Layer 2 solutions explained (Arbitrum, Boba, Optimism, Ethereum 2.0)

Boxmining

84.3K views 679 3 years ago

Description

Ethereum is expensive and slow. But the good thing is, we don’t have to wait for ETH 2.0 to roll out just to have cheap and fast transactions, we can make things a lot better right now with layer 2 so...

Ethereum is expensive and slow. But the good thing is, we don’t have to wait for ETH 2.0 to roll out just to have cheap and fast transactions, we can make things a lot better right now with layer 2 solutions or sidechains. In this video, I will go over some of the major players in the layer 2 solutions field such as Arbitrum, Boba and Optimism, and also answer the ultimate question at the end, whether I think ETH 2.0 is going to kill all these layer 2 projects. Learn more about these layer 2 solutions: https://boxmining.com/understanding-layer-2-scaling-solutions-arbitrum-boba-optimism-polygon-ethereum-2-0/ 0:00 Introduction 0:41 Why do we need layer 2 solutions? 1:29 How layer 2 works? 1:56 Sidechains 2:26 Optimistic Rollups 5:35 What is Ethereumn 2.0? 6:09 Will ETH 2.0 make all these layer 2 solutions irrelevant? 8:00 Conclusion ●▬▬▬▬▬▬▬Recommendations▬▬▬▬▬▬▬● 📖 Guides, tutorials and insights: https://boxmining.com/ Recommendation List: https://www.cryptoatlas.io/Boxmining 🌼Buy & Sell Bitcoin: https://join.swissborg.com/r/michaeOQZM 🔒Hardware Wallet: http://boxmining.co/ledger 👍🏻Brave Browser: http://boxmining.co/brave 📲Binance Exchange : http://boxmining.co/binance Gemmy's Twitter: https://twitter.com/GemmyCrypto Gemmy's Instagram: https://www.instagram.com/gemmy_wong_ht/?utm_medium=copy_link ●▬▬▬▬▬▬▬▬▬▬Community▬▬▬▬▬▬▬▬▬● Boxmining clips: https://www.youtube.com/channel/UCjFy3VBgOZanySOLhQu6GaQ Boxmining News Website: https://www.boxmining.com/ Telegram Group: https://t.me/BoxminingFam ●▬▬▬▬▬▬▬▬▬▬▬Social▬▬▬▬▬▬▬▬▬▬▬● Twitter: https://twitter.com/boxmining Discord: https://discord.gg/9qCpqpZm8G Facebook: https://www.facebook.com/boxmining ●▬▬▬▬▬▬▬▬▬▬Disclaimer▬▬▬▬▬▬▬▬● I'm not a professional financial adviser and you should always do your own research. I may hold the cryptocurrencies talked about in the video.

AI Analysis

Ethereum is currently facing significant challenges: it's notoriously expensive and slow due to high gas fees, which essentially act as a "bribe" to prioritize transactions on the congested network. Thankfully, we don't have to wait for the full rollout of ETH 2.0 to get faster and cheaper transactions. Layer 2 solutions and sidechains are already making a huge difference by offloading transactions from the main Ethereum blockchain, addressing current congestion while also preparing the network for future demands.

Here's a breakdown of how these solutions work and what the future might look like for Ethereum:

