Why the Pectra Upgrade is a Game Changer for Ethereum and its Layer 2s! with Preston Van Loon

off with your background. Where are you from and what's your professional background?

lot of people are excited about it. I want to help scale this and get it to a place that really fulfills the vision of a world computer or decentralized, unstoppable application platform. So started looking at that in twenty seventeen, and at the end of the year I decided I wanted to work on that, kind of like moonlighting. I linked up with some folks online, namely Rood Jordan and

Terrence Soal. We started a group called Prismatic Labs and we started just building sharding for Ethereum and then proof of steake.

two working at Google to Web three? Did you have to learn new coding languages or was it kind of a natural progression.

would say, we get to learn new languages. I was really excited about the Go programming language, and when I got hired at Google, I expressed interest and I said I want to work on this language, and they kind of laughed and said, well, your background is in Java, so here's another Java job. And I didn't particularly enjoying that. I did like the challenges of working at a scale and impact like Google, but not so much the actual

programming aspects. So it was mostly a mix between like a personal interest to have a positive impact on Ethereum and an opportunity to learn something new. I would say that when we for most of us that started the Prison project, this was our first Go project we'd ever worked on. It would make it to production, and that was the interest of like, oh, I want to learn this kind of cool, shiny tech and work on Ethereum, and really really enjoyed it ever since then.

perspective on this. When do you see blockchain and web three with micro payments and tokens disrupting that publisher and advertiser model the way it's set up right now where Google is the middleman, right, but eventually maybe kind of like what the Brave browser and the Bad token are doing that we have that moment.

these are the kind of things. So Google has invested a lot a lot of energy and time into fraud and scal detection, and then they have a really really complicated auction process that's kind of like their secret source of ads. Even working in ads, they had no access to it, so I don't know exactly how it works, but you can imagine that's a really really hard problem to solve. So with that said, there are a lot of really innovative and cool techniques that are coming through

in blockchain. I imagine that there's some kind of zero knowledge proof stuff you could do where you could have some assured assurance that the code that's going to run is does what it says it's going to do, and maybe it's like verifiable and like you can only do one thing, which is like to serve the ad and through there it's a race to the bottom on fees. Right of in terms of middleman, you have some kind of infrastructure

aspect which can probably be solved by a blockchain. You know, there's like even maybe ethereum blob space would be interesting for this because ads are typically ephemeral anyway, you run a campaign for a couple of months maybe so you can post your data there and maybe that's served by websites. There's a proof that the code does exactly what we're supposed to do, and then the platform fees would be super small. Like that's the great part about blockchain is

it's a risk to the bottom on fees. And another thing would be the payments coming through very quickly with Google. I think the publishers are paid out maybe monthly, and if there's any problem with your account, they can stop payment. I remember there was a class action, a lawsuit for publishers they had flagged as malicious maybe or whatever the reason was, they canceled your account. If you had any pending payments, like payments you had legitimately earned, they would

not pay them. They just stopped. They said, you've we don't approve your activity. We're canceling everything your account. Any pinning payments you have didn't come through. Google lost that lawsuit, but that wouldn't have been a thing on a blockchain platform. It would have been streaming like by the by the block basically. So there's definitely a better world out there

for advertising. I'm really interested in seeing how that goes, because as much as people dislike ads, you know, there's some when when when you do get that one once in a lifetime, I guess AD that appeals to you, it's like, okay, cool, like I found something I was looking for. Or maybe with the innovations in Aire or some like promoted things, but they're more applicable to you. So I'm optimistic about that we can have an impact.

more actors than just the advertiser and the publisher. There is you do have some things in between that are worth paying for, and that's I think would be a good use case.

