Article reprint source: Vernacular Blockchain

By David Hoffman

Compilation｜Baidu Blockchain

Between 2015 and 2017, Bitcoin experienced an internal conflict known as the “block size war.” It was a pivotal conflict in Bitcoin’s history, with both sides arguing over what they believed to be the correct strategy for scaling the Bitcoin network to ensure it could meet growing demand over time.

The two factions in this debate are called big blockers and small blockers.

Big block supporters advocate increasing the original size of Bitcoin blocks from 1MB to 8MB. This will increase the throughput of Bitcoin transactions by 8 times while reducing transaction costs.

Small blockers advocated for keeping the block size unchanged, arguing that increasing the block size would jeopardize Bitcoin's decentralization because it would make the Bitcoin blockchain more difficult for ordinary users to operate and verify. Small blockers ultimately proposed an alternative path called Segregated Witness (SegWit), which would optimize the number of transactions that can fit in a block rather than directly increasing the block size. Segregated Witness would also open the door to scaling solutions outside the core Bitcoin protocol, known as Layer 2 scaling.

To better support these arguments, small block proponents hope to expand in two ways:

-Increase block density so more transactions can fit in the same space

- Opens the door to layer-level scaling strategies, creating space for functional off-chain scaling solutions

So here’s the debate: should we increase the block size, or keep it limited and force scaling to higher tiers?

01. Modern big block faction and small block faction

The block size debate has echoed through the halls of crypto history and still lingers today.

We no longer call these factions big or small, and people now prefer to find more modern factions to identify with, usually defined by a specific Layer 1. Nonetheless, the different philosophical views expressed by these two camps exist within the culture and belief system of each Layer 1 faction, whether they realize it or not.

In modern times, the small blocker vs. big blocker debate continues in the Ethereum vs. Solana debate.

The Solana camp said that Ethereum is too expensive and too slow to allow global users to use the chain. Unless transactions become instant and free, consumers will not use crypto assets, so we need to design as much capacity as possible into Layer 1.

The Ethereum camp believes that this is a fundamental compromise of decentralization and credible neutrality, will produce a fixed set of winners and losers, and ultimately produce the traditional social financial stratification we are trying to get rid of. Instead, we should focus on increasing the density and value of Layer1 blocks and force expansion to Layer2.

This debate is not new. The cryptoasset landscape changes, adapts, and evolves, but the debate over small blocks vs. big blocks philosophy remains.

1) Precision blocks and original blocks

Ethereum's big innovation from 0 to 1 was the addition of a virtual machine (EVM) inside the blockchain. All chains before Ethereum lacked this key element and instead tried to add functionality as separate opcodes rather than a fully expressive virtual machine.

Early Bitcoiners philosophically disapproved of this option because it increased the complexity and attack surface of the system and increased the difficulty of block verification.

While both Bitcoin and Ethereum are “small block” philosophy chains, the increased scope of the virtual machine still created a huge divide between the two communities. Fast forward to today, and you can see clear correlations between some of the biggest factions in modern blockchain philosophy.

"Block size" contains two variables: the size of the block and the number of blocks per unit time. In fact, "block size" is "throughput" or "data per second".

While this view may stick around in 2024, I think these four Layer 1 blockchains take four different types of valid logical conclusions in the Layer 1 architecture:

- Bitcoin's Layer 1 design is super restrictive, and all possible measures have been taken to limit the capabilities of Layer 1.

- Ethereum is sufficiently restricted at the Layer 1 level, but by increasing Layer 1 capabilities, it creates space for unlimited block supply at the Layer 2 level.

- Celestia limits the capabilities of its Layer1 but maximizes its capacity, forcing more features to be pushed to Layer2 but providing them with maximum build space (hence the “build anything” slogan).

- Solana is ultra-unrestricted, maximizing the capacity and functionality of Layer 1 while limiting the ability to build higher layers.

2) Functional escape velocity

My crypto asset investment thesis is that the blockchain that incorporates both small-block and big-block philosophies into its design will ultimately win the crypto throne.

Both the small blockers and the big blockers are right. They both have valid points. There is no point in arguing about who is right or wrong. The key is to build a system that maximizes the advantages of both.

