Layer 2’s and why they will change everything

The blockchain sector has been hyped since 2017. Ethereum and Bitcoin, for example, both promise decentralization and transparency, but transactions are sluggish and costly. Many initiatives promise to have millions of TPS (transactions per second) to tackle this issue. Other considerations include rising gas costs and privacy concerns. Root blockchains might potentially alleviate these difficulties but at the expense of decentralization

Countless products have attempted to employ blockchain technology as a technological solution to their problems in the initial years of this industry’s existence. Some of these solutions have proven to be effective, while others have encountered difficulties due to the inherent limits of blockchain technology. This is where blockchain technology at the second layer comes in.

Let us take a closer look at this addition in the layer technology.

What is Layer 2?

Layer 2 blockchain technology is sometimes regarded as an “off-chain” option. Its primary goal is to increase the capacity of blockchain transactions while keeping the decentralization advantages of a distributed system.

The term “layer 2” relates to the many solutions being examined for the blockchain’s scalability problem. The solution to the scalability problem has a significant influence on the general adoption of blockchain technology. It is their function to provide add-ons to the parent blockchain. Sidechains, plasma chains, state channels, and rollups are all ongoing changes.

The Bitcoin Lightning Network and the Ethereum Plasma are two of the most prominent instances of layer 2 solutions. Even though each solution has its own set of working methods and characteristics, both solutions strive to boost the throughput of blockchain-based systems.

How does Layer 2 work?

Layer 2 platforms, as well as protocols, handle data in such a manner that the dense layer which is the root chain is relieved of some of the load that it normally carries. Due to the offloading of transactions from the main chain to layer 2 systems, the blockchain can handle much more transactions per second.

Scaling Layers 2 solutions:

Layer 2 blockchain enhances the original layer’s efficiency. Layer 2 effectively offloads transactions from the base blockchain to another system design. Additional Layer 2 scaling options include:

Plasma chains:

Layer 1 establishes the settings while Layer 2 conducts the procedures. The main chain can have multiple blockchain tiers. It is the normal firm structure of work. Instead of doing everything, the management assigns duties to subordinates who then report back to the boss. This reduces the manager’s workload while increasing scalability.

State Channels:

Two-way communication between blockchain participants is possible through state channels. Because there is no third party, participants could decrease the amount of time they have to wait, for example, a miner.

Sidechains:

Sidechains, such as Lightning Network & smart contracts, are also a scaling solution for Layer 2 blockchain technology. A sidechain is a large-scale transactional chain. It features a native layer-independent consensus mechanism. Scalability & processing speed could be improved. In this case, the mainchain must verify transactions, secure data, and resolve disputes.

Rollups:

These are Layer 2 scaling solutions that perform transactions outside the Layer 1 blockchain & publish the data to it. Layer 1 could protect rollups since the information is on the bottom layer. In addition, rollups lower user gas prices and boost transaction throughput. There are two security models for rollups.

Optimistic Rollups: Assume all transactions are legitimate. So they only compute to identify fraud if it is difficult.

Zero-Knowledge Rollups: Such rollups conduct calculations off-chain. They then send the evidence to the base layer as well as the mainchain.

Top 5 Blockchain Layer-2 Projects:

Following we will cover the top 5 projects related to the layer 2 technology and the native tokens they are providing.

Polygon(Matic):

MATIC is the Polygon network’s native crypto. It is used to settle and pay network transactions. Polygon uses a proof-of-stake system, allowing users to check transactions & participate in governance. The token compensates users who provide computing resources and services to the network. Investing in MATIC tokens gives you the power to vote in network updates and repairs.

Polygon was created to help the Ethereum blockchain scale and gain mainstream use. The Ethereum blockchain has grown pricey and congested due to its role in most crypto developments such as smart contracts, dApps, NFTs, etc. As a layer-2 system (an add-on layer) to Ethereum, Polygon offers a scalable solution to this challenge. This will make the blockchain more secure, efficient, & helpful.

Dune Analytics said that 2 million NFTs were traded on Polygon in December 2021. This was a 60% rise over November’s NFT volumes and the third straight month of increasing network activities on Polygon.

Loopring (LRC):

Loopring (LRC) is an open-source zk-rollup protocol for Ethereum. It is the first Ethereum platform to leverage the zk-rollup protocol. One zero-knowledge circuit makes up Loopring.

These can be used to build automated market makers, payment applications, and decentralized exchanges. Establish protocols, infrastructures, & user-friendly Defi. Decentralized native exchange with no central authority and no gas costs. The zk-rollup proofs allow it to efficiently package transactions.

