Technology Finance Cryptocurrency Blockchain Decentralized Finance
ALΞX 🏭 (💙,🧡)
ALΞX 🏭 (💙,🧡)

@CrossChainAlex

12 Tweets 2 reads May 19, 2022
Twitter
🧵 What if we never needed an #ETH killer, just a faster and cheaper #Ethereum network? Enter #Layer2 solutions.
A brief thread on what they are in simple terms, why I'm bullish, and how they'll drive the next wave of #DeFi adoption. 1/12
A traditional business has sales to generate revenue (transactions) and accounting to keep the books (settlement).
Putting the accountant in charge of everything would be slow and costly and inhibit growth!
#Layer2 = sales and #Layer1 = accounting. 2/12
So, business needs multiple skillsets to scale, #blockchain needs decentralization, security and speed to scale.
Similarly #ETH excels in decentralization and security but increased costs and reduced speed inhibit growth. 3/12
So, business needs multiple skillsets to scale, #blockchain needs decentralization, security and spe...
#Layer2 solutions attempt solve the scalability (speed/cost) challenge whilst maintaining decentralization and security
They are separate #blockchains that extend #Ethereum whilst inheriting the security guarantees. 4/12
This enables #ETH to do what it's good at settling transaction in a decentralized and secure manner.
Whilst allowing #Layer2 to handle the workload of an increased number of faster and cheaper transactions. 5/12
The preferred #Layer2 solution is via rollups. They bundle hundreds of txs into a single #Layer1 tx.
The tx are executed outside of #Ethereum but the data is posted to the main chain ensuring security and finality. 6/12
There are 2 types of rollups. Optimistic rollups assume tx to be valid but can be challenged and rectified via fault proofs.
Zero-knowledge rollups proof validity of txs off chain and compress and send that data to #Ethereum as proof of validity. 7/12
There are 2 types of rollups. Optimistic rollups assume tx to be valid but can be challenged and rec...
Benefits! Lower fees - tx are bundles off chain reducing on chain #Ethereum tx fees making it more affordable for more people.
New applications - faster throughput and finality offer the scope for new applications and better user experience. 8/12
Generalised #Layer2 solutions behave like #Ethereum but faster and cheaper, e.g. #Arbitrum #Optimism and #Metis.
Application based solutions focus on a specific use case, e.g. #dYdX which is a high throughput exchange. 9/12
Many #Layer1 solutions emerged to try and compete eith #ETH with speed and cost, but lacked decentralisation and security.
But none have managed to successfully capture significant market share with #Ethereum TVL dominance at 65%. 10/12
Many #Layer1 solutions emerged to try and compete eith #ETH with speed and cost, but lacked decentra...
I wrote a recent thread on how the bear market is building the bull case for #Ethereum (linked below).
#Layer2 helps to realise that by offering up fast, cheap and secure access to #ETH and a whole world of new #DeFi use cases.
11/12
This is a simple overview of a complex topic. Let me know if you'd like me to cover #Layer2 in more detail.
If you've found the thread useful let me know your thoughts below, give me a follow, give the thread a retweet. 🙏 12/12

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