Discover Layer 2 protocols and learn why they are important as off-chain solutions that tackle scalability and efficiency issues in blockchain. Explore the top Layer 2 crypto projects for 2024, such as Arbitrum, Optimism, Polygon, and more.

What are Layer 2 protocols?

Layer 2 protocols are off-chain solutions built on top of layer 1 blockchains to address the scalability and efficiency issues faced by traditional blockchain networks.

These protocols provide a way to manage a large number of transactions by adding an additional layer on top of the primary blockchain. Layer 2 protocols come in various forms, including rollups, sidechains, and state channels.

Rollups combine multiple transactions into a single transaction, reducing the workload on the main blockchain and improving scalability.

Sidechains allow developers to create their own interconnected blockchains with smart contract capabilities. State channels enable users to conduct off-chain transactions faster and at a lower cost compared to on-chain transactions.

Layer 2 protocols play a crucial role in enhancing the performance of blockchain networks. By alleviating the burden on the mainnet and introducing more efficient transaction processing, these protocols offer quicker, more affordable, and scalable solutions for blockchain applications.

Why Layer 2 protocols Solutions Are Important?

Layer 2 solutions are crucial for addressing the scalability issues faced by Ethereum’s layer 1 network. While Ethereum’s mainnet is decentralized and secure, its capacity is limited, leading to congestion during periods of high network activity. This congestion results in increased transaction fees and slower application performance.

Challenges in Scaling Ethereum

To tackle these challenges, layer 2 extends Ethereum as a separate blockchain that offloads transaction processing from the mainnet. By utilizing smart contracts, layer 2 solutions alleviate the burden on the mainnet while benefiting from its robust security model. In essence, layer 1 focuses on security and decentralization, while layer 2s handle transaction scaling.

Compared to layer 1 blockchains, layer 2s offer lower fees by bundling multiple off-chain transactions into a single layer 1 transaction.

Benefits of Layer 2 Solutions

They retain security and decentralization by settling transactions on the mainnet. Additionally, layer 2 solutions provide higher transactions per second and lower fees, enabling improved user experience and expanding the scope of applications.

Scalability issues in blockchains are often linked to the challenge of maintaining decentralization while processing transactions. Unlike traditional payment systems, blockchain transactions require acceptance, verification, and distribution across a network with numerous participants.

Ethereum, like other networks, aims to compete with established payment channels such as Visa and Mastercard by implementing a layered and scalable design. Layer 1s and layer 2s work together to enhance network speed and user-friendliness.

Readmore: Layer 1 and Layer 2 Blockchain: A Deep Dive into Their Differences!

Knowledge of layer 2 protocols

Layer 2 protocols address the issues of scalability, transaction speed, and high gas fees that affect traditional blockchain networks. These protocols enable the management of a large number of transactions by introducing an additional layer on top of the main blockchain.

Different Types of Layer 2 Protocols

There are different types of Layer 2 protocols, including rollups, sidechains, and state channels. State channels allow users to conduct off-chain transactions faster and at a lower cost compared to on-chain transactions.

With sidechains, developers can create their own interconnected blockchains capable of executing smart contracts. Rollups, on the other hand, consolidate multiple transactions into a single one, reducing the load on the primary blockchain.

Importance of Layer 2 Protocols in Networking Technology

Layer 2 protocols are essential components of networking technology as they define how information is exchanged between networked devices.

They enable seamless communication between devices, which is crucial for business operations. While there are numerous Layer 2 protocols available, the most effective ones ensure fast, secure, and reliable data transfer.

List of Layer 2 crypto projects for 2024

Layer-2 solutions play a crucial role in improving transaction efficiency and scalability in blockchain networks. Here are some of the cutting-edge Layer-2 blockchain protocols that excel in these areas:

1. Arbitrum (ARB)

• Throughput: 2,000-4,000 TPS
• TVL: $9.79 billion
• Market Cap: $1.47 billion+
• Technology: Optimistic Rollup

Arbitrum is a layer2 scaling solution for Ethereum that provides support for smart contracts while addressing scalability and privacy limitations. With Arbitrum, users can benefit from reduced transaction fees and alleviated network congestion.

Developers have the ability to create smart contracts by coding the desired functionality into a virtual machine (VM) implemented by Arbitrum. Furthermore, Arbitrum offers significant enhancements in terms of scalability and privacy.

Arbitrum focuses on optimizing Ethereum’s scalability and cost-efficiency. It employs Optimistic Rollups for efficient transaction processing, reducing congestion and transaction costs. The native token ARB is used for transaction fees and network security through staking.

2. Optimism (OP)

• Throughput: 1,000 TPS
• TVL: $5.65 billion
• Market Cap: $2 billion+
• Technology: Optimistic Rollup

Optimism, established in 2019, is an L2 blockchain developed by Ethereum developers. It utilizes optimistic rollups to process transactions in batches.

Optimism offers users affordable and almost instant transactions. For developers, it serves as a reliable, scalable, and secure solution for Ethereum applications.

Optimism uses Optimistic Rollups to enhance Ethereum’s scalability. It processes up to 4,000 TPS, improving scalability and reducing transaction fees. OP, the native token of the Optimism network, is used for transaction fees and network security through staking.

While transactions occur on Optimism, the transaction data is recorded on the mainnet and undergoes validation. This analogy likens it to driving on a less congested side street while still enjoying the security provided by a highway.

