What is Ethereum layer 2?

Ethereum is a generalized public blockchain that anyone can use to build decentralized applications, launch tokens, and spend digital currency. Its comprehensive capabilities make it a very accessible virtual machine, which is probably why Ethereum performs over a million transactions per day.

The mass adoption of Ethereum is a victory for the blockchain, but it is problematic for the user experience. Why ? If you’ve used Ethereum at any time in 2021, you know it’s slow and expensive.

Tier 2 scaling solutions are the answer to making Ethereum usable. While an Ethereum transaction can take 10 minutes and a painful amount of ETH for gas fees, L2 transactions happen instantly with near-free fees.

Today, there are three layer 2 scaling solutions for Ethereum that you should know about: Polygon Network, Optimism, and Arbitrum. But before we dive into those solutions, let’s talk more about how layer 2 scaling works.

What is layer 2 scaling?

Layer 2 scaling solutions make using Ethereum cheaper and faster for everyone. It is easy to understand how they work if we define the Ethereum blockchain as layer 1. Let’s break this idea down below.

The Ethereum network is the main or primary chain, which means that all transactions that occur on the network are on chain. As a primary chain, Ethereum does not have unlimited network capacity. On the contrary, its transaction throughput is limited to around 15 transactions per second.

Ethereum’s performance cap explains why transactions become expensive and delayed when too many people use the network. Much like a highway, too much traffic makes Ethereum congested and overall a pain to use.

To put Ethereum’s scaling limitations into perspective, consider that Visa processes around 2,000 transactions per second. The comparison is not entirely fair since Visa is centralized and Ethereum is decentralized. However, examining the limitations of Ethereum compared to centralized networks is important to understand how scalable Ethereum needs to be for widespread use.

So what should Ethereum do? Ethereum 2.0 is the update that is expected to significantly improve network scalability performance, but it is not expected until 2023.

This is why layer 2 scaling solutions started to appear. Remember that Ethereum is layer 1. So you can imagine a layer 2 connected to Ethereum on either side of the main chain.

The way L2s make the magic happen is this:

  • L2s process transactions on a blockchain connected to Ethereum (i.e. a sidechain.)
  • Then they roll them up into larger transactions (or rollup blocks.)
  • The rollup block is sent to Ethereum in a single transaction rather than multiple.
  • Ultimately, everyone shares the transaction fees for the rollup block, which is why the microtransactions that make up the rollup block are very cheap.

In summary, layer 2 transactions are cheap, fast, and make Ethereum usable. For transaction-intensive applications like payments, DeFi yield farming, NFT minting, and smart contracts, layer 2 transactions are a game-changer.

When should we expect Ethereum 2.0?

The final transition to Ethereum 2.0 is expected to take place in 2023.

Disadvantages of scaling layer 2

The disadvantage of scaling at level 2 is that the different side chains are not compatible with each other. At least not yet. Here’s why that’s a problem.

“Imagine you are a liquidity provider for Uniswap on the Ethereum mainstream. You are tired of paying a high fee every time you add or remove cash and you demand a fee. Suddenly Uniswap is opening markets on two different Ethereum sidechains – yay!

Wait, no, not “hooray”. Since these side chains cannot interact, you must treat them as separate markets. In practice, this means sharing the liquidity between the L2s or choosing one over another.”

What if side chain A takes off (more users) and side chain B never grows? You won’t benefit from hefty transaction fees, so you’ll need to allocate your cash wisely.” – Nathalie Dupont, FRcasinospot expert.

Safety is another concern. In general, a top-tier blockchain/mainframe such as Ethereum is safer than a smaller network because more liquidity is tied to the consensus process. A second-tier blockchain, such as the Polygon Network, cannot offer the same security guarantees until its liquidity equals or exceeds that of Ethereum.

The best Ethereum layer 2 projects

In the first quarter of 2021, Ethereum settled transactions worth over $1.5 trillion. Let this figure guide you for a while. For reference, Visa often settles $2 trillion per quarter.

