Vitalik on Ethereum’s Essential Transformation: L2 Scaling, Wallet Security, and Privacy

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Ethereum is evolving from an experimental technology into a mature, user-ready stack capable of delivering open, global, and permissionless experiences to everyday users. To fulfill this promise, the ecosystem must undergo three fundamental and interconnected technical transformations—L2 scaling, smart contract wallets, and privacy protection—all progressing in parallel.

These shifts form a critical triangle of progress: Ethereum cannot succeed without all three. Each transformation challenges long-standing assumptions about how users interact with blockchains and demands deep coordination across protocols, applications, and infrastructure.

The Three Pillars of Ethereum’s Evolution

1. L2 Scaling: The Rollup-Centric Roadmap

For Ethereum to support mass adoption, transactions must be affordable and fast. On the base layer (L1), fees during peak usage can exceed $80 per transaction—a clear barrier to mainstream use.

The solution lies in rollups, which bundle thousands of transactions off-chain and post compressed proofs to Ethereum. This dramatically reduces costs and increases throughput.

As Vitalik Buterin emphasizes, everyone must migrate to rollups—not just power users or institutions, but every wallet, dApp, and service.

Users will no longer exist on a single chain. Instead, they’ll have assets and identities spread across multiple L2s:

👉 Discover how Ethereum’s scaling future unlocks seamless cross-chain experiences.

This fragmentation breaks the old mental model: "one user = one address." Instead, users will interact with dozens of chains—each with its own state, gas token, and security assumptions.

2. Wallet Security: The Shift to Smart Contract Wallets

Today, most wallets are Externally Owned Accounts (EOAs)—simple key-controlled accounts vulnerable to loss, theft, and phishing.

Smart contract wallets introduce programmable ownership and recovery mechanisms:

These features dramatically improve security and usability. But they also complicate the idea of a single static address.

Unlike EOAs, where the address is derived directly from a public key, smart contract wallets are deployed at runtime. While techniques like CREATE2 and ERC-2470 help standardize deployment, cross-chain address consistency remains fragile—especially on non-EVM-equivalent ZK-EVMs.

Moreover, upgradable logic means wallet addresses may persist even as underlying ownership changes—a powerful feature, but one that challenges traditional assumptions about identity and control.

3. Privacy: Protecting User Data On and Off Chain

Public ledgers expose every transaction, balance, and interaction. While transparency benefits auditing and trustlessness, it comes at a steep cost to privacy.

Without privacy:

This forces many to abandon decentralized systems in favor of centralized alternatives that at least obscure data.

True privacy requires more than obfuscation—it demands architectural change:

Projects like Tornado Cash offer partial solutions but lack internal transfers. Future systems will need privacy-preserving address schemes, where each transaction uses a unique, unlinkable address—similar to Monero or Zcash.

These systems rely on two keys:

Together, they form a richer “payment identifier” than a simple 20-byte address.

FAQ: Addressing Key User Questions

Q: Why can’t Ethereum just scale on Layer 1?
A: L1 is optimized for security and decentralization, not speed. Increasing block size or frequency would centralize node operation. Rollups preserve Ethereum’s security while moving computation off-chain.

Q: Won’t smart contract wallets increase gas costs?
A: Yes—initial deployment is more expensive than EOAs. However, innovations like ERC-4337 (account abstraction) allow paymasters to sponsor gas, enabling users to pay fees in any ERC-20 token—even if they hold zero ETH.

Q: How do I receive payments if I’m on multiple L2s?
A: You’ll share a unified payment identifier (e.g., an ENS name or wallet address) that routes funds across chains automatically. Wallets will handle cross-L2 bridging behind the scenes.

Q: Can privacy coexist with regulatory compliance?
A: Yes—privacy doesn’t mean anonymity. Selective disclosure allows users to prove specific facts (e.g., age, residency) without revealing full histories. Think “zero-knowledge KYC.”

Q: Will I need to manage dozens of passwords and keys?
A: No—modern wallets abstract complexity. Social recovery, biometrics, and MPC (multi-party computation) make key management seamless while preserving security.