you can force the transaction to go through. So it's it's a trade off that's made in centralization, but you still have the same security guarantees as may net. The sequencer can't steal your money, they can't print money, they can't censor you, they can't stop you from doing what you want to do. You're still able to do everything, So With that model in mind, we're able to create a blockchain that goes fast. It goes I think two hundred and fifty millis second block time strikes super super fast,

and with that you see a ton of activity. Fees are cheaper for users. Users like this, they get faster confirmations. That's appealing if you think about how are we going to make this a real world thing and actually use it in the real world, like maybe example being you're at the grocery store and paying for your groceries. If you are on Bitcoin, you don't want to wait ten minutes for a block to come through. And Etherium likewise,

it is twelve seconds when you swipe your card. If you're paid by a card at the kiosk, it's like a three second thing. So it needs to be better than that. And Arbatrom's saying, look, we can do it in two hundred and fifty milliseconds, go super fast, and there are basically no trade offs made in terms from the end user. You still have all of the principles that you care about as an asiriend user.

of Etherorem. I think there's a I've heard somebody phrase it the roll up race or something like that. What do you think happens over time as etherorem layer one becomes better. We we'll talk about the Petra upgrade, and then there has to be some sort of consolidation of the L two's.

But the vision that I see is not necessarily consolidation saying like some app chains or l twos are irrelevant, so we'll merge them together. Rather, I think the L twos are going to look as one homogeneous layer. So when the big thing that Ethereum is working on is interoperability. So when you have this homogeneous interoperability, it feels like

one layer. Like maybe it's slightly slower in terms of instead of two hundred and fifty milliseconds to do some complex, complex multichain transaction, it takes one second depending on the slowest link in the chain there. But from a user perspective, you would be able to express I want to borrow an NFT from this chain and then deposit it into a vault in another chain. And I want to buy tokens over here and put them over here, or create a new app or play a game and use funds

from another chain. It's all going to feel like one big thing you're just going to understand, like am I on L one or am I in the L two space? And with that in mind, I think of it as like a nation of cities with highways in between. And before we had this in the US, before we had this infrastructure of interstate highways, every city would thrive kind of on its own, but when they were connected, that's when the real innovation, or not innovation, that's when the

economy like really took off. Like we're able to freely trade with other cities. That's going to be really huge. So I'm super bullish on the idea that we'll have a strong L one with this interconnected layer of L twos, like there will be hundreds or thousands. I think every major institution's going to win have one, and they're going to be able to realize the benefits of blockchain while

also defining their own parameters. For a while, I think at twenty eighteen or nineteen, there was a big excitement around like enterprise blockchain, right where you can have this consortium of institutions that would run their own blockchain so that they can interact with each other with trust minimization. I think those things will be done now on L two's where they're saying we can have our own rules while still benefiting from the L one security and with

the techniques of zero knowledge. They can do this all in public without revealing any information about what's happening in that blockchain, because that's another aspect that people say, well, block chains are completely transparent in public. That's not always a good use case for certain users, but there will be solutions for them too. So I mean, it's it's going to take over the world in every aspect of financial applications.

So they can do that and define the rules and still say to users, you know, your property is your property and you can take that and it's a top of application as Ethereum l too.

way you wish. So having the concept of gas or like a payment for gas may not work for Apple, but they can enable you to do that through L two's you know, they have dependency on L one, so you're able to like force a transaction through whatever it may be. But when you're actually transacting within the Apple space, you may don't have to you know, have like ETHER for gas or UCC for gas or whatever it may be.

it help Etherrem to achieve.

in block production and at the stations. And then we have some improvements to scaling that come through as like a side effect of those of those features. So I want to like dive into a little bit of each of those things. Let's start with account obstruction, I think is the most interesting. So what we have in Pector we have this EAP called seven seven oh two, and this allows normal user accounts, which we refer to as eas or externally owned accounts. This is a distinction between

a user and a smart contract. So the EOA being a user, they don't have the ability to run I guess like complex transactions in the sense that a smart contract could. So one example being there's this really annoying ux where when you have an ARC twenty, a normal token that you have to approve a contract like UNISWAP to move it on your behalf. So when you wanted to trade it, you actually had to approve the router to take the funds and do all this, and that's

