As I begin writing this article, Binance has just released OpBnb, its layer 2 solution. Some may question this need for Layer 2 solutions when transaction fees on Binance Smart Chain (BSC) have historically stayed comfortably below 10 cents. If you followed my last article you’ve probably seen what I call Imitators, and I think we’re going to be talking a lot about them here.
What is a Layer 2 ?
Layer 2 (L2) solutions are secondary protocols or technologies built on top of a blockchain’s base layer, often referred to as Layer 1 (L1). These solutions aim to improve scalability, reduce transaction costs, and enhance overall network performance by processing transactions off-chain, meaning the transactions occur outside the primary blockchain.
Layers 1 problems ?
During the previous cycle, the blockchain industry was buzzing with excitement about Layer 1 solutions. Ethereum, in particular, was grappling with the escalating demand for decentralized applications (dApps). In response, a multitude of Layer 1 projects emerged, each promising to be the ultimate solution. Among these, Tezos, Polkadot, Binance Smart Chain, Avalanche, Solana, and many others were prominent contenders. While these projects certainly offered scalability improvements, they simultaneously introduced a significant degree of fragmentation to the blockchain space. Developers and users were compelled to choose between various Layer 1 networks, each with its distinctive features and trade-offs.
The Madness of Layer 2 Solutions
“ Recognizing ” the pressing need to address Ethereum’s scalability issues, the industry shifted its focus toward Layer 2 solutions. Layer 2 solutions come in various forms, including sidechains, state channels, and rollups. Prominent projects in this space include Optimistic Rollups like Arbitrum, Optimism, or a sidechain like Polygon (formerly known as Matic), and the Lightning Network for Bitcoin. While each of these Layer 2 solutions has its merits and unique features, they have also introduced a new layer of complexity to the blockchain ecosystem.
However, the urgency to embrace Layer 2 solutions has transformed into a frenzy reminiscent of the past cycle, when everyone was vying to be the “Ethereum killer”, and create the blockchain that would revolutionize everything. There are now so many of these solutions that they are challenging to enumerate; they’re everywhere.
Owning an optimistic Layer 2 has become a new must-have in the blockchain world. Not to mention the enthusiasm generated by the term “zero-knowledge rollups,” the words that excites all VC. Virtually all blockchain foundations have incorporated optimistic and zk rollups into their roadmaps. Some L1 have even transitioned into Layer 2 solutions for Ethereum themselves. It’s nothing short of madness.
Rest assured, these won’t be the only innovations in sight. There will be a wide array of these solutions, ranging from Validium rollups to Enriched rollups, Sovereign rollups, and more. As you’ve likely surmised, a multitude of these solutions is in the works, with each endeavoring to reinvent the wheel, much as in the previous cycle when every L1 project aimed to introduce their consensus algorithms and new sybil mechanisms to impress Venture Capitalists.
It’s truly remarkable how the industry repeats the same patterns over and over. There’s little doubt that, in the next bull run, these technologies will become overvalued, not necessarily because they represent the best solutions but because they captivate speculative interest. Once again, we’re witnessing recurring trends. Some have even created blockchains within blockchains, enabling the creation of even more blockchains — yes, you read that correctly. This is the prevailing trend, with many stakeholders pursuing it, often overlooking the potential issues associated with these practices. The fact that major players like Coinbase, Binance, OpenAi (Worldcoin), and others are getting involved speaks volumes about the economic opportunity rather than solely the technological potential. Everyone wants a piece of the pie.
Are these L2 technologies the best way to achieve scalability ? Maybe yes, but for me, No ! i don’t think so! I think that L1s are still scalable. It feels like this industry is constantly creating new problems for itself just to have something to work on. What next ? Layer 3 ? Layer 4 ? 🤡🤡🤡 .
If you inquire with someone in the industry today about the scalability issue, they might mention Ethereum gas fees. Yes, ETH gas fees are indeed high, But is Ethereum the only option ? Are we obliged to use Ethereum ? Alternative solutions like Polygon, Tezos, Solana, and others have already offered ways to tackle this issue. They haven’t totally solved it, but they’re getting closer.
Even more astonishing is the fact that as soon as Layer 2 solutions gained traction, these alternatives began adopting Layer 2 approaches as well. Some blockchains that never experienced fees higher than 1 cents started emphasizing scalability, asserting that Layer 1 would now shift its focus toward storage proofs. It might appear a bit absurd. They’re doing it merely because it’s the trend to follow. And, I must add, in 2–3 years, it will likely be something entirely different. Another bull market may emerge, bringing in substantial capital for these entities to identify another problem and endeavor to uncover a new solution.
The proliferation of these solutions introduces a new layer of complexity, reminiscent of previous cycles where the focus shifted from one innovation to another. As we move forward, it is essential for the industry to strike a balance between innovation and stability, addressing the genuine needs of the ecosystem and solve real world problems rather than chasing trends and creating new problems to solve.
I’m just translating my thoughts through this article, feel free to give me your opinions and tell me what you think. Thanks for your reading ❤️, See you🙂
