Celo's transition signal to Ethereum L2 blockchain is a bigger transformation in the industry

Significant events occurred in the cryptocurrency space last week, but few fully understand their far-reaching impact. Celo announced that it will migrate from the standalone L1 blockchain to Ethereum’s L2 blockchain.

This seems to be just an ordinary technology migration, but it actually indicates that Ethereum is quietly driving a profound change that is rapidly reshaping our perception of cryptocurrencies. Let's dive into it:

1. The industry is beginning to pay attention to costs and benefits: We are going through a long period of overdue adjustment, and the crypto market is beginning to return to fundamentals. Narrative remains important, but people pay more attention to:

• What is the actual benefit of this chain?
• What is the operating cost?
• Where is the value accumulation?

Some new metrics, such as the revenue-to-market-cap ratio (REV), are working, revealing significant differences between seemingly similar blockchains. This may be why Celo chose to migrate to Ethereum L2.

2. L1 cannot continue to make profits, and L2 can: an often overlooked fact: L1 blockchain cannot make profits in a sustainable way. Why? Because all value is directly attributed to the verifier or miner. The fees charged by L1 are immediately allocated as block rewards or staking returns. There is no profit retaining, no surplus, and there is no funding for innovation or agreement development.

This leads to a strange phenomenon: L1 may be a highly valuable platform, but it operates like a public infrastructure, lacking endogenous mechanisms to support its own development.

By contrast, L2 can retain and redistribute the benefits. These proceeds can be used for R&D, developer funding, growth incentive activities, public goods funding, capture of maximum extractable value (MEV), and even custom block space fees. This is a model that enables long-term sustainability and maintains incentives.

This is why many emerging ecosystems prioritize building L2, which is not only about technical architecture, but also about economic design.

3. L1 is the mainframe in the Web3 era: a simple analogy: the L1 blockchain is like the mainframe in the cryptocurrency field.

In the early days of the Internet, to run large applications, you had to buy mainframes. You need to maintain the hardware, write the network protocol stack, and be responsible for all aspects of the system uptime, security, performance, etc. Powerful, but expensive.

Nowadays, running the L1 blockchain faces similar difficulties. You need your own consensus mechanism, validator set and token incentive mechanism to ensure network security. Millions of dollars are spent each year to keep the system running and safe.

Take Celo as an example. They spend 4% to 6% of the token issuance every year, about $15 million to $25 million, just to maintain basic security and normal operation of the system. This is not an isolated case, and Ethereum and Solana are also facing similar situations. Each independent L1 must bear these costs, the key is that this cost will not decrease as the scale expands. For a small L1, this cost can be overwhelming.

4. L2 is like a hosted server: powerful and more economical: Now, imagine you don't have to run a mainframe, but switch to a hosted server.

You can still control your environment, customize how the blockchain works, and maintain autonomy, but you don't have to take charge of the security of physical devices yourself, and that's L2 on Ethereum.

Celo, as L2, will continue to provide the same user experience. But now, Ethereum has shouldered the burden of security, such as fraud proof, consensus mechanism and underlying ending. The cost of maintaining the chain is greatly reduced.

These costs now include only state storage fees and data availability fees, rather than the $20 million annual security costs, and can be further reduced by data compression and the use of an alternative data availability layer (Celo chooses Celestia).

5. Ethereum’s strategic vision: It’s not just about Celo; it also means that Ethereum’s long-term strategy is finally beginning to work.

Ethereum no longer pursues the vision of "unifying the world". In every era of computing, whether it is Web1, Web2 or now Web3, the pattern of a single dominant chain has proven to be unworkable.

Instead, Ethereum is becoming a basic layer for building other blockchains, providing security, decentralization and interoperability services.

At first glance, this seems to be "self-rewarding", and Ethereum is reducing the "premium" of its L1 chain. But in fact, it... (The conclusion part is omitted here and needs to be added)

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