Crypto Bull Market Incoming: A Deep Dive into Layer-2 and Emerging Blockchain Protocols
Summary:
This report indicates a potential bull market in crypto and highlights the growth of projects like Polygon during the recent "crypto winter". It delves into the implications of Layer-2 solutions for primary protocols like Ethereum and explores the efforts Layer-1 solutions are making to stay relevant. Current trends such as asset tokenization and account abstraction are also examined. The information provides insights to better understand newer protocols and make informed decisions, a useful tool to prepare for an impending "crypto summer". The report is a product of the diverse, expert team at Cointelegraph's Research department.
The much-anticipated uptrend in cryptocurrencies, including Bitcoin (BTC), seems to be commencing, hinting at the onset of a robust bull market. Numerous projects have made headway during the recent crypto winter, expanding their user bases and developing new networks. Among these, Polygon, an Ethereum-based Layer-2 (L2) solution, proliferated to scale the core protocol. However, questions arise concerning what L2s imply, their investment appeal, and the proactive measures L1 (Layer-1) solutions adopt to maintain relevance. The subject forms the crux of a fresh report from the Cointelegraph Research Terminal. The report delves into nascent projects within the crypto sphere and compares case studies for L1s like Avalanche and Hedera against emerging technology. "L1 vs. L2: The Blockchain Scalability Showdown" by Cointelegraph reveals why scalability solutions can address L1 limitations. The analysis provides detailed interpretations of the latest progress in scalability solutions, including interoperability-focused projects and bridges. Layer 1 blockchains, such as Bitcoin and Ethereum, constitute base protocols that can work in tandem with Layer 2 protocols as mainnets or primary chains. Layer 0 (L0) protocols let developers integrate various elements from different L1 and L2 protocols while maintaining their ecosystem to enhance interoperability.
L2 protocols facilitate the processing of manifold nominal value transactions via parallel blockchains after validation. Following this, the records are relayed to the primary blockchain or mainnet, ensuring immutable documentation. Notably, Ethereum gas fees emerged as a significant concern during the blockchain evolution, often costing more in the ETH transaction fee than the underlying asset's value. This unpredictability impeded larger adoption, prompting solutions to tackle the issue and augment scalability, including transactions per second (TPS), interoperability, and user experience.
TPS acts as a key differentiator between newer protocols and older ones like Bitcoin and Ethereum that don't support intrinsic solutions delivering speeds akin to novel networks. Presently, there are Layer-0 protocols that can interoperate with varying protocols. Layer-2 substitutes can bridge and surmount the shortfalls of L1. For instance, if a protocol's TPS is low, an efficient L2 solution can still utilize the same programming language and L1 infrastructure for enhanced security.
The report also highlights certain emerging trends that are driving the narrative of protocols excluding traditional L1s, such as account abstraction and asset tokenization. In the face of increasing transaction congestion due to rising adoption, asset tokenization, including digitizing physical-world assets onto decentralized ledger protocols, will play a pivotal role in the propagation of next-gen protocols. The consequential need to simplify asset custody for everyday users paved the way for the next trend, account abstraction. This concept will improve the user experience by negating the need for maintaining seed phrases for account recovery and allowing streamlined executions of smart contract bundles like intricate payment structures.
This latest report by Cointelegraph Research guides readers through these new protocols, supplemented by insights from industry professionals at the forefront of diverse decentralized ledger technologies. The research team at Cointelegraph consists of a pool of excellent professionals from diverse domains, including finance, economics, and technology who are dedicated to delivering the most accurate and insightful content.
Published At
11/6/2023 4:18:00 PM
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