3. Polygon (MATIC)

• Throughput: 7,000 TPS+
• TVL: $108 million
• Market Cap: $8.4 billion+
• Technology: zkRollup

Polygon zkEVM is a scaling solution known as an EVM equivalent ZK rollup. It allows existing smart contracts, developer tools, and wallets to function without any issues.

By utilizing zero-knowledge proofs, Polygon zkEVM reduces transaction costs and improves transaction throughput while maintaining the inherent security of the Ethereum base-layer.

Polygon provides a fast and cost-effective environment for Ethereum-based applications. It can process 65,000 transactions per second and offers reduced gas fees. The native token MATIC is used for gas fees, network governance, and rewards.

4. Starknet

• Throughput: 2,000-4,000 TPS
• TVL: $151 million
• Market Cap: NA
• Technology: zkRollup

StarkNet is a decentralized, permissionless, and censorship-resistant Zero-Knowledge Rollup (ZK-Rollup) that enables general computation on the Ethereum network.

By building applications on StarkNet, developers empower users to send transactions in a similar manner as they currently do on Ethereum. StarkNet ensures transaction validity by periodically batching them and providing a proof on the Ethereum Blockchain for verification.

Starknet improves Ethereum’s scalability and security using Zero Knowledge Rollups. It achieved notable throughput and offers enhanced privacy and reduced computational load.

5. Base – Coinbase Layer 2 Network

• Throughput: 2,000 TPS
• TVL: $727 million
• Market Cap: NA
• Technology: Optimistic Rollup

Base is a Layer 2 (L2) blockchain, which was officially launched on August 9, 2023, by Coinbase, a US-based cryptocurrency exchange. This blockchain has gained significant attention within the crypto community as it marks the first blockchain release by a publicly traded company.

Developed in collaboration with Optimism, an Ethereum L2 blockchain, Base utilizes the OP Stack, an open-source development stack powering Optimism.

Base focuses on enhancing Ethereum’s scalability and functionality. It provides a developer-friendly platform for decentralized application building, alleviating Ethereum’s congestion issues.

6. Loopring (LRC)

• Throughput: 2,000 TPS+
• TVL: $107 million
• Market Cap: $342 million+
• Technology: zkRollup

Loopring utilizes ZK technology, a method that enables verification and confirmation of data without direct access to the information. Being one of the pioneering ZK rollups, Loopring has the potential to operate at a speed 1000 times faster than Ethereum, facilitating over 2000 transactions per second.

Loopring’s Layer-2 solution specializes in decentralized exchanges, offering high throughput and near-instant finality. It provides a secure and scalable solution for DEX operations using ZK-Rollups.

The native token of Loopring, LRC, serves as the payment medium for protocol usage fees. Additionally, Loopring offers its own L2 app with an integrated exchange, allowing users to engage in asset swaps, trades, and payments.

7. Immutable X (IMX)

• Throughput: 9,000 TPS+
• TVL: $173 million
• Market Cap: $2.64 billion+
• Technology: Validium

Immutable X is a well-known name in the industry, as it was created to enhance the scalability level of Ethereum for NFT projects. Serving as a Layer 2 scaling solution for NFT collections on Ethereum, Immutable X offers a range of benefits for NFT enthusiasts.

Immutable X offers a gas-free, eco-friendly Layer-2 solution for NFT trading and ownership. It supports efficient NFT minting, trading, and transfer, holding a notable TVL and market share in Ethereum Layer-2 blockchains.

Users can enjoy a seamless experience of minting and trading digital collectibles on this platform. Some advantages of using Immutable X include no gas fees, carbon-neutrality, the ability to process 9000 transactions per second (TPS), and access to instant trades, games, and applications without any compromises.

8. zkSync Era

• Throughput: updating…
• TVL: $572 million
• Market Cap: updating…
• Technology: ZK Rollup

zkSync, developed by Matter Labs, is a ZK rollup solution utilized by platforms like Binance and zkSync. It has been successfully implemented on the Ethereum mainnet and offers support for payments, token swaps, and NFT minting.

To enhance the scalability of the Ethereum network, zkSync leverages zero-knowledge proofs. This makes zkSync an attractive choice for users and developers seeking faster and more cost-effective transactions.

With its efficiency and widespread adoption, zkSync shows great promise in the development of decentralized finance (DeFi) applications and other dApps.

Conclusion

In conclusion, Layer 2 protocols are off-chain solutions that address the scalability and efficiency challenges faced by traditional blockchain networks. By adding an additional layer on top of layer 1 blockchains, these protocols enable the management of a large number of transactions.

Layer 2 protocols come in various forms such as rollups, sidechains, and state channels, each offering unique benefits for improving scalability and transaction speed.

These protocols play a crucial role in enhancing the performance of blockchain networks by alleviating the burden on the mainnet and introducing more efficient transaction processing.

Layer 2 solutions are important for addressing scalability issues faced by layer 1 networks, such as Ethereum, by offloading transaction processing and reducing congestion. They enable lower fees, higher transactions per second, and improved user experience, expanding the scope of blockchain applications.

With the knowledge and implementation of Layer 2 protocols, blockchain networks can achieve faster, more affordable, and scalable solutions while maintaining security and decentralization.

Various Layer 2 crypto projects, including Arbitrum, Optimism, Polygon, Starknet, Base – Coinbase Layer 2 Network, Loopring, and Immutable X, are actively addressing these challenges and further advancing the adoption of Layer 2 solutions in the blockchain ecosystem.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.