Ethereum: A Future With Layer 2 Protocols And Even Layer 3 And 4 Protocols

In recent months, DeFi users have overburdened the Ethereum network, resulting in a backlog of unprocessed transactions. As a result of this situation, decentralized applications and networks are threatened by network congestion and high transaction fees.

Is it Necessary to Have Low-cost and Fast Microtransactions for Decentralized Networks?

Payments in Mysterium, a decentralized VPN, are peer-to-peer. VPN customers pay exit node runners directly. Payments are not frozen by intermediaries. For example, a native token, MYST, can handle transactions as small as 0.0001 USD.

Peer-to-peer and second-by-second service consumption mean decentralized VPNs and other incentivized distributed networks rely on microtransactions to reduce risk within their network economies.

Earlier this year, Layer 2 solution was released on Testnet (based on payment channels). Users could use this feature to transact with one another autonomously, without the need for a third party (including us) or to interact with Layer 1 (the Ethereum blockchain). As a result, super cheap and instant transactions were introduced, with payments as low as $0.0001 permitted.

One of the challenges with payment channels, including our protocol, is the lack of specific on-chain transactions. This manifests itself in two ways for Mysterium Network: account creation and top-up.

A Review of Existing Alternatives

There are currently a number of existing alternatives.

Ethereum-Sidechain Connectivity

They are xDAI, Matic, and RSK (RSK creates bridges to Ethereum, meaning that it is possible to transfer Ethereum assets to this Bitcoin sidechain).

Their primary selling points are that they are scalable, capital-efficient, and provide quick withdrawal into Layer 1. The fact that validators control the network and can freeze and seize funds at their discretion is a significant disadvantage.

As a result, while side chains are unappealing to DeFi (which locks hundreds of millions of dollars), they are relevant to the Mysterium network, a decentralized VPN. DeFi differs from a dVPN in that it entails different risks.

The Plasma

To scale Ethereum, Plasma proposes using hierarchical sidechains. Most transactions can be carried out using sidechains (also known as child chains) outside of the Ethereum blockchain. Only deposits and withdrawals, as well as entry and exit points, are handled by the main blockchain smart contract.

A “state commitment” is used by operators to confirm the finality of transactions. This method encrypts sidechain data and stores it on the Ethereum blockchain. Due to the compressed state, Plasma users are having difficulty withdrawing tokens. Data must be downloaded and accessed via the internet.

Even though Plasma outperforms Ethereum in terms of speed and latency, its lack of near-zero latency and fee-free transactions renders it ineffective as a decentralized VPN micropayments system.

The most significant disadvantage of Plasma as a Layer 2 solution is that users can disconnect from the network at any time. This is referred to as “exiting.” As a result, even if validators shut down Plasma, users can withdraw their funds safely. Of course, it must be completed within a specific timeframe and by all parties.

The compatibility of Plasma with EVM is not perfect. As a result, if Ethereum updates its smart contracts, any decentralized applications built on Plasma may be rendered inoperable.

Roll-ups

During rollups, one mainchain contract holds all funds and a cryptographic commitment to the larger sidechain state, similar to Plasma. This state is maintained off-chain by users and operators, providing an independent storage layer.

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