As a structure, Bitcoin cannot accommodate both small blockers and large blockers at the same time. Bitcoin small blockers claim that expansion will happen in Layer2, and guide large block supporters to the Lightning Network, telling them that they can still enjoy Bitcoin in the Bitcoin system. However, due to the functional limitations of Bitcoin Layer1, the Lightning Network cannot gain sufficient development, and large block supporters have no other choice.

In 2019, Ethereum founder Vitalik Buterin published an article titled "Base Layer and Functional Escape Velocity" which clarified these situations and advocated for minimally increasing the functionality of Layer1 so that a functional Layer2 could be produced.

“While Layer 1 cannot be too powerful, because greater power means greater complexity and therefore greater vulnerability, Layer 1 must also be strong enough so that Layer 2 protocols can actually be built on top of it.”

“Keep Layer 1 simple and make up for it in Layer 2” is not a universal answer to the problem of blockchain scalability and functionality, because it fails to take into account that the Layer 1 blockchain itself must be scalable and functional enough to make this act of “building on top” actually possible.”

My summary:

We need to expand the scope of Layer 1 blocks, rather than just pursuing small blockism, to ensure that Layer 2 can reach "functional escape velocity". We need more complex block designs.

However, we should not expand the scope of Layer 1 blocks beyond the point of achieving "Layer 2 functional escape velocity" because this will unnecessarily compromise the decentralization and trusted neutrality of Layer 1. Any additional Layer 1 functionality can be pushed to Layer 2. We should stick to the small block philosophy.

This represents a compromise between the two parties. Small blockers must accept that their blocks become (slightly) harder to verify, while large blockers must accept a layered approach to scaling.

Once this compromise is reached, synergy will emerge.

02. Typical Cases

1) Ethereum Layer 1 - The foundation of trust

Ethereum is a trust foundation. Ethereum Layer 1 maintains its small block philosophy by leveraging advances in cryptography to achieve functional escape velocity at higher layers. By accepting fraud proofs and validity proofs from higher layers, Ethereum can effectively compress nearly unlimited transactions into easily verifiable bundles that are then verified by a decentralized network of consumer hardware.

This design architecture preserves the crypto industry’s fundamental commitment to society. Ordinary validators can check the power of experts and elites, and everyone has equal access to the system, no privileged parties, and no sacred status.

The crypto industry made a philosophical promise, and Ethereum turned that philosophy into reality through cryptographic research and traditional engineering techniques.

Imagine that there are small blocks at the bottom and large blocks at the top, that is, decentralized, trusted neutral, and verifiable consumer blocks on Layer 1, and highly scalable, instant, and cheap transactions on Layer 2!

Rather than viewing small blocks and large blocks as a horizontal continuum of tradeoffs, Ethereum flips the continuum vertically and builds a large block structure on top of secure, decentralized small blocks.

Ethereum is a small block anchor in a big block world.

Ethereum allows 1000s of large block networks to blossom and generate synergies from a consistent and composable ecosystem, in contrast to the fragmentation of many Layer 1s.

2) Cosmos: The Lost Tribe

OK, but where does Cosmos fit into this argument? Cosmos doesn’t strictly follow any alignment with the network design. After all, there is no “Cosmos” network, Cosmos is just an idea.

The idea is a network of interconnected sovereign chains, each with maximum, uncompromising sovereignty, that are united to a certain extent and abstracted from their own complexity to a certain extent through shared technical standards.

Translation: Cosmos is more than just technology or an ecosystem, it represents a choice: the choice to build an independent application that interoperates with other applications. The more independent your Layer2 is, the more it reflects the choice to become a Cosmos application.

The problem with Cosmos is that it insists too much on sovereignty, so that the Cosmos chains cannot coordinate and build themselves well enough to share each other's successes. Over-emphasis on sovereignty will bring too much chaos to the development of Cosmos. The great pursuit of sovereignty inadvertently optimizes anarchy. Due to the lack of a central coordination structure, the ideas of Cosmos have always remained in the niche.

03. Synergy

Similar to Vitalik’s concept of “functionality escape velocity,” I believe there is a phenomenon of “sovereignty escape velocity.” In order for the Cosmos idea to truly take root and thrive, it will require some minor compromises in network sovereignty to maximize its potential.

The Cosmos philosophy and Ethereum Layer 2 vision are essentially the same thing. It is a horizontal landscape consisting of independent, sovereign chains that have the power to choose their own destiny.

