Is Layer2 the Solution to Ethereum’s Slow and Expensive Transactions?
As the Ethereum ecosystem continues to thrive, the issues of slow transaction speeds and rising transaction costs have become increasingly severe. For example, with the rise of meme coins, the average transaction fee on Ethereum has reached as high as $30, making transactions even more expensive than the coins themselves.
To address Ethereum’s “slow and expensive” problem, the solution of Layer2 blockchain networks has emerged. If we imagine the blockchain as a highway, the current Ethereum road is facing serious traffic congestion. By building many express lanes or overpasses above the road, known as “Layer2 chains,” more users can be accommodated.
Layer2 offers fast transaction speeds and lower transaction costs. For example, the well-known Layer2 solution “Polygon” has increased transaction speeds by 65 times and reduced transaction costs to one-third of Ethereum’s. This allows users to afford transactions and applications on the blockchain, promoting the development of the ecosystem. It has also attracted many developers to contribute to expanding Layer2 functionality and application scenarios, such as privacy protection and cross-chain operations, expanding the applications of blockchain.
The introduction of the new transaction type “blob” through the Cancun upgrade on March 13th has increased the data capacity of Layer2 blocks. This has resulted in cheaper transaction fees.
This proposal not only reduces the cost of Ethereum Layer2 and improves efficiency but is also a crucial key to Ethereum’s further scalability and competitiveness on Layer2.
Vitalik Buterin, the founder of Ethereum, also known as V God, stated that after the Cancun upgrade, Layer2 costs have significantly decreased, sometimes even by 50 times. From a technical perspective, it has been quite successful, and the team expects the number of blob transactions supported by Ethereum to continue increasing over the next few years.
As for the future development of Layer2, V God believes that Layer2 blockchains will focus more on specific needs. This means that each chain will focus on specific areas such as DeFi and NFTs. However, V God also warns that with more users adopting Layer2, costs may increase again. Therefore, the scalability of the blockchain will remain a significant challenge for Ethereum.
With the competition in the Layer2 race intensifying, there are currently about 20 Layer2 solutions. The “Total Value Locked” (TVL) is the total value of digital assets locked in user DeFi protocols. It is often used to measure the market condition and market share of DeFi projects or the adoption on Layer2.
We will now introduce two Ethereum Layer2 solutions worth paying attention to based on their TVL.
Highest TVL: Arbitrum
Arbitrum, developed by Offchain Labs in 2021, is currently the largest and has the highest TVL among Ethereum Layer2 solutions, totaling $4.2 billion. It accounts for nearly 40% of the total TVL in the Layer2 field.
Arbitrum uses a technique called “Optimistic rollup” to send transaction tasks from the chain to Layer2 protocols. After compressing and packaging the result information, it is sent back to the main chain, ensuring the security of on-chain assets and improving Ethereum’s efficiency while reducing transaction fees (Gas Fee).
Arbitrum is closely integrated with the Ethereum main chain and fully compatible with the Ethereum Virtual Machine (EVM). This allows developers to easily migrate their applications to Layer2 without modifying the underlying code. The prosperity of the on-chain ecosystem has contributed to the significant amount of locked assets in Arbitrum.
Arbitrum has become the preferred choice for migrating DeFi applications. Many well-known Ethereum projects, including top DeFi protocols like Uniswap, Sushiswap, and Curve, have deployed on Arbitrum.
Most Popular: Polygon PoS
Polygon, an Ethereum scaling solution, is a highly popular Layer2. It currently has a TVL of $1.1 billion. According to official data, Polygon has 210 million wallet addresses, 1.17 million deployed smart contracts, and a total NFT sales volume of $12 billion. In a recent survey, Polygon surpassed other Ethereum Layer2 solutions with a high support rate of 44%, including Arbitrum, Optimism, and Immutable.
Polygon effectively solves Ethereum’s problems. It achieves a transaction volume of up to 65,000 transactions per second (TPS) with an average transaction fee of 6 gwei (1 Gwei = 0.000000001 ETH). Compared to upgraded Ethereum 2.0, which can only execute 1,000 transactions per second with an average transaction fee of 18 gwei, it performs significantly better.
The low transaction fees and fast speeds of Polygon make it particularly popular in the gaming and NFT sectors. It has even surpassed Ethereum projects on the world’s largest NFT marketplace, OpenSea.
Polygon actively attracts real-world consumer projects and NFTs. For example, it has Starbucks’ NFT membership program and many GameFi projects, including the well-known metaverse blockchain game Sandbox and the blockchain game virtual asset trading platform Fractal, co-founded by Twitch’s co-founder.
These GameFi projects create a large number of NFTs to enhance users’ gaming experiences, contributing to the development of NFTs on the Polygon network.
Although these two Ethereum Layer2 chains have different technical paths and characteristics, they both bring more efficient and cost-effective solutions to the Ethereum ecosystem, creating more possibilities in the decentralized application field.