Q: Is this future already being built?
A: Yes—projects like ENS, Safe, SoulWallet, and Scroll are actively implementing these ideas. The infrastructure is emerging rapidly.

Bridging the Gap: Cross-Layer Payments and Identity

Imagine you want to buy coffee using ETH on Scroll, but the merchant only accepts payments on Taiko.

How do you pay?

Two main solutions exist:

  1. Receiver-side aggregation: Merchants support multiple L2s and auto-bridge incoming funds.
  2. Sender-side routing: Your wallet detects the recipient’s preferred chain and routes funds via cross-L2 bridges.

The ideal system combines both: recipients list supported chains; senders’ wallets compute optimal paths using real-time liquidity and cost data.

But this requires more than just addresses—it requires metadata:

👉 Explore how next-gen wallets are redefining user control across chains.

This is where identity meets payments. A user’s “address” becomes a dynamic profile—not a static string.

Solving Key Recovery in a Multi-Chain World

In a world of multiple addresses per user, traditional recovery fails:

The solution? Separate verification logic from asset storage.

Enter the Key Vault Contract—a single, persistent smart contract (likely on L1 or a dedicated L2) that stores:

All other addresses across L2s point to this vault. Spending requires a proof that the spender controls the current key in the vault.

Proofs can be implemented via:

These proofs can be aggregated per block, minimizing overhead. For recovery, only one cross-chain transaction is needed—the rest follow automatically.

This architecture also enables persistent identifiers: instead of using volatile L2 addresses, users adopt their vault contract address as their primary identity.

Upgrading Core Infrastructure

Legacy systems must adapt:

ENS Must Go Multi-Layer

ENS is powerful—but registering domains on L1 is expensive during high congestion.

The fix? ERC-3668 (CCIP Read) + ENSIP-10, enabling ENS subdomains to resolve data stored on L2s.

When you look up alice.ecc.eth, your wallet fetches a cryptographic proof from an L2 and verifies it on-chain—enabling low-cost, scalable naming.

dApps Must Support Smart Contract Wallets

Too many dApps still assume users control EOAs. They break when encountering contract wallets unless they implement ERC-1271, the standard for verifying signatures from smart contracts.

Additionally, apps that block contract interactions (e.g., to enforce NFT royalties) must rethink their models. Instead of technical bans, consider economic incentives like Harberger taxes or dynamic pricing.

Wallets Must Handle Encryption Keys

Future wallets won’t just sign transactions—they’ll manage encryption keys for private messaging, identity proofs, and data access.

Current “opaque” methods (e.g., deriving keys via deterministic signatures) prevent UI-level security checks. Transparent key management is essential for safety and usability.

Protecting Data as Well as Assets

In a ZK-powered world, wallets protect more than funds—they safeguard personal data.

Take Zupass, a ZK-based identity system used at Zuzalu. Users hold private credentials (e.g., “I attended Zuzalu”) and selectively prove them without revealing identity.

But if you lose your device or backup, you lose your credentials forever.

Solution? Use secret sharing or MPC wallets to distribute encryption keys across trusted devices or guardians. Unlike asset recovery, losing encrypted data may be acceptable for some use cases—but the risk must be user-managed.

Rethinking Identity: Beyond Addresses

The idea of an “address” as a universal identifier is outdated. Tomorrow’s identity is composite:

Solutions include:

No single approach fits all. The ecosystem will likely blend persistent identifiers with ephemeral payment channels.

👉 See how decentralized identity is reshaping digital ownership and trust.

Conclusion: Building a User-Centric Ethereum

Ethereum’s future hinges on making advanced cryptography accessible. The shift to L2s, smart contract wallets, and privacy isn’t just technical—it’s human-centered.

Success means:

This transformation is complex—but necessary. With coordinated effort across developers, wallets, dApps, and infrastructure providers, Ethereum can become truly open, secure, and private for everyone.

Special thanks to Dan Finlay, Karl Floersch, David Hoffman, and the teams at Scroll and SoulWallet for their feedback and insights.