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The core difference is that Ethereum Layer2 sacrifices some of its sovereignty and publishes its state to their Layer1 bridge contract. This small change turns the previous internal operation into an external operation by selecting a centralized Layer1 for local bridge settlement.

By extending the security and settlement guarantees of Layer 1 through cryptographic proofs, the infinite Layer 2 developed from the Ethereum foundation becomes a substantially identical global settlement network. This is where the extraordinary synergy between the small block and large block philosophies emerges.

1) Synergy 1: Chain Security

Layer2 chains do not have to pay for their own economic security, thereby eliminating most of the network inflation of the underlying assets, retaining 3-7% of the annual inflation rate within the value of the respective tokens.

Take Optimism as an example: Based on its $14 billion FDV (Fully Diluted Valuation, which refers to the consideration of all issued tokens of a crypto project, including currently circulating tokens and tokens that have not yet been released, to determine the total market value of the project. Formula: FDV = current price of circulating tokens × total number of issued tokens), assuming an annual security budget of 5%, this actually means that $700 million is not paid to third-party external security providers each year. In fact, Optimism Mainnet paid $57 million in gas fees to Ethereum Layer1 in the past year, which was measured before the advent of EIP-4844, which reduced Layer2 fees by more than 95%!

The cost of economic security drops to zero, leaving only DA as the only meaningful ongoing operating cost of the Layer 2 network. Since the DA cost is also close to zero, the net cost of Layer 2 is also close to zero.

By creating sustainability for Layer 2 chains, Ethereum can unlock all the chains that the market demands, creating more total chain sovereignty than the Cosmos model could generate.

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2) Synergy 2: Composability

Layer2 customer acquisition costs also become marginal, as cryptographic proof settlement to Layer1 provides a trusted connection between all Layer2s. By retaining Layer1 settlement guarantees, users can shuttle between Layer2s without having to "test" every chain they touch. Naturally, users will not engage in such activities, but service providers that provide chain abstraction services (bridges, intent fillers, shared sequencers, etc.) can provide more powerful services if they have uncompromising security guarantees on the foundation on which they are building their business.

In addition, as many Layer2 chains come online, each Layer2 will attract its own edge users into the larger Ethereum ecosystem, creating a clustering effect. Since all Layer2s add their users to the "heap", as the network grows, the total amount of Ethereum users becomes larger, making it easier for edge Layer2 chains to find enough users.

Translation: Ethereum is criticized for its fragmentation, but it is actually a network composed of combined chains. "Many L1s" are the real fragmentation.

Ethereum has been criticized for being "split", which is actually ironic because it is the opposite of the reality. Ethereum is the only network that connects other sovereign chains together through cryptographic proof. In contrast, many Layer1 spaces are completely and thoroughly split, while Ethereum's Layer2 space is only split due to delays.

3) Synergy 3: Accounting Unit

All of these benefits focus on the consensus point of ETH as an asset. The more network effects there are around the Ethereum ecosystem, the stronger the boost to ETH will be.

ETH becomes the unit of account for all its Layer 2 networks, as each Layer 2 network creates economies of scale by centralizing security into Ethereum Layer 1.

Simply put, the continued growth of Ethereum’s distributed settlement network makes ETH a currency.

04. Conclusion

The Ethereum project is pursuing a unified architecture that covers the broadest possible range of use cases. This is a network that can do it all.

Small but powerful Layer 1s combined together are the foundation needed to open up the widest design space in Layer 2. Early Bitcoin supporters often said: "If it works, it will eventually be built on Bitcoin." I completely believe in this concept, it's just that I think Ethereum is the more optimized network because this is what Ethereum has been optimizing for.

Maintaining the values ​​of the cryptocurrency industry happens at Layer 1.

Decentralization, censorship resistance, permissionlessness, and trusted neutrality. If these can be maintained on L1, then they can be functionally extended across an unlimited number of L2s that are cryptographically bound to Layer1.

In the battle for the throne of cryptocurrency, the core investment thesis for Ethereum is that any other Layer 1 can either be better built as a Layer 2 or integrated into it as a feature of an L1.

Do you want light-speed consensus? It will be faster as Layer 2.

Do you want a completely private blockchain? It would be more effective as a Layer 2.

DA as a blockchain? Why not just establish it on Layer 1?

Eventually, everything will become a branch on the Ethereum tree.