What is even more impressive is that Ethereum has done all of its financial activity with no real scalability. This shows how eager the public is to use Ethereum, even if it’s inconvenient, expensive, and slow.

Now you have to imagine what happens when using Ethereum is convenient, cheap and fast. This is what layer 2 sidechains connected to Ethereum offer. Given the volume of settlements on Ethereum, an effective layer 2 may outpace Visa’s financial business.

Who are the main competitors in the Layer 2 scaling war? Below are the best Layer 2 scaling solutions, listed in order of network activity.

Polygon network

Polygon Network is a second-tier blockchain project that started as Matic and has since rebranded itself. When the project was called Matic, it received praise and financial investment from Coinbase Ventures, and was adopted by many smaller projects.

However, it wasn’t until after the NFT boom that Matic started gaining momentum. Once Matic rebranded itself as Polygon Network, the gateways really opened up. Most major DeFi protocols have been deployed on Polygon, including names like Aave, Curve, and Sushi.

Thanks to Aave’s polygon market, the total value recorded in the polygon market has reached nearly US$9 billion. QuickSwap, a Uniswap-like decentralized exchange on Polygon, was launched on the network’s deep liquidity stores to provide users with a low-cost alternative to Ethereum’s DEX.

Transaction fees on Polygon are virtually free, which is a nice change from the days when Ethereum charged $100 gas fees. To sweeten the deal, Polygon even gives you free MATIC tokens when you transfer your assets to the deck – enough to pay for multiple trades.

The convenience of Polygon is confirmed by the fact that this payment method is present in many quality online casinos. Additionally, cryptocasinos that target players wishing to transact in cryptocurrencies have become particularly popular in recent years. On these sites, polygon is one of the advanced transaction methods. Discover the best resources where you can make deposits using Bitcoin, Ethereum or in a more familiar way, as in paysafecard casinoon the FRcasinospot web portal.

Optimism

Long before Polygon Network became popular, Optimism was rumored to be the best Ethereum scaling solution in production. However, development delays cost Optimism the opportunity to hit the market before Polygon.

Fortunately, Optimism’s production delays haven’t affected adoption rates. Uniswap, Synthetix, and future crypto options exchange Lyra are all on board. And that’s not to mention the support of a16z, the undisputed king of cryptography.

The mainnet of the project, Optimistic Ethereum (OΞ), is already operational and hosts Uniswap V3. The Uniswap Optimistic market has amassed $6.5 billion in total locked-in value – a healthy amount that speaks to the early success of Ethereum’s L2s.

If you’re curious to give Optimism a try, check out this gas cost calculator to see how much gas you’re saving compared to using Ethereum.

Arbitration

Similar to Polygon and Optimism, Arbitrum is an optimistic rollup for scaling Ethereum smart contracts. In other words, Arbitrum makes Ethereum faster and cheaper to use, especially for developers.

When you think of layer 2 protocols, it’s easy to believe that they only apply to end users such as cryptocurrency traders and yield farmers. However, developers of decentralized applications built on Ethereum spend small fortunes running smart contracts during testing phases alone. Arbitrum aims to help developers get their Ethereum-based projects off the ground at a lower cost.

Arbitrum One is the mainnet beta version of the protocol. For now, it is only available for developers of Ethereum-based applications, but it will soon be available to the general public.

Many big names are among the first collaborators of Arbitrum. Uniswap, Sushi, and Consensys have all tested or launched the protocol.

What are the other layer 2 cryptocurrencies?

In addition to those listed, there are other layer 2 protocols outside of Ethereum. These include Loopring, Skale, OMG Network, Bankor, 0x, Immutable X, Celer Network, Perpetual Protocol, ZKSwap.

Conclusion

The listed projects represent the future of Ethereum and will certainly make life easier for users of this payment system. The success of layer 2 Ethereum vers is evidenced by the fact that its value has peaked history a few months ago. Ethereum will continue to evolve in the near future. It is likely to become the most popular transaction method among all cryptocurrencies.

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What is Ethereum layer 2?


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