Ethereum is currently the second most relevant cryptocurrency globally (after Bitcoin) and the first cryptocurrency in DeFi applications. Within the Ethereum ecosystem, there is what is called “layer 2,” which is a term used to describe solutions that aim to increase the scalability of a blockchain, in this case, making transactions “outside” the main Ethereum layer 1 chain.

Layer 2 objective

Layer 2 solutions aim to solve the poor scalability of the Ethereum network. However, the enormous success of its blockchain has made transactions on its network very expensive. So the scalability of Ethereum is essential for the usability of the network in the future. Currently, Ethereum faces great challenges to get ahead, especially due to the costs of transactions on its network, especially after the emergence of the DeFi ecosystem, since the costs, in some cases, have become “prohibitive” for many of its users, in such a way that one of the priorities for this platform is to increase its scalability.

Scalability

When it comes to increasing scalability, whether of Ethereum or any other network, it is said that it is “not capable” of satisfactorily processing the large number of transactions that are carried out on its network, which will generate (in some moment) congestion in the network, in addition to raising the costs of your transactions.

Ethereum layer 2 solutions

Ethereum currently only processes around 30 transactions per second. Although the network has been in the making for years, the ‘base’ protocol has not grown fast enough to keep up with its popularity; coupled with this, the driving force behind Ethereum’s growth is DeFi; Be it loans or decentralized exchanges, users must pay a relatively high “premium” for using the smart contract system.

Solutions that are built off the chain

Through this update, Ethereum will improve the performance of your transactions. Layer 2 solutions are built on top of Ethereum but “off-chain” to mitigate congestion. However, they depend directly on the security and purpose of the network to offer instant and affordable transactions, that is, transfer and exchange tokens or other similar operations. It is important to note that some layer 2 solutions are already working, and new projects and integrations arrive every day for this new ecosystem.

What do you think about this topic? Do you think this new ecosystem will give a better performance to the Ethereum network?

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