* The Problem: Ethereum's Congestion: Ethereum's network is the most utilized blockchain globally, leading to incredibly high gas fees. These fees are effectively a "bribe" – the more you pay, the faster your transaction gets processed. This creates a vicious circle where popularity leads to congestion, making day-to-day use unbearable for many users. Layer 2 solutions emerged as a critical immediate fix to this problem.
* Why Layer 2 Solutions are Game-Changers: Layer 2 projects are designed to solve Ethereum's scalability issues by processing transactions off the main blockchain, reducing congestion and keeping the core network free of unnecessary transaction history. This approach is providing much-needed relief in the short term and sets the stage for long-term growth. The field is seeing a lot of competition as different projects vie for adoption.
* How Layer 2 Solutions Work: Sidechains vs. Optimistic Rollups
* Sidechains: A popular example is Polygon (which uses its native Matic token). Sidechains are essentially independent blockchains that run parallel to Ethereum. They only interact with the main Ethereum chain when it's time to update the overall state of the ledger. Because they're independent, they have their own consensus mechanisms and validators to secure their networks.
Optimistic Rollups: These are quite different from sidechains because they operate within* Ethereum as smart contracts. The huge benefit here is that they leverage the robust security of the main Ethereum chain, so they don't need their own separate consensus method.
* The "Rollup" part refers to how they bundle or "roll up" many transactions off-chain and then commit them as a single transaction to the main Ethereum chain.
* The "Optimistic" part means that they assume transactions are valid by default, allowing for incredible speed. However, there's a fraud-proving window where any user can flag a fraudulent update. If a fraud is proven, the transgressor is punished by the protocol, ensuring security.
* Leading Optimistic Rollup Projects: Arbitrum, Boba, and Optimism are the major players in this space, all aiming to scale Ethereum and reduce gas fees.
* Arbitrum: Currently the leader among Layer 2 networks, boasting over $2 billion in total value locked (TVL), which is five times more than Boba or Optimism. It's designed to significantly improve Ethereum smart contract capabilities, boosting speed, scalability, and even adding privacy features. A big win for Arbitrum is its exceptional Ethereum Virtual Machine (EVM) compatibility, making it super easy for developers to migrate existing Ethereum applications without rewriting their code.
* Optimism: This project focuses on upholding Ethereum's core values by building infrastructure that supports public goods. It works by converting Ethereum smart contracts into an Optimistic Virtual Machine (OVM) format and deploying them onto the mainnet. The OVM is highly compatible with Ethereum, meaning popular applications like Synthetix don't have to tweak their code to deploy on it.
* Boba Network: Boba shares the same scaling goals as others, but it stands out with a remarkable innovation: it has drastically reduced the optimistic rollup exit period from several days to just a few minutes. This is a huge deal! Typically, withdrawing funds from other Layer 2 projects can take up to seven days due to potential fraud disputes, interoperability challenges, and fragmented liquidity. Boba's solution to this "withdrawal waiting game" is a significant advantage. It also offers incentivized yield farming opportunities for liquidity providers (LPs).
* Ethereum 2.0 (ETH 2.0) Explained: ETH 2.0 is an upcoming upgrade to the Ethereum protocol. A major change involves transitioning from the energy-intensive Proof of Work (PoW) consensus mechanism to a more sustainable Proof of Stake (PoS) model. This means mining will be replaced by "validators" who secure the network by "staking" their ETH. ETH 2.0 is being rolled out in phases and is expected to significantly reduce transaction fees and speed up transactions.
* Will ETH 2.0 Make Layer 2 Solutions Obsolete? This is the ultimate question, and the strong belief is no, they will coexist and even need each other.
* The argument is that even with a successful and complete transition to ETH 2.0, the sheer growth of the Ethereum ecosystem and increasing global demand for decentralized applications will mean that the main chain alone won't be able to handle all the transactions.
* Sandeep Nailwal, co-founder of Polygon, has highlighted this point: ETH 1.0 handles about 13 transactions per second (TPS). Even after the move to Proof of Stake, it might only reach 20 TPS. Looking further ahead, even with the proposed 64 "shards" in ETH 2.0 (each potentially handling 20 TPS), the total capacity would still only be around 1280 TPS. While this is a massive improvement, it's still far from enough to support the entire world's transaction needs.
* Essentially, ETH 2.0 won't provide infinite scalability, and there's no "permanent" solution to blockchain traffic problems. Layer 2 solutions will continue to be crucial for providing additional speed and scalability. Think of it like adding a turbocharger to an already powerful car – it just makes it even better.
* In short, Ethereum needs these Layer 2 solutions as much as Layer 2 projects need Ethereum. They are all contributing to the overall success and future of the Ethereum ecosystem.

Transcript

So Ethereum is expensive, it's slow, there's no argument there for sure, but of course we don't have to wait for ETH 2.0 to roll out just to have cheap and fast transactions. We can actually make things a lot better right now with Layer 2 solutions or sidechain. So in this video, I'm going to go over some of the major players in the Layer 2 solutions field, identifying different solutions and also answer the ultimate question at the end, whether I think ETH 2.0 is going to kill all the Slingert...

