Ethereum Layer 2 Will Make Blockchain Gambling Mainstream
In view of the success and popularity of the Ethereum blockchain, scalability has been a primary focus for developers for some years now. The typical blockchain design requires each node in the network to process each transaction in parallel.
As a result, the capacity of the entire network to process transactions has been limited to that of a single node. The blockchain supports approximately 15 transactions per second and has periodically been overwhelmed by apps. With that in mind, there have been a slew of technologies identified as “Layer 2” which aim to solve this challenge. Layer 2 technologies make it possible for transactions to take place off the main chain thus addressing congestion issues.
They are created on top of the Ethereum main chain but do not require changes on the fundamental protocol. Rather, they function as smart contracts on the blockchain that interact with off-chain programs. By aggregating transactions on separate yet linked networks, they reduce the burden on the base blockchain.
In the gambling industry, FunFair was among the pioneers of this technology. It makes use of a proprietary technology known as Fate Channels to address latency issues for its users. Fate Channels are an iteration of a scaling solution known as State Channels being implemented on Ethereum.
Basically, Fate Channels make it possible for all transactions during a game session to take place off-chain. They thus take place instantaneously and without any gas fees. The user simply needs to escrow some amount of funds to open a Fate Channel. When they end the session, they collect the funds and the session is recorded on the main chain.
In short, Fate Channels allow for faster, lower-cost gaming than typical blockchain applications.
Current Ethereum Network Limitations Slow Down Casino Adoption
Blockchain technology and casinos have always been a great match, more so Ethereum, thanks to its smart contract functionality. However, casino adoption of Ethereum has been slow and it is easy to see why.
For starters, Ethereum is too clunky for the average user. It offers plenty more functions than Bitcoin. While this is certainly an advantage, it means that Ethereum is not the most user-friendly choice for non-technical users.
Moreover, setting up an Ethereum wallet and getting started on an Ethereum casino could involve a lot of friction. Using the ETH blockchain for gambling also requires different tokens. For instance, when playing on FunFair, you would need FUN tokens.
Using any other Ethereum casino would similarly require the native token of that specific network. Having to obtain a new token every time you want to use a network is a major pain that not every punter would willingly submit to.
Another reason for the slow casino adoption of Ethereum, despite its obvious benefits, is that gas costs are very high. At the start of 2020, the average transaction fee was 8 cents, increasing to a high of $14 by September 2020.
Layer 2 Solutions on the Rise
As mentioned at the onset, solutions based on Layer 2 focus primarily on throughput, relying on the mainchain for security. Just like FunFair’s Fate Channels, there are many iterations of the concept. Some include:
A scaling startup known as Optimism is working on a Layer 2 scaling solution based on a tool known as Optimistic Rollup. The team behind the project has built a full-feature Ethereum Virtual Machine (EVM) known as OVM.
Optimistic Rollup offers the potential for 100 to 2,000 TPS and courtesy of the OVM, facilitates turing-complete smart contracts on a Layer 2 sidechain. It is the only generalized Layer 2 solution. As such, it does not need any special functionality to support existing Layer 1 protocols.
StarkWare is yet another team working on a Layer 2 solution based on the StarkEx scalability engine.
STARKs is their alternative to SNARKs. They are a new type of zero-knowledge proofs that do not require a trusted setup. This makes them more secure than SNARKs as it removes the risk of initial collusion. They are also harder to break as they make fewer assumptions.
Built on ZK Rollup, zkSync is a Layer 2 scaling solution whereby all funds are held on the mainchain by a smart contract. On the other hand, computation and storage take place off-chain. As such, it seeks to offer the same security guarantee as the underlying mainchain.
At launch, zkSync was capable of processing over 200 TPS and would have the capacity to gradually scale up to 2,000 TPS. Transaction fees are expected to remain below $0.01 and can be paid using any ERC-20 token.
How Layer 2 Will Streamline the Gambling Landscape
With the release of these Layer 2 solutions, a whole world of possibilities will open up and change the gambling landscape. For instance, it will be possible to bet using stablecoins while enjoying all the benefits of cryptocurrency. These include matchless security, low transaction fees and privacy among other benefits.
Current limitations such as low speed and latency issues will be a thing of the past. With the capability to process thousands of transactions per second, the network will enable instantaneous deposits and payouts.
Essentially, there will be no obstacle whatsoever standing in the way of Ethereum gambling and the next stop will be mainstream adoption.
Currently, there are lots of Ethereum casinos and sportsbooks using Ethereum such as Sportx. However, very few are taking advantage of the benefits offered by Layer 2 scaling solutions. FunFair is a great example of the few that make use of Layer 2 scaling solutions, but it has its limitations. For instance, FunFair has an extensive KYC procedure that puts off some gamblers. Additionally, its services are restricted in many countries.
Just a Matter of Time
Indeed, with the launch of multiple Layer 2 solutions, the gambling industry will catch on. After all, it was among the earliest adopters of blockchain technology. And when it does, a new era in Ethereum gambling will have begun.
To avoid missing out, keep your eye on this space. Make sure to follow TheBitcoinStrip.com on Twitter and sign up for its newsletter. When the industry reaches that inevitable milestone, you will be first in line to enjoy the benefits of Ethereum gambling like never before.