As Bitcoin (BTC) and other cryptocurrency markets rally on expectations of a full-blown bull run, the long-awaited “crypto spring” may be around the corner.
During the recent cryptocurrency winter, many different projects have been growing, gaining users and building new networks. Some of them, like Polygon, are layer 2 (L2) solutions that help scale the main protocol, Ethereum. But what does L2 mean? Are they a better deal to build or invest in? Are other Tier 1s (L1s) taking any steps to stay competitive?
These questions and more are the focus of a new report from Cointelegraph examining terminals. The report looks at emerging projects in the cryptocurrency space, with case studies of L1s like Avalanche and Hedera, and how they compare to emerging new technologies.
Download the report in the Cointelegraph research terminal.
Cointelegraph’s “L1 vs. L2: Blockchain Scalability Showdown” report is a primer on why scaling solutions to L1’s shortcomings are needed. The report explains the current development of scalability solutions focused on interoperability bridges and projects.
Layer 1 blockchains, such as Bitcoin and Ethereum, are base protocols that can be used in conjunction with third-party layer 2 protocols, also known as mainnets or mainchains.
The L2 protocol allows thousands of low-value transactions to be processed on a parallel blockchain after verification, and then the records are transferred to the main blockchain or mainnet to ensure that their records are unchanged. This report will help readers prepare for Cryptocurrency Summer, providing all the information and insights to make more informed decisions.
Gas costs are just the beginning
As veterans of the blockchain space know, Ethereum gas fees have been a significant issue, sometimes costing users more ether (ETH) transaction cost (in gwei) compared to the value of the underlying asset. As shown in the chart below, transaction prices on Ethereum can fluctuate significantly, creating an unpredictable experience for users and thus harming further adoption.
This led to the creation of solutions that solved the problem and improved scalability, including transactions per second (TPS), interoperability, and ease of use for developers and consumers.
Agreement comparison, not just speed
TPS is one of the key factors that differentiates new protocols from older protocols such as Bitcoin and Ethereum. Bitcoin and Ethereum act as their own L1, but have no inherent solution to run at comparable speeds to newer networks, as shown in the table below.
Today, Layer 0 protocols serve as the base layer within which different protocols can interoperate. Layer 2 protocols are built on top of L1 and help fill in and overcome gaps that may exist on L1.
For example, if a protocol has a lower TPS, L2 can provide a cheap and efficient way to still use the same programming language and infrastructure as L1 for security.
Hot trends for the future
The report provides insights including top emerging trends leading the protocol narrative beyond traditional L1, such as asset tokenization and account abstraction.
Asset tokenization, including the digital representation of real-world assets (RWA) on decentralized ledger protocols, will play an important role in the spread of next-generation protocols.
As adoption increases, the migration of assets to these protocols will increase transaction congestion. This increased adoption also has consequences, including the need to make safekeeping easier for the average user. This is where the next trend – account abstraction – comes into play.
Account abstraction will improve user experience by eliminating requirements such as retaining seed phrases for account recovery. It can also allow for simplified batch processing of smart contract execution, such as complex payment structures. By making the user experience easier, L0 and L2 can help stimulate the next phase of mass adoption.
Cointelegraph Research’s latest report is a starting point to help analyze these new protocols. The report also includes insider insights from industry professionals who are at the forefront of different technologies in the decentralized ledger space.
Cointelegraph Research Team
Cointelegraph’s research department is comprised of some of the best minds in the blockchain industry. Combining academic rigor with hard-won real-world experience, the team of researchers is dedicated to bringing the most accurate and insightful content on the market.
The research team is comprised of subject matter experts from the financial, economic and technology sectors, bringing to the market a leading source of industry reports and insightful analysis. The team leverages APIs from a variety of sources to provide accurate, useful information and analysis.
With decades of combined experience in traditional finance, business, engineering, technology, and research, the Cointelegraph research team is well-positioned to leverage its combined talents through the “L1 vs. L2: Blockchain Scalability Showdown” report.
The opinions expressed in the article are for general information purposes only and are not intended to provide specific advice or recommendations for any individual or for any specific security or investment product.
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