In 2022, the cryptocurrency market skilled a big surge within the worth of Polygon (MATIC) on account of elevated curiosity in its Layer 2 ecosystem. This drew the eye of assorted companies and buyers, resulting in MATIC’s inclusion among the many high 10 property with the very best market capitalization. Nevertheless, Polygon shouldn’t be the one participant within the Layer 2 enviornment. It at present faces competitors from two main rivals, Optimism (OP) and Arbitrum, which have the potential to expertise noteworthy progress in utilization by 2023.
Earlier than delving deeper into the potential of those networks, it is very important present a proof of what a Layer 2 is. This time period refers to scalability options for cryptocurrency networks. The target of Layer 2 is to boost the capability to course of transactions outdoors of the first blockchain, also called Layer 1, with out the necessity for modifications to the underlying community.
The implementation of Layer 2 know-how is of nice significance as scalability is likely one of the most urgent challenges at present confronted by cryptocurrencies like Ethereum (ETH). Given the essential position scalability performs within the improvement of the trade, it’s not stunning that opponents have emerged within the subject of Layer 2 networks. That is notably evident within the case of Ethereum, simply because it was for Bitcoin (BTC) previously. On this context, it is very important acquire a deeper understanding of those competing options.
Optimism is a Layer 2 resolution constructed on the Ethereum blockchain, which leverages the safety and community stability of the market-leading altcoin. It goals to boost the scalability of the Ethereum ecosystem by means of using optimistic rollups. This know-how might be described as an development of sidechains, that are trustless, permissionless and don’t require guardians. Moreover, Optimism additionally gives incremental implementation of options similar to EVM equivalence.
For optimum efficiency of transactions on a Layer 2 community, a connection between the 2 layers is required. The first accountability of Layer 1 (Ethereum) is to make sure the safety, decentralization and availability of information. In the meantime, Layer 2 (Optimism) goals to alleviate community congestion by enhancing the processing capability of monetary transactions.
Much like Optimism, Arbitrum is a Layer 2 resolution that employs optimistic rollups to attain higher scalability on the Ethereum community. A key differentiator of Arbitrum is that it incorporates privateness options into Ethereum’s good contracts. Moreover, Arbitrum gives a user-friendly platform for creating decentralized functions, enabling builders to create dApps with out complexity.
One of many key advantages of Layer 2 know-how is its flexibility. It may be utilized for a variety of functions, together with video games, e-commerce, monetary companies and voting methods, with out the must be involved about scalability limitations.
Do Optimism and Arbitrum have nice potential?
The scalability options supplied by each Optimism and Arbitrum have already been adopted by main protocols on the cryptocurrency market, similar to Aave, Curve Finance and Uniswap. This demonstrates the potential for progress in utilization and elevated adoption sooner or later.
One other noteworthy facet is that on Jan. 7, the mixed every day transfers on Optimism and Arbitrum had been simply 16,000 fewer than the full every day transactions on Ethereum, per information from Delphi. Moreover, on the identical day, Optimism recorded an all-time excessive for every day transactions at 691,000, reflecting a robust efficiency that has been noticed since March 2022.
As using Layer 2 networks continues to develop, and the demand for scalability on the Ethereum blockchain stays excessive, it’s probably that 2023 will probably be a pivotal 12 months for adoption and partnerships for Optimism and Arbitrum, as these options have the potential to handle key challenges within the trade and drive additional innovation within the subject of blockchain know-how.