relevant industries are willing to embrace new technologies. For example, putting assets such as real estate certificates and insurance on the blockchain is not something that can be decided unilaterally by the technology side, but also requires these industries to accept and integrate new technologies.

One of the biggest benefits of applying cryptography is the improvement of user experience. Private key technology can simplify the process of login and identity authentication, reduce cumbersome additional security checks, IP address restrictions, and exercise all rights only with private key secrets. However, in terms of user habits, it may take years of education and training. For example, in traditional banks, if a user forgets his password, he may need to reset it through his ID card; in blockchain, as long as the user loses his private key, he will completely lose his assets.

Teacher KJ emphasized that popularizing the protection of private keys is an important step in promoting the traditional business to go on-chain. Although blockchain technology can greatly simplify the operation process, users need to have the awareness and ability to protect their private keys. KJ believes that this is similar to the learning of network knowledge during the popularization of the Internet in the 1990s. The knowledge of private key protection also needs time to be popularized so that more people can understand and adapt to the changes brought about by blockchain technology.

One of the challenges of putting traditional businesses on the blockchain is how to get people to adapt to the new way of asset management. In the traditional system, the security and management of assets are the responsibility of centralized institutions, while in the blockchain system, users are responsible for their own assets. Once the private key is lost, the assets cannot be recovered.

In this sharing session, we discussed together some of the issues on “Differences and uniqueness between different public chains”. However, due to limited time, there are still many questions worthy of in-depth thinking that have not been answered.

For example:

What are the current "useful proofs of work" and what are their principles?

In the Blockchain Trilemma of decentralization, how can we get closer to complete decentralization?

Can AI replace centralization by acting as a blockchain referee?

When studying the blockchain track, is it necessary to conduct special research on the ecosystem?

In the Web3 field, when working on IoT , AI , Depin and other projects, what proportion of blockchain technology will be used, and at what levels?

From the perspective of the national strategic development of new quality productivity, does physical AI robots have great development potential?

The answers to these questions may not be in this article. Where are the answers? I hope this article can serve as a starting point to inspire more valuable thinking and exploration.

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