a two step process. You have to make the approval and then make the transaction. Now, with this improvement in seven seven O two, the IP seven SEO two, you can deploy a piece of code to your account that's that are just for that one transaction and then removed,

and that piece of code can do multiple things. So you could say I'm deployed to my account and then execute this the instructions are approved, the transaction, make the trade on UNI swap buying ETH at this specific price with this slippage, and then at the end, if it all succeeds, then you remove the code afterwards, and then the activity I wanted to do works, And there are a lot of possibilities you can do with that. That's like the I think the most frustrating experience I've had

on Ethereum was this approval process. But there are other things you can do, like allowing sponsored transactions. So maybe there's an app that wants to say we're onboarding users and for the first like six months, we're going to be paying for the gas for everybody. The way they can do that is you create an account with them to deploy the code, and you can make all of your transactions off chain, and that the app will submit the transactions on your behalf. They can mutate your account

just with the permissions you gave them. They'll pay the guests and that's revocable at any time, and you reclaim your account at any time, and you've set the parameters so you can only do what they say. That's the beauty of bark chain is it's verifiable to only do

what the code says. And the pector's been out in like two weeks and I think there are already dozens while it's to support this type of behavior, I actually didn't expect it to be that quick, but we're seeing that innovations in ux already, so that's super, super exciting. Other things in Pectra that came along were on the

validator experience side. One thing that was a trade off we made for simplicity with Ethereum was you said, if you want to be a validator, you need thirty two EAS to do that, and your validator account thirty two ETH is also the maximum you can have, So the earnings you make the interest you make is not compounding. Right, If I earned one ETH this year, I have thirty three eighth, Well, only the first thirty two ETH was available. Balance for my validator to have weight to produce blocks

or at testations. That was kind of a blemish. I think that could be easily improved. And what we did was we said, let's increase the maximum effective balance from thirty two to twenty forty eight, and we added the feature where you can consolidate your validators, so instead of running dozens of small validators, you can consolidate them into

into smaller fat validators. Where the benefit is that you have now compounding interest, which is definitely appealing, and your validator is having to send less messages because that one validator now has the way of mini and so it's one message has a more profound impact on deciding the head of the chain. So validators are voting on what is the head of the chain. So why is that important?

The important part about this is less networking traffic. And when you have less networking traffic, it means you have capacity for more networking traffic. So it's a scaling opportunity of saying, if we get a lot of folks consolidating, which I think people are slowly consolidating, that will have less messages flying over the network, meaning we'll have more

capacity for messages, so that's interesting. We also on the scaling side, we have a data availability layer, so where L two's and other users can post arbitrary data as a thing called blobs. And what Ethereum did with blobs, or the way blobs work, is they have a fee market, just like normal transactions have guest fees. When the chain is having a lot of activity, the fees go up. Blobs have their own fee market, their own fee space, and we said it's a dynamic it's the same dynamic

fees where we're sort of targeting and equilibrium. We want to have three blobs in every block. When there are less than three blobs, the gas price can come down, and when there are more than three blobs, the gas price can come up. And each block can have a maximum of six. What we did in Pector we said, we said, let's set the target to six, so effectively double the average number of blocks we will have and set the maximum to nine just so that we're not

getting blocks that are too big. And with that we've effectively doubled the capacity that the Ethereum blockchain is having for blobs. This lets more L twos come on board, or L twos to go faster and post more data without increasing the costs for their users or the costs for others.

don't know if I'm thinking about it correctly. Sure that this is the major upgrade for this cycle. Can there be future upgrades that make things even more efficient? Or this might be it for a while.

