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Are We Bridging From Layer 2 to Layer 3?

In Brief

  • L2 will become increasingly important as crypto and blockchain gain considerable traction in the real world.
  • All improvements made on L1 will be amplified to a very large degree by L2.
  • We will probably know for sure by 2022 whether ZK rollups are functionally complete, feasible, and competitive.
  • The proliferation of bridges between L2s and centralized exchanges, as well as bridges between various L2, is expected.
  • There will be an increase in native L2-based applications developed from the ground up to take advantage of the computing resources available in L2.
  • It is anticipated that a L3 will emerge on top of L2, according to some analysts.

As a result, Ethereum (ETH) — the largest blockchain able to support smart contracts in terms of total value secured is expected to adopt a proof-of-stake consensus mechanism by 2022. No further delays are anticipated. Some observers believe that such a change will make layer 2 (L2) solutions built on top of Ethereum, such as Polygon (MATIC), Loopring (LRC), Arbitrum, Optimism, and StarkWare (to name a few), redundant in the sense that Ethereum will be able to scale on its own.

The L2 platform industry is unanimous that the platform will not only remain relevant after Ethereum 2.0’s arrival (which is being renamed as “consensus layer”) but will have a strong 2022. In parallel with the growth of Ethereum itself, this year will see a growing demand for platforms like these, as smaller transactions and business applications seek the fastest and most cost-effective solutions. Meanwhile, particular L2 trends could emerge this year, from zero-knowledge rollups (ZK rollups) and platform interoperability to native L2 applications and the emergence of “layer 3.”.

Almost no one appears to believe that the upcoming Ethereum 2.0 platform (due in the first half of this year) will eliminate the need for L2 solutions. As a result, one of the prevailing trends for this year could be their continued and increasing relevance.

In spite of Ethereum 2.0 having a 64-fold scaling improvement, it is still likely to fall short of the demand that is anticipated, stated a Polygon spokesperson.

At present, crypto is in its infancy in terms of adoption, as gaming studios, brands, financial institutions, and Web 2 players are just getting started with Web 3. It is just now that companies are exploring this area, and the Polygon team estimates the demand to be an order of magnitude greater than the anticipated scaling that will be achieved with Ethereum 2.0.

One of the biggest changes in L2 in 2022 might be the increasing build-out of bridges, something that is necessary if solutions want to harness more liquidity.

Predications From Polygon Experts

Additionally, Polygon expects that bridges and interoperability will be more prominent this year. According to its spokesperson, the real utility of [L2] applications can be compromised by liquidity fragmentation. The next step will likely be to provide L2 interoperability that will enable users to move assets between networks without the high fees associated with L1 withdrawals. Polygon reports that the projects will focus more on proving their features in the beginning. The projects will then work on coordinating their interoperability.

It will also be important to develop apps that are actually based on layer-two platforms so that they can take advantage of their scaling capabilities fully.

Polygon predicts several L1 applications will be deployed on L2 solutions this year, and its spokesperson is confident that several proofs of concept will be deployed on L2 solutions this year.

AMMs or token swap services are the most popular ones. Beyond the transaction fees, these tools have great utility and allow users to compare some characteristics of L2 and L1 networks. Also, figures working with L2 predict the development of a new, third layer on top of the second, providing crypto with even greater scalability. Uri Kolodny, at least, predicts this.

Recently, we announced that we will launch L3 — or more accurately multiple L3s — which will literally accelerate scaling. By introducing L3, instead of having to undergo a single compression before reaching L1, a double compression can occur,” he said.

Kolodny suggests that we view L3 as a version of the Russian doll in cryptography, where the overall system is broken down into and contained by ever-smaller components.

Although the realization of such a third layer in this year may not be certain, it shows that the layer-two sub-sector isn’t resting on its laurels in a world where Ethereum 2.0 (the “consensus layer”) may potentially steal some of its lusters.

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ALPEX is a cutting-edge digital asset and derivatives trading platform, created to provide the world’s best and most secure online trading experience.

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