One of the most important qualifications for a successful business today is scale. You can’t meet your customers or improve unit economics without it. Lack of scale impacts retention, usability, and adoption. The need for scale impacts more than just businesses though, Ethereum, the second largest crypto by market capitalization faces scaling challenges as well.
Ethereum, like other blockchains, is made possible with proof-of-work (PoW), and soon to be proof-of-stake (PoS). PoW confirms that transactions are valid. Ethereum has miners “competing” to solve math problems to confirm the proof of a transaction, hence PoW. They are rewarded with ETH after validating their work. While that works well if only a few people are using a blockchain, it doesn’t scale as millions try to transact. A large supply of transactions makes validation slow, and since demand is high, price for validation goes up. Validation for ETH is paid in gas. Gas is required to execute a contract or make a transaction.
If gas prices are too low for miners to process a transaction, they can decline to process it. That drives prices up as ETH holders look to transact. Unless the supply of validators continues to grow with demand, the price of gas rises with supply (as you can see in the chart above).
Enter Matter Labs. Matter Labs is a company that provides the Layer 2 solution zkSync. They’ve created a way to scale Ethereum with zero-knowledge-proofs. These proofs function as a way to get validation without reliance on miners to solve the complex math behind each transaction. It makes gas fees significantly lower by relying on algorithms and engineering instead of miners charging fees through what’s called a rollup.
Rollups reduce traffic on the Ethereum blockchain by putting the hard work onto secondary chains that keep track of all the data and information passed through transactions. It maintains the same security as Ethereum too, so there’s no loss of dependability.
While Matter Labs has raised a lot of money and isn't the only player in the space, they’re among the furthest along with their product supporting Ethereum developers in their engineering lift. It asks less of developers, which goes a very long way. To continue to scale, Ethereum needs rollups, and rollups need Ethereum’s supply/demand model to succeed. The crypto ecosystem isn’t zero-sum, so both parties can be critical to mainstream adoption. Andreessen Horowitz (a16z) led the most recent funding for Matter Labs, and they’re among the top VCs digging deep into crypto. That’s a fairly positive signal for ecosystem dependencies. If Matter Labs can help negate the need to pay hundreds of dollars in ETH to process a thousand dollar transaction, they’ll do well.
So what does all of that mean for scale? The more powerful the performance of rollups like Matter Labs’, the easier it is to transact on Ethereum. The easier it is to transact, the more transactions will occur. The more transactions that occur, the easier for widespread adoption and general use cases. What’s so amazing about crypto is that generally all of the early adopters are coordinating together to make this thing work. Traction is obvious at this point and showing no signs of slowing.