forty eight. It's a huge, huge improvement, a huge capacity increase. And maybe misremembering that it's either the target or the maximum, but we'll have as many as forty eight bobs per block through innovations in Pierdas. That's really exciting. And the fork following that is at least a year away. Let's say, like Fusaka is able to get out this year, we might be able to get the next fork Lamsterdam in

twenty twenty six. That feels a little optimistic, but these things are working in parallel, so while we're while we're wrapping up the next fork, we're already starting on the fork after that. So I don't want to undersell the capabilities of Cordex. When they're when they want to get it done, they'll get it done. So that's very very likely that we'll see two forks in the next two years, and depending on your definition of a cycle, it could

be within the cycle. But the exciting innovations in the Clansdam are scaling the l one, increasing the throughput of l one chain, continuing to scale blobs and work on user experience in that order.

in the transaction speeds. Give us the maybe the elevator pitch on that is it the decentralization and the security that's the top of priority for them versus Okay, maybe the fees are a little bit high, but we know eventually Theorem is going to address some of these with these upgrades.

It's really really reliable tech. It has a lot of insurance I would say, kind of like insurance policy in terms of tech, where we have things like client diversities. So not only is there a single implementation of Ethereum software, there are multiple There are like a dozen in different implementations and with that in mind. It says, if there's a bug in any one of those, you can quickly switch over to another implementation that may not have that bug,

and you stay online all the time. That makes it really appealing for institutions that every second they're offline there let's say like hemorrhaging reputation or value of some kind, and they really can't afford to take that risk. Ethereum is the safe bet. It also has prioritized decentralization as an aspect that it will not compromise on. We can make a lot of trade offs to go fast, but when it's a trade off that comes a decentralization, Ethereum

doesn't want to make that trade off. They want to say we can go fast and maintain this high bar of saying we want to be the most decentralized blockchain out there. We want to everyone to be able to run the blockchain, and for those with the reasonable amount of funding can can be a block producer. You don't have to be a consortium of miners like a mining pool to mine a bitcoin block. You need like a ton of equipment. Like it's it's not it's not something

an average person can do, where an Ethereum. They say, if you have consumer grade laptop, you can run a validator. You don't need this expensive capital expenditure there. And so for for institutions like Blackrock, I think they see this as a really appealing idea and with the flexibility to say they can make their own rules in the L two space, they have specific requirements. Yes, maybe, I'm sure they do believe in this cyberpunk blockchain vision of like

there are no rules, you do whatever you want. But at this but at the same time, there are laws where people are and they have things like KYC they have to do and they have to have have accredited investors. And while that's like kind of frustrating for the cyberpunk vision, they that this is progress towards getting to that vision.

So they may need to say we can only let people certain verified users onto URL two, or they may have say, like there are some things that are permissioned, but that's a flexibility they really want and they can. You know, just like I mentioned earlier where we had this idea of private enterprise blockchains that are in public, that's the vision that's coming forward and Ethereum really is the best place to do that. It has the security that we need, the uptime, the data availability, and fees

are reasonable. Right now, it's a good time to launch in ethereum because things are scaling, gas fees are low. People who have been around for a while, remember it costs like one thousand dollars to deploy a contract at one point because gas fees were outrageous and to do like a basic transaction was like ten dollars or something. So now we're in a space where even l one is pennies. You know, it's it's incredible, So it's a really good time to choose that they're in.

is more on the enterprise level. You have the L twos which can service retail consumer markets, but then you know you have like Solana and some of these other folks Cardano and so forth, they're not really servicing enterprises like etherorem So are there swim lanes more on the retail? You know, we saw a ton of mean coins on Solana, but do you see that way or you know, are you guys going for everything?

they connect to centralized providers. It's hard to be a validator without having some sponsorship where you need a large amount of tokens delegated to you to actually be profitable.

And Ethereum says we've got a strong L one and we're going to invest heavily in L two's supporting L two's and they've established that, and now they're returning back to the I mean, the roadmap hasn't really changed, but they're returning back to saying we are still prioritizing L one and putting the message out there that the L

one is first again. So that's really really appealing. Think you when you look at distributed systems, there is no distributed system that says will have one really big fast computer. That's just that's not how it works. You say, instead of having one really big fast computer, you have many, many less fast computers, like not supercomputers, and then the collective computing power is greater than a single big, big computer.