So Ethereum is expensive, it's slow, there's no argument there for sure, but of course we don't have to wait for ETH 2.0 to roll out just to have cheap and fast transactions. We can actually make things a lot better right now with Layer 2 solutions or sidechain. So in this video, I'm going to go over some of the major players in the Layer 2 solutions field, identifying different solutions and also answer the ultimate question at the end, whether I think ETH 2.0 is going to kill all the Slingerty projects. So if you appreciate this type of content, don't be afraid to smash up the like button and subscribe to the BoxMining channel. Without further ado, let's jump straight back to your topic. Gas fees are high because Ethereum is the most utilized blockchain network in the world. More and more people are using it, therefore we have to pay a high gas fee in order to get our transactions to go through. It's almost like a bribe. If you want your transactions to go through sooner, you have to pay some extra money. You think you're better than the rest of the world? First of all, you need to show me a little bit of this. As a result, the gas fees become higher and unbearable to public for day-to-day use and the surge in the popularity growth of Ethereum congested the network even more. So we just end up in a vicious circle. That's why all these layer 2 solutions got so popular in the past few months in the hope of getting faster and cheaper transactions. Layer 2 is a huge game changer and we are gonna see a lot more competition between all these layer 2 projects. All these layer 2 projects are trying to solve the problems of Ethereum. This is helpful in the short term as it relieves the Ethereum network of congestion. In the long term, keeps the blockchain free of unnecessary transaction history. There are different scaling solutions but those have been getting the most attention these days are sidechain and optimistic roll ups. A very popular sidechain project is Polygon. It is a sidechain to Ethereum, meaning it will only interact with the mainchain when it comes to updating the state of the ledger. Given it is an independent blockchain, it relies on its own consensus mechanism. Therefore, it has its own native token which is the Matic token. Validators on the Polygon network will secure the sidechain and submit the state of the network back to Ethereum. So that's for sidechain. The next popular scaling solution I want to talk about is Optimistic Rollup. Well actually, Polygon is working on ZK Rollup but more on that in the future. Rollups are very different as they are actually within Ethereum as a serious or smart contract which execute transactions and computations. The benefits of existing within Ethereum is that they can leverage the security of the main chain so there's no need for a separate consensus method. The Rollup aspect refers to the way that sidechain bundles manage transactions to be committed to the main chain. And for optimistic, meaning the state changes are first published with minimum inspection and fraud checking allowing for additional speed. That's why it's called optimistic. Any users can flag in final updates though with transgressor being punished by the protocol. Popular layer 2 projects that utilize optimistic rollups are Albatron, Boba and Optimism. They all have the same goals of scaling Ethereum and reducing gas fees but the public seems to favor Tua's Albatron a bit more. In fact, Albatron right now is the leading player of all layer 2 networks and has a total value locked of more than 2 billion dollars and that is a 5x more than Boba or Optimism. All these layer 2 projects are all competing to one and other for more applications, the more users the more liquidity therefore the more funds. However, each of these projects have slightly different features. First up we have Albatron. It describes itself as a layer 2 solution designed to improve the capabilities of Ethereum smart contracts, boosting the speed and scalability while adding additional privacy features to boot. Albatron is the most EVM compatible layer 2 solution as of today. This makes it very trivial for developers to migrate existing Ethereum applications to row apps because they don't have to rewrite the code. Next up with Optimism. It plans to uphold the values of Ethereum by producing infrastructure that promotes the growth and sustainability of public goods. It converts Ethereum smart contracts to optimistic virtual machine and deploying them onto mainnet. OVM is almost fully compatible with Ethereum meaning synthetic won't have to change its code to deploy a smart contract onto OVM. And for Boba, it also has the same goal but the good thing is it managed to strengthen the optimistic row of exit period from few days to only a few minutes while giving LPs incentivized yield farming opportunities. This is a very attractive feature indeed. With most other layer 2 projects, it's easy to send the funds to the platform but when you withdraw your money, there you go, have fun waiting for seven days to withdraw your money. Withdrawal period is usually long due to potential fraud disputes, lack of interoperability and the fragmentation of liquidity between different row ups so the fact that Boba managed to haggle this problem is magnificent. Of course, we are almost certain that we are going to move to ETH 2.0 in the future. As you may know, ETH 2.0 is an upgrade to the Ethereum protocol and one of the major changes it will make is to change from proof of work to proof of stick. That means moving forward, there won't be any mining but instead the network is secured by validators who stick the ETH to the platform. ETH 2.0 is currently slowly releasing and rolling out different phases and ultimately, it will reduce the transaction fees drastically and speed up the transaction as well. So the ultimate question becomes, will ETH 2.0 make all these layer 2 solutions irrelevant? Well, there are different opinions in terms of the answer. However, I do think all of these layer 2 solutions can coexist in the future and I'm going to tell you the reason why. As the ecosystem of Ethereum continues to grow and its use cases further develop alongside cheaper fees, assuming a successful transition to 2.0, which is no easy feat, Ethereum would still need the help from layer 2 platforms to meet transactions demand. When I was doing my research, I found an interview with the Polygon co-founder Sandiv Nelwal talking about the extent of the network's adoption. During his interview, he explained that right now ETH 1.0 has 13 transactions per second. It will maybe go up to 20 after proof of stake but not more than that. And let's say in 3 to 5 years, even if the sharding comes, will have a projection of 64 shards. And with each acting at 20 transactions per second, 20 times 64, you'll get 1280 transactions per second overall, which is still not enough for the entire world. ETH 2.0 will for sure attract more transactions attention, which is the reason why it is more important to have layer 2 scalability. The truth is, ETH 2.0 doesn't provide Ethereum infinite scalability. There's no permanent solution for the traffic problems on the market, so layer 2 solutions will still be needed. When you have an other layer 2 solution, it means you have better speed, better scalability. Think of it like you have a very high horsepower car, but if you add a table to it, regardless of the horsepower already has, it's still going to be fast and better, right? So in one simple sentence, what I believe is that they do need each other. Ethereum needs all of these layer 2 solutions just as much as layer 2 needs Ethereum, and all of these layer 2 solutions are contributing to the Ethereum 2.0 success. So that's my take on Ethereum layer 2 solutions. Don't forget to have an amazing day and spend time with your loved ones. If you like this type of content, make sure you smash up the like button and subscribe for more. Follow me on the CryptoGems YouTube channel and Instagram and Twitter for more regular updates, and see you guys very soon!