Since Ethereum is one of the most sought after networks in the crypto space, scalability becomes an issue that must be addressed amicably to get the best results.
The second layer of Ethereum (L2) aims to meet this challenge, as it is a distinct network that operates on top of the main network of Ethereum (Layer 1).
Therefore, more users and investments continue to flow into the second layer of Ethereum.
Lark Davis, a crypto market analyst, commented on Ethereum Layer 2 solutions by saying:
Ethereum is expanding here and now.
The second tier gains users and the total value is locked every day!
Arbitrum is currently the ninth largest TVL blockchain on the market before Elrond, and is based on the second tier of Ethereum.
Recently, StarkWare, a blockchain startup that specializes in developing Ethereum Layer 2 solutions, raised $50 million, raising its valuation to $2 billion.
Scalability is a challenge to typical blockchain design because every node in the network must process every transaction.
This limits the transaction processing capacity of the entire system.
Layer 2 allows transactions to pass through without each node processing the entire transaction.
Layer 2 solutions also seek to address the high gas charges exposed to the main network, as crypto investor Evan Van Ness noted:
Cumulative transactions on Ethereum are cheap.
But it will get much cheaper in the next few months in 3 ways:
1. Better data compression.
2. Upgrade EIP4488 (or 4490) which makes putting data on the main network cheaper.
3. More pooling transactions means the main network fee is split with more people.
Meanwhile, the realized market capitalization of Ethereum continues to increase after it reached an all-time high (ATH) of $217.47 billion.
Previous ATH of $217,476,801,997.56 was observed on 26 November 2021
View metric: pic.twitter.com/0RahHxZKbZ
— glassnode alerts (@glassnodealerts) November 27, 2021
Achieved market value is a metric calculated by valuing each unit of supply at the exact price it was last moved to in the chain or the last time a transaction was made.
Therefore, it does not count cryptocurrencies that remain unaffected.
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