It's it's called horizontal scaling. So instead of having like adding more round, you just add another computer and they talk to each other. And so that's the vision that I see for all blockchains. I think even high capacity l ones are going to reach some point. You're going to reach a throughput capacity that you cannot just the limitations of physics will not allow you to go any farther,

and you'll have to horizontally scale. That's true if you want to onboard the entire everybody on Earth, right, that's like the scale, the highest scale you can imagine, you're going to have the horizontally scale. You just can't have one thing. And so Ethereum is saying will be the root of trust, the root of security of everything, and everything will orbit around Ethereum as like a universe of ethereum or a like a solar system of planets, but it's more like a galaxy. I guess where Ethereum is

the center of the galaxy. You have all these spaces you can go and they're all interconnected through interoperability. Some of them build on top of each other. You have l ones, L twos, L threes and so on. Like they you can deploy an L two on an L two and so on in a recursive, recursive fashion. So there's a lot of possibilities with that, and I think that all of that surfacing down to ethereum is a really strong use case for it.

seem useless. But the way you're explaining it, I it's kind of like click for me, like a Aha moment that if you're trying to scale for servicing enterprises globally and talking about a lot of transactions, a lot of companies and so forth, you need a lot of these L twos and they're not necessarily cannibalizing each other because there's only so much each of them can do in a sense, and people in different parts of the world, different industries may choose different L twos and choosing you know,

eth as that security.

an L two what youth cases are you targeting? You know, what can people do on Arbitram and you know what's been on your road map?

We have the same vision and what I see Arbitram doing is they are investing heavily in to DeFi so decentralized finance as we see a lot of innovation there. There are some really really exciting platforms that are launching on Arbitrum. You can see through the net inflows of value into Arbitram is consistently, at least at the time recording this week has been very, very high. I think that's really strong for Arbitram. There's a lot of use there.

They have some of the best people building this tech. So in Arbitram we have innovations like stylists and what stylist is or stylist says says you can deploy smart contracts that are written in other languages than Solidity and can run in a more performance environment alongside the EVM. So, more specifically, in nerds speak, it means if you write in a language like Rust, you can compile it to webs or WAM and that can run in a WAIM interpreter,

which is orders and magnitude cheaper than the EVM. So you can do some complex computation, like maybe you're launching an NFT and you want all of the attributes to be randomly generated on chain. Nobody knows what they are until it launches. That computation maybe is expensive for an EVM operation, but if you did it and the was them interpreter. It's fast and cheap. That's a really exciting innovation that only Arbitram is doing right now. Then they're

tackling problems they see through. You see issues like transaction spam where because of the first and first out model of Arbitrum, it's kind of fair and you can't have MTV in a fair space. So what people are trying to do in terms of mvs are trying to background transactions and so you see a lot of after like a high value transaction comes through, maybe some whale bought a big token and they had a high slip badge.

Is they kind of like messed up the market with someone wants to come behind them and naturalize the market, kind of average it out, so we see a lot of spam. What Arbitram has done is come up with this idea called time Boost, and time boost is an express lane for those actors who are looking to backrun and they can pay a premium to the dow with dolls earning eth and they say that you have the rights for one minute that your transaction can be included

fifty milliseconds before anybody else. So you get the small, small priority for one minute, and that is revenue for the dow and that's amazing to see the doll earning even more revenue. That's great for Arbitrum and the doll. And then they have this technology that users can do to deploy their own L twos or their own ol threes. They have Arbitram Orbit and so we're seeing really cool

innovations in gaming. Arbitram investing heavily in gaming. There's some really cool apps on there, Like there's this proof of play team who's built this like pirate game. The name's not coming to me, but the company is called proof of Play and they run multiple I think they're L threes to settle on Arbitrum, or maybe they're their own

