BigONE Insight: What Does the Future Hold for Ethereum and L2 Solutions?
Ethereum is the second-largest cryptocurrency, with a market cap of approximately $208 billion, according to CoinMarketCap. With over 3000 decentralized apps as of 2020, there is no doubt that Ethereum is one of the most popular blockchains in the world today.
However, due to its popularity and ever-increasing demand, Ethereum is faced with a growing number of problems, not least of which are scalability and congestion issues. In the past year alone, gas prices have risen over 54%, transactions are taking longer, and the overall network is becoming congested.
Ether (ETH), Ethereum’s native cryptocurrency, reached an all-time high of $4867 earlier in November, only to fall by more than 20% a month later. The long-term profitability of Ether remains strong as Ethereum seeks to transition from Proof of Work (PoW) consensus to Proof of Stake consensus to make network transactions faster and cheaper. These plans are still in the works and may not be implemented soon, which may prevent Ether from surpassing the all-time high.
It appears evident that for Ethereum to scale to the next level, a solution to the blockchain’s scalability limitations must be found. Innovative platforms developed Layer-2 to solve these constraints. So, what exactly are Layer-2 solutions, and is there a top Ethereum Layer-2 solution for overcoming these constraints?
Ethereum Layer-2 Solutions
Layer-2 Networks, as the name implies, are networks that operate on the existing Ethereum network to provide additional functions such as payment scalability and off-chain computation. Layer-2 Solutions, in the form of smart contracts, help ease the congestion of the network, making transactions faster and gas prices cheaper.
Ethereum’s popularity has drawn more users to the platform, increasing congestion and load on the network. Because the network’s capacity is limited, transaction fees rise and become more expensive as more users complete transactions. Solving Ethereum’s scalability issues with Layer-2 solutions increases the ease of cryptocurrency adoption and makes Ethereum available to the masses.
For example, Polygon, a layer-2 solution for developing and connecting Ethereum-based blockchain networks, has steadily gained popularity. The Polygon multichain network also contributes to the Ethereum blockchain’s flexibility and security. The ecosystem has built much more than a way to make Ethereum scalable by leveraging Polygon’s token Matic, but also a network that may serve as a glue for the blockchains revolving around Ethereum.
Optimism, another popular platform for making Ethereum blockchain transactions cheaper and faster, is also built on Ethereum. Optimism seeks to improve Ethereum blockchain transactions without compromising the security provided by the Ethereum mainnet. The main components of the Optimism layer-2 network are Optimistic rollups and Optimistic Virtual Machine(OVM).
The introduction of Layer-2 has sparked interest in the cryptocurrency community, another layer-2 solution addressing the scalability limitations of the Ethereum blockchain.
BigONE believes the emergence of top Ethereum layer-2 networks such as Metis and Polygon suggests that Ethereum is not going away and will continue scaling, offering users increased functionality. Layer-2 is changing the way people use Layer-1 solutions. Metis is deploying a layer-2 solution to build a fast, scalable, and low-cost network.
Another Layer-2 platform for making Ethereum blockchain transactions cheaper and faster is Optimism, which is also built on Ethereum. Optimism aims to improve Ethereum blockchain transactions without jeopardizing the Ethereum mainnet’s security. The main components of the Optimism layer-2 network are Optimistic rollups and Optimistic Virtual Machine(OVM).
The introduction of Layer-2 has sparked interest in the cryptocurrency community, and it appears that Layer-2 solutions will play a key role in the network’s future. BigONE believes that Layer-2 networks will result in an explosive network effect. Although a lot of people are speculating that the “Ethereum merge” would reduce the usage of Layer-2 solutions.
The Next Big Thing For Crypto?
Layer-2 solutions have paved the way for Ethereum’s scalability, while ETH2.0 is still in the works. BigONE believes that layer-2 solutions that address scalability issues would help bring more value to the Ethereum blockchain. The primary goals of Layer-2 networks are to improve transaction speed and throughput, but Layer-2 solutions mustn’t jeopardize the security of the Ethereum blockchain. Metis has achieved scalability for Ethereum without undermining the network’s core decentralization. Will the upcoming “Ethereum Merge” sideline Layer-2 solutions? Well, time will tell.