We may be in a bear market, but not everything is contracting, and if you want to see some remarkable growth taking place, then look no further than the amount of Ethereum gas spent on Layer 2 transactions.
ETH spending indicates an ongoing, impressive increase in Layer 2 activity throughout 2021, hitting new heights through 2022, and providing what may be an indicator of trends to come next year, and beyond.
What Are Layer 2s?
Ethereum is the number two blockchain after Bitcoin, and serves a different intended purpose, operating as the architecture on which decentralized applications can be built.
However, it suffers from scaling problems. When the Ethereum network is busy, it becomes congested, and transaction costs (the infamous gas fees) surge.
What’s more, as the price of ETH itself rises, so do dollar-denominated transaction costs, since ETH is what’s used to pay those transaction costs. This creates a network that becomes more expensive to use as its popularity grows and if more people choose to invest in its tokens.
Layer 2 protocols aim to solve these problems by finding ways to ease the network load. Essentially, and through various methods, they take transactions off the main network, improving speed and massively lowering costs, before finally settling back on the main Ethereum blockchain.
Through Layer 2 solutions, Ethereum should be able to properly scale, and so there’s fast-moving competition to become established as the best Layer 2 option.
Which Layer 2s Stand Out?
Arbitrum, Optimism, zkSync and StarkNet are four well-known Layer 2s that are often compared. Looking at the total value bridged by each of these protocols, we find that Arbitrum is establishing a clear dominance, with more than four times the amount of the nearest competitor, Optimism (over 2 million ETH bridged, compared to less than 500,000 ETH).
Polygon has recently become the Layer 2 choice for an impressive number of globally recognized traditional brands and platforms that are looking to expand into web3 and NFTs (including companies such as Starbucks, Meta and Reddit), and Polygon is also very active when it comes to blockchain gaming.
Immutable X is specifically focused on gaming and NFTs, and could potentially carve out its own, distinct niche.
Metis is a scaling solution…