L twos. They don't recall, but they're doing some of the highest TPS transactions per second consistently when you go to the website roll up dot WTF or maybe it's roll ups. I don't recall, but there's a site that shows like the throughput of roll ups in real time, and it's really exciting to see that one of the highest performing chains is an Arbitram game. It's super cool.

one L two's how does an L three or even L four come into play.

you have these app chains like proof of Play. They're running their game, they're running really really fast, and their base fees are arbors based fees, which are lower than the L one. So the more layers you have, the more opportunities you have to compress and batch these transactions and reduce the cost. So if it costs fractions of a penny on Arbitrum, I think I sent a transaction the other day and it wasn't even one one hundred of a penny to do it. If that's what you're

paying for your bats transactions. You can run an L three and it's so cheap that you say, I'm just going to pay all the gas costs for my users because it's it's reasonable for me to do. You can't do that on an L one, it's too expensive. It's hard to do that on an L two, but on L three you can. You can easily do that. And that's why I like things like proof of play. They're doing a ton of transactions per second. Every move you make in the game is a transaction. And then they say, well,

there's no gas. I didn't pay any gas, I didn't have any revenue or any money on are on that chain, And when they go to post these transactions down to ARBITRM, it's very cheap. Maybe it's like ten dollars or something where if you did it on the L when it would be hundreds of dollars because you're batching transactions or buying blobs rather. But that's the real benefit of that

is you're doubling. Well, it's exponential, right, You're multiplying the gas savings you're getting by adding a layer on a layer two.

even cheaper and cheaper. But maybe you get to some point where it doesn't make sense anymore, Like I can't imagine a need for a layer six or seven, but maybe like let's take a big app like World of Warcraft. Let's say a World war Craft wants to launch on

Arbitrum and they want it to be an L three. Well, so they have L three where this is like their route of the game, where like all the account spaces but all of the realms are on a layer four, and within the realms there are dungeons, like if you've ever played that when you go into a dungeon with a party, that like kind of creates a new space

and that runs on its own. So maybe they're launching ephemeral L four L fives to do this particular activity and when it's done, it comes back to that chain, and when they log out of the realm, that comes back to the three. I mean, it may make sense in certain use cases, but to have that capability is really interesting. And I wonder if that's sparking something in your mind, because that's I haven't actually thought about it that way, but that sounds really appealing to me.

you can speak to this, but you know, I think the Web three gaming space is kind of waiting for its Farmville moment, you know, to have kind of that viral moment everyone wants to play this game. Oh it's Web three and you can earn NFTs and tokens or is it a traditional game like World of Warcraft or somebody GTA six or something like that that has to integrate this technology in it for us to have that tipping point moment if you want to call it that.

I think they're going to come back to it. I think the problem that they're having to solve is around traditional problems like intellectual property, like who owns that, kind of like the lawyer speak of things. From a tech aspect, it's ready, the tech is ready for that, it's ready for onboarding, and I imagine that folks are already building

prototypes and ideas. It will be really appealing to have this cross game patibility where I can take my Fortnite skins into another game maybe I'm playing counter Strike as a Fortnite character, Like that would be really interesting and that all player bases and ecosystems are benefiting. And if it's if it's really appealant users, I think it would be really profitable to these games. There are certainly ways

that things people are willing to pay for this. In fact, like we're seeing a lot of like launch pad platforms that are saying create your own token and part of the trading fees sponsor your project. And you could see a very similar thing with like they'll unlock the items and then if there's if they're sold on the markets that the developers are still realizing profits from that, so you can fund indie Maybe it starts with indie games.

I actually imagine that's probably what it is, because they're have more appetite for risk. And then when you see Triple A Game Studios adopting this idea, it's going to be really really big. And then when we see anybody do that idea that I mentioned, like well the Goorcraft where they launched their own L three and then they're they're having ephemeral blockchain spaceis for for users like that.

It's going to be on all ad that's like all on chain application of gaming, which we have not seen yet, and I think that's going to be really cool.

I got some wrap up questions there for you. First,

if you could create your own metaverse, what would the theme be?