In 2022, the cryptocurrency market skilled a major surge within the worth of Polygon (MATIC) because of elevated curiosity in its Layer 2 ecosystem. This drew the eye of varied companies and traders, resulting in MATIC’s inclusion among the many high 10 belongings with the best market capitalization. Nonetheless, Polygon will not be the one participant within the Layer 2 enviornment. It at the moment 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, often known as 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 the moment confronted by cryptocurrencies like Ethereum (ETH). Given the essential position scalability performs within the growth of the trade, it isn’t shocking that rivals have emerged within the area of Layer 2 networks. That is significantly evident within the case of Ethereum, simply because it was for Bitcoin (BTC) previously. On this context, it is very important achieve 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 the usage of optimistic rollups. This know-how could be described as an development of sidechains, that are trustless, permissionless and don’t require guardians. Moreover, Optimism additionally affords incremental implementation of options comparable 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 knowledge. In the meantime, Layer 2 (Optimism) goals to alleviate community congestion by enhancing the processing capability of economic transactions.
Just like Optimism, Arbitrum is a Layer 2 resolution that employs optimistic rollups to realize higher scalability on the Ethereum community. A key differentiator of Arbitrum is that it incorporates privateness options into Ethereum’s good contracts. Moreover, Arbitrum affords a user-friendly platform for creating decentralized purposes, 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 purposes, together with video games, e-commerce, monetary providers and voting programs, 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, comparable to Aave, Curve Finance and Uniswap. This demonstrates the potential for progress in utilization and elevated adoption sooner or later.
One other noteworthy side is that on Jan. 7, the mixed day by day transfers on Optimism and Arbitrum had been simply 16,000 fewer than the whole day by day transactions on Ethereum, per information from Delphi. Moreover, on the identical day, Optimism recorded an all-time excessive for day by day transactions at 691,000, reflecting a powerful efficiency that has been noticed since March 2022.
As the usage of Layer 2 networks continues to develop, and the demand for scalability on the Ethereum blockchain stays excessive, it’s possible that 2023 will likely be a pivotal 12 months for adoption and partnerships for Optimism and Arbitrum, as these options have the potential to deal with key challenges within the trade and drive additional innovation within the area of blockchain know-how.