Ethereum Scaler Arbitrum Is Launching Friday With Developer Support From Alchemy

Ethereum Scaler Arbitrum Is Launching Friday With Developer Support From Alchemy

A new scaling project has entered the sidechain chat.

Offchain Labs’ Arbitrum rollup technology is set to launch on Friday, May 28 for developers, the firm told CoinDesk. The layer 2 solution offers drastically higher transaction throughput than Ethereum, and gas fees that are up to 270 times lower. It’s been live on testnet since 2020.

Arbitrum goes live in full as scaling platforms again surge in popularity. Projects like Polygon, Optimism and Matter Labs’ zkSync have either seen major funding rounds or their token prices soar in recent months. (Notably, Arbitrum has no token.)

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In tandem with the launch, Offchain Labs is partnering with developer platform Alchemy to help devs more easily tap into the new network.

Alchemy, which is said to power 70% of the top Ethereum applications and over $30 billion in on-chain transactions, announced a similar partnership with Dapper Labs’ Flow blockchain in March. Alchemy works with Dapper, OpenSea, Aave and many others.

Rollup ramp-up

Rollup technology is key to scaling Ethereum apps. A rollup is basically a sidechain aggregation of transactions in a smart contract that will settle to the mainchain at some future point. The “rollup” refers to the way the sidechain bundles many transactions to be committed to the mainchain.

Arbitrum is an “optimistic rollup”, meaning that state changes are first published with minimal inspection and fraud checking, allowing for additional speed. Any user, however, can flag invalid updates as fraudulent and the bad actors are punished by the protocol, while the updates are rolled back. The Arbitrum-Alchemy partnership drastically lowers the barriers to entry by meeting a large swath of developers where they already are.

“High gas fees and slow transaction mining times have been the biggest pain points for Ethereum developers and users for quite some time,” said Alchemy Product Manager Michael Garland. Arbitrum’s layer 2 technology provides a long-needed solution, he said.

Grabbing market share

In development since 2018, Arbitrum is the first general smart contract Ethereum layer 2 rollup solution to go live, according to Offchian Labs’ Director of Partnerships and Strategy A.J. Warner.

The success of any layer 2 rides on the adoption of both infrastructure projects and dapps, so given Alchemy’s reach in the blockchain developer community, native support is key, he said.

“Arbitrum, among other differentiating tech breakthroughs, is the only rollup that supports porting Ethereum contracts at the bytecode level (without making any code modifications),” Warner said via email.

Arbitrum’s goal is to become the default layer 2 rollup for Ethereum users and developers. Crypto exchange OKEx recently announced it will support direct deposits and withdrawals into Arbitrum for its users to avoid expensive gas fees. According to Arbitrum, over 150 projects have requested launch-day access to Arbitrum.

“Alchemy’s developer platform and Offchain Labs’ layer 2 are two of the most critical tools available to blockchain developers,” said Joey Krug, co-chief investment officer at Pantera, which invested in Arbitrum, adding:

The Risks and Rewards of Sharding on Ethereum 2.0

Today is the third day of Consensus, CoinDesk’s largest event of the year.

Complete with educational panels, workshops, keynotes, fireside chats, and networking experiences, Consensus assembles the best and brightest of the crypto industry to explore the ongoing evolution of cryptocurrencies around the world.

Like last year, Consensus is a fully virtual event. One of the perks from my experience of having everything online is being able to watch panels from the comfort of your own bed or listen to keynotes while cooking breakfast.

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Even so, these types of events can get overwhelming with their jam-packed programming. So, take a break with me.

Whether you’re in between panels at Consensus, getting started with your regular Wednesday workday or doing something else entirely, have a seat, take a breath and join me for a moment to explore what’s happening in the world of Ethereum 2.0.

Pulse check: Eth 2.0 Validator Gains

Last week, I did some back-of-the-envelope calculations on just how much profit the CoinDesk Eth 2.0 validator has made since its activation on February 17, 2021.

Factoring out the initial costs of purchasing the ether from cryptocurrency exchange Coinbase and transferring funds from a secure hardware wallet to the Eth 2.0 deposit contract, as well as the amount of ether lost due to technical difficulties experienced shortly after validator operations were activated, CoinDesk has increased its initial holdings of the crypto asset by 0.2 ETH.

Costs and revenue breakdown of Zelda (CoinDesk Research )

Moreover, the price of ether has appreciated 450% since the ether was initially bought, which means CoinDesk’s total ether holdings of 32.7 ETH have risen in value from being worth around $15,000 to almost $85,000, at the time of writing.

It’s important to note that none of these funds are available to withdraw or transfer to any exchange from the Eth 2.0 Beacon Chain due to the one-way bridge that only allows ether to move from the Ethereum blockchain to Eth 2.0 but not the other way around. This additional functionality will eventually be added to Eth 2.0 at some point after the Ethereum blockchain and the Beacon Chain are merged.

Once the merge is complete, CoinDesk plans to donate all profits to charity, just as it has from the beginning of this staking project. This is because CoinDesk’s mission in becoming a validator on the Eth 2.0 network at its most risky and nascent phase of development is not to make money but rather to report accurately about Ethereum’s transition to a proof-of-stake (PoS) consensus mechanism.

For more information about CoinDesk’s Eth 2.0 staking operations, nicknamed “Zelda,” check out the official announcement post here.

