In the blockchain landscape, cheaper, faster and more efficient “layer 2” solutions–such as Arbitrum, Optimism and Coinbase’s Base–are emerging as attractive alternatives to the frequently-overburdened Ethereum network. These networks bundle transactions for recording on Ethereum, prompting discussions about their reliance on a significant piece of infrastructure known as the “sequencer.”
As an air traffic controller of its specific ecosystem, the sequencer decides transaction sequence waiting line. This system draws criticism in particular since top contenders like Base and Arbitrum employ “centralized” sequencers, often run by a single custodial entity. This centralized nature introduces potential bottlenecks and invites regulatory scrutiny.
Space, for example, operates its sequencer which is projected to create approximately $30 million of net revenue. While “decentralizing” seems a logical approach, Ethereum’s layer 2 change latest proposals haven’t fully embraced it yet, inviting scepticism and unease about a single company having a monopolistic power over pivotal aspects of a chain.
While these concerns have merit, many experts suggest there are more substantial risks to layer 2 decentralization and security. When a user submits a transaction on Base, a sequencer node collects it into a compressed “batch” of transactions which are then cemented into Ethereum’s ledger.
Today, Coinbase is the only sequencer on Base, it is solely responsible for handling transactions. Batch processing technology for multiple parties already exists but implementing it at large scale often slows down or compromises security. The revenues generated from running the sequencer could disincentivize decentralization, adding a potential extra profiting avenue by strategically ordering transactions.
Binance emphasizes the same risks in a recent report, showing how control over transaction ordering could potentially harm users economically. In the absence of a “fallback mechanism”, funds could be lost if transactions go wrong. As centralized sequencers are likely to persist for now, these issues are unlikely to vanish in near future.
The popular Optimism rollup used by Coinbase lacks fraud proofs. Fraud proofs are the primary tool by which rollup networks like Optimism and Base are supposed to connect to Ethereum’s security, offering Ethereum’s validators that an L2 network is functioning as intended.
“Above decentralized sequencers, it is essential to implement fraud proofs and have an escape hatch mechanism,” says Anurag Arjun, founder of the blockchain Avail. Without fraud proofs, Optimism and Base and other similar networks are essentially asking users to rely on their own security protocols rather than Ethereum’s.
The future of blockchain, particularly Ethereum, hinges on effective decentralization strategies, security and fraud prevention. As users increasingly rely on these technologies, the networks behind them must strive to ensure the utmost security, even at the cost of short-term profits.
Source: Coindesk