It can also execute certain calculations of the Ethereum platform. It trades, provides liquidity, swaps, and makes payments using the Ethereum blockchain’s security. Loopring’s on-chain data availability (OCDA) technology speeds up transactions. Apart from that, it delivers quick liquidity via order rings and order miners. It has a 1000x throughput of the Ethereum blockchain and a 1/100th transaction cost

Contrary to the Ethereum blockchain, it confirms transactions quicker and costs less. Users could now mint NFTs for $2.50, which is around 100 times cheaper than minting on Ethereum. Loopring has a lot of promise since NFTs are still a hot commodity.

Ox (ZRX):

ZRX is the unique token of the 0x platform. The asset is a technology that facilitates the smooth peer-to-peer trading of Ethereum-based assets on a decentralized platform. The platform, which was developed by 0x Labs, provides safe & audited smart contracts, advanced features for its ecosystems, and a decentralized worldwide community order book, among other features. ZRK is utilized to pay transaction fees as well as settle transaction charges since it is a native token.

ZRX is another one of those cryptocurrencies that has a great deal of promise in the future. If you’re looking to make a long-term investment, this is something you should consider. The asset is presently trading at $0.750 per unit, representing a significant increase of 6.5 percent in the last 24 hours.

OmiseGo (OMG):

The token is the core token of the OMG Network, which was formerly referred to as OmiseGo. OMG Network claims to have been the first production-grade layer-2 Eth calling solution. Its purpose is to make moving money & digital assets here on the Ethereum network faster, cheaper, and more secure.

OMG Network believes that almost all digital payments are now made through single applications. This implies users can’t effortlessly switch systems. To source liquidity on trades & transactions on the Blockchain network, OMG Network intends to utilize its infrastructure.

OMG appeared to be among the currencies leading the surge out of the market correction. the asset value has risen from $5.96 to 14.15 percent in the last day, topping the market’s 4.32 percent gain.OMG has a market worth of $852 million with a 24-hour trading volume of $405 million.

Bancor (BNT):

Bancor’s native token is BNT, which rewards users for providing liquidity on Defi protocols. It aims to help automated market makers (AMMs) supply liquidity to Defi markets in return for fees and interest. Bancor is presently created for Ethereum and EOS. But more chains might be introduced later.

Bancor’s BNT token is now trading at $3.26, up 2% on the last day. That’s highly competitive. However, there is a lot of room for growth in this coin. Bancor could play a key role in Defi’s growth this year. A recent SushiSwap proposal suggested a combination with Bancor. Investors should see the potential for Bancor if SushiSwap can.

Layer 2 are the future:

Layer 2 solutions are primarily meant to address some of the most serious challenges facing the Defi market today. Using them reduces expensive transaction costs and network congestion. For quicker calculation and transmission, they transmit existing data to various processing channels.

Not only that but most layer-2 platforms have been built up such that the core blockchain protocol is unaffected, allowing for many microtransactions without having to deal with miner verification or high transactions costs. It is not incorrect to state that Layer 2 is here to stay and has bright prospects in the cryptocurrency industry due to the unique technology it employs.

According to Uri Kolodny, co-founder and CEO of StarkWare, demand for scaling solutions is “skyrocketing,” with increased usage of the StarkEx scaling engine and StarkNet platform. He mentions in an interview with Cryptonews.com that:

“As a cornerstone of Ethereum 2.0, the shift from proof-of-work towards proof-of-stake does not truly assist with scalability.” It only modifies the consensus procedure for approving blocks. As a result, L2 solutions will be as relevant as ever,”

Ethereum inventor Vitalik Buterin at the 2021 Shanghai International Blockchain Week, highlighted Ethereum’s urgent need for scalability and said that layer 2 blockchains will be the way towards scalability.

He stated that “Layer 2 network scalability is the future for network scalability and that the only method to keep Ethereum decentralized.”

Figures working in the sub-sector all agree that L2 platforms would not only be relevant after the advent of Ethereum 2.0 (which is currently being renamed as “consensus layer”), but it will have a powerful 2022. As smaller transactions and corporate applications seek the quickest and most cost-effective processes, demand for these platforms will rise this year in line with the usage of Ethereum itself.

At the same time, specific L2 trends could develop this year, ranging from the expansion of zero-knowledge rollups plus platform interoperability to native L2 apps and perhaps the introduction of ‘layer 3.’

Polygon Hermez, Loopring, ZKSync, Optimism, and Arbitrum One are some of the layer 2 solutions that have recently been introduced. Buterin said that the current cost of transferring ETH via Polygon Hermez is US$0.25, but the cost of transferring ETH on Ethereum is US$6.64.

Conclusion:

According to the latest developments in the cryptocurrency market, a growing number of investors are coming to perceive the digital asset universe. As we get closer to a future that seems to be becoming more decentralized, it makes sense that issues such as increased congestion, poor throughput rates, and excessive processing costs will become increasingly prominent within the Defi industry. Because of this, layer-2 solutions would then continue to gain increasing amounts of mainstream traction as well as developer support in the years ahead.