Running costs

One factor that the costs and profit breakdown of Zelda (see above) does not show are the running costs associated with hosting operations on Amazon Web Services (AWS). At minimum, running costs should amount to $200/month (or roughly 0.077 ETH/month), according to CoinDesk Director of Engineering Spencer Beggs.

However, there are additional network charges that fluctuate daily, depending on how much data and bandwidth Zelda consumes. To track these running costs more accurately, Beggs has recently created a new tracking system within AWS that should be sending us more accurate numbers in a few weeks. (Stay tuned!)

But factoring in the minimum base cost of running Zelda on AWS, and estimating a monthly earning from validator rewards at 0.20841 ETH, CoinDesk still nets on average 0.1314 ETH or $344 in profit each month from staking operations.

New frontiers: An energy consumption comparison

Speaking of back-of-the-envelope calculations, Carl Beekhuizen also ran some numbers based on estimations of how much energy validators have been consuming on the Eth 2.0 Beacon Chain.

Of the 140,000 or so active validators on Eth 2.0, Beekhuizen assumed roughly 87,897 were average at-home stakers and 52,695 were professional stakers, such as exchanges or staking-as-a-service (SaaS) businesses.

To make the math simple, he made additional assumptions that for every 5.4 validators an average at-home staker runs, their infrastructure would consume at maximum 100 watts of electricity.

For a professional staker, the assumption was similar: 100 watts of electricity for every 5.5 validators run. This, according to Beekhuizen, is “a gross over-estimate” of how much professional staking operations actually save in electricity costs through economies of scale. However, for the purposes of this quick and dirty calculation, the savings on electricity for a professional staker would only be slightly more optimized than for an at-home staker.

Doing the math

I will go one step further in simplifying by making the electricity costs of the at-home staker and professional staker equal, since they’re not all that different in Beekhuizen’s calculations. Thus, with these assumptions in mind, you get a total amount of energy consumed by validators to secure the Eth 2.0 Beacon Chain of roughly 2.6 megawatts.

Back-of-the-envelope math inspired by Carl Beekhulszen’s original calculations (CoinDesk Research)

About the resulting total, Beekhuizen wrote:

“This is not on the scale of countries, provinces, or even cities, but that of a small town (around 2,100 American homes).”

He added that compared to the energy consumption of the Ethereum blockchain fueled by proof-of-work (PoW) mining, a PoS consensus protocol would ensure that Ethereum uses at least 99.95% less energy than it currently uses.

While these energy estimations are impressive and reinforce the core reason behind why Ethereum developers want to expedite the merge to Eth 2.0 as soon as possible, it’s not all sunshine and rainbows.

Where PoS falls short

In a separate blog post published on Sunday, May 23, founder of Ethereum Vitalik Buterin explained that PoS, like PoW, still struggles with the same fundamental issue of limited transaction throughput. Like Bitcoin, Ethereum – even with PoS and greater energy efficiency – cannot easily scale up for millions and billions of users without sacrificing core principles of network decentralization and security.

To Buterin, this is why coupling PoS with a technology known as sharding is so important.

“Sharding fundamentally gets around the above limitations, because it decouples the data contained on a blockchain from the data that a single node needs to process and store,” writes Buterin.

As background, nodes are the computers that verify blockchain data and propagate it to the rest of the network. The more nodes there are, the more resilient and easily verifiable a blockchain is.

Traditionally, a node connected to a PoW blockchain will contain a full account of all on-chain transactions and addresses. However, a node connected to a sharded blockchain will only keep records of a fraction of on-chain data. To get a snapshot of a blockchain’s full transaction history and on-chain addresses, a user would need access to data maintained by multiple different nodes as opposed to just one.

Putting it all together

This is why for a sharded blockchain there is a minimum number of nodes required to reach a certain scale of transaction throughput. For example, for a sharded blockchain to process 10,000 transactions per second (TPS), and assuming each node can only process 50 TPS, then the network needs at least 200 nodes to function properly.

A sharded blockchain enables blockchain capacity and transaction throughput to increase along with the number of nodes, such that scalability does not sacrifice network decentralization.

There are risks to a sharded network. What if several nodes suddenly go offline? What if the network grows so large that a full copy of transaction history is no longer maintained by anyone in the network?

These risks are unlikely, according to Buterin, at least until Ethereum begins to break past a million TPS. To put that number into context, Ethereum currently averages around 12 TPS.

There will always be limits to blockchain capacity but the work to expand it by significant amounts without sacrificing network decentralization is a value and goal that Ethereum developers are working to crack.

Validated takes

5 big takeaways from Day 1 at Consensus (Article, CoinDesk)

8 questions for Ethereum’s Andrew Keys (Article, CoinDesk)

Bitcoin and ether bounce back after disastrous week for crypto markets (Article, CoinDesk)

NFTs are the ‘art world’s napster’ says Christie’s auction house executive (Article, CoinDesk)

Important concepts for users and wallets when adding support for EIP 1559 (HackMD post, Trenton Van Epps)

The limits to blockchain scalability (Blog post, Vitalik Buterin)

Factoid of the week

Open comms

Reply any time and email christine.kim@coindesk.com with your thoughts, comments or queries about today’s newsletter. Between reads, chat with me on Twitter.

Valid Points incorporates information and data directly from CoinDesk’s own Ethereum 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is:

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb.

It’s the Right Time to Buy a Lot of Ethereum as Prices Plunge

It’s the Right Time to Buy a Lot of Ethereum as Prices Plunge