Thursday, June 13, 2024

Will the next crypto bull run be dominated by L1s, L2s or something else?

Get ready for the “crypto summer” as the next bull run in the cryptocurrency market may be dominated by layer-1 (L1) solutions, layer-2 (L2) solutions, or something entirely different. Cointelegraph Research has released a new report that delves into the increasing number of solutions improving security, privacy, and speed from existing protocols. With projects like Polygon offering L2 solutions to scale Ethereum, it raises questions about the implications of L2s and how they compare to L1s like Avalanche and Hedera. This report provides insights and analysis to help you navigate the evolving landscape of the crypto market and make informed decisions.

Will the next crypto bull run be dominated by L1s, L2s or something else?

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Introduction to the Topic

If you’ve been following the crypto market, you’ll know that Bitcoin and other cryptocurrencies have been on the rise, signaling the potential start of a new bull market. During the crypto winter, various projects have been growing and gaining users, with some innovative solutions like layer-2 (L2) protocols coming to the forefront. But what exactly are L1s and L2s, and what implications do they have for the future of the crypto market? In this article, we’ll explore the rise of L1s, L2s, and other solutions in the blockchain space, and how they can impact the next crypto bull run.

Overview of L1s and L2s

To understand L1s and L2s, let’s start with some definitions. Layer-1 (L1) protocols are the base protocols in the blockchain ecosystem, such as Bitcoin and Ethereum. These protocols can be used with third-party layer-2 (L2) solutions, also known as mainnets or primary chains. L2 solutions are built on top of L1s and help scale the primary protocol. They enable thousands of low-value transactions to be processed on parallel blockchains, with records eventually transferred to the main blockchain for immutability.

L2s play a crucial role in overcoming the scalability limitations of L1s. They allow for faster and cheaper transactions, increased privacy, and improved user experiences. L2s can be seen as a complementary layer to L1s, enhancing their capabilities and addressing their shortcomings.

Will the next crypto bull run be dominated by L1s, L2s or something else?

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Implications of L2s

Building on L2s offers several advantages. First, it allows projects to benefit from the scalability and speed improvements that L2s provide. This is crucial as transaction fees and network congestion have been ongoing challenges for many L1 protocols. L2s offer a way to alleviate these issues and improve the overall efficiency of blockchain networks.

Investors also see opportunities in L2s. As L2 solutions continue to gain traction, projects built on these protocols can attract more attention and funding, leading to potential returns for early investors. L2s are seen as a promising area for growth and innovation in the crypto space.

Competitiveness of L1s

While L2s have their advantages, it’s essential not to overlook the competitiveness of L1s. Case studies like Avalanche and Hedera demonstrate how L1 protocols can evolve and stay relevant in a rapidly changing market. These protocols offer unique features and capabilities that differentiate them from L2s and newer technologies.

Newer technologies, however, are also challenging the dominance of L1s. They offer increased transaction speeds, lower fees, and improved scalability, making them attractive alternatives for developers and users. L1s must adapt and innovate to maintain their competitiveness in the ever-evolving blockchain ecosystem.

Will the next crypto bull run be dominated by L1s, L2s or something else?

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Key Findings from the Report

The Cointelegraph Research Terminal Report provides valuable insights into the current state of L1s, L2s, and emerging technologies in the cryptoverse. It highlights up-and-coming projects and discusses the case studies of Avalanche and Hedera, showcasing how these L1s compare to newer technologies.

The report also examines the significance of asset tokenization and account abstraction in driving the adoption of next-generation protocols. Asset tokenization allows for the representation of real-world assets on decentralized ledgers, while account abstraction simplifies user experiences by removing certain requirements.

The Need for Scaling Solutions

Scalability is a critical challenge for blockchain networks, and it’s essential to explore solutions that address this issue. The report emphasizes the necessity of scaling solutions to overcome the limitations of L1s. It provides an overview of the current state of scalability solutions, including bridges and projects focusing on interoperability.

Combining elements from different protocols is another approach to scalability. Layer-0 (L0) protocols act as a base layer that enables interoperability between L1s and L2s. This approach enhances the overall efficiency and effectiveness of blockchain networks, paving the way for further scalability.

Improving Ethereum Gas Fees

Gas fees have been a significant issue for Ethereum users, often costing more than the value of the underlying asset. The report highlights the need to combat high gas fees and improve the user experience. It discusses various solutions, including increased scalability, transactions per second (TPS), and interoperability.

Improving Ethereum gas fees is crucial for the wider adoption of blockchain technology. The report includes a chart showing the fluctuation of transaction prices on Ethereum, emphasizing the unpredictable nature of current gas fees.

Comparison of Protocols

TPS is a crucial factor that distinguishes newer protocols from older ones like Bitcoin and Ethereum. While Bitcoin and Ethereum act as their own L1s, they lack intrinsic solutions for operating at speeds comparable to newer networks. Layer-0 protocols and L2 protocols help fill in the gaps and overcome the limitations of L1s.

The report compares the TPS speeds of different protocols, showcasing the advancements made by newer networks. It emphasizes the importance of speed and efficiency in driving the adoption of next-generation protocols.

Emerging Trends in Protocols

The report identifies several emerging trends in the crypto market that are shaping the narrative around L1s, L2s, and other protocols. Asset tokenization, particularly the digital representation of real-world assets, is poised to play a significant role in the adoption of next-generation protocols. As adoption rates increase, transaction congestion may become a challenge that needs to be addressed.

Account abstraction is another trend highlighted in the report. It focuses on improving user experiences by simplifying requirements and enhancing user-friendly features. L0s and L2s can contribute to the mass adoption of blockchain technology by making it more accessible and user-friendly.

Insider Insights from Industry Professionals

The report also includes valuable insights from industry professionals who are at the forefront of blockchain technology. These experts provide in-depth analysis and perspectives on newer protocols and emerging trends. The Cointelegraph Research team combines their finance, technology, and research expertise to deliver accurate and insightful information.

The team utilizes APIs from various sources to ensure the accuracy and usefulness of their analyses. With their combined talents and experience, the Cointelegraph Research team is well-positioned to provide comprehensive insights into the blockchain scalability showdown.

In conclusion, the rise of L1s, L2s, and other solutions in the crypto market presents exciting opportunities and challenges. Understanding the implications of these protocols is crucial for investors, developers, and users looking to navigate the ever-changing blockchain ecosystem. The Cointelegraph Research Terminal Report offers valuable insights and expert analysis to help stakeholders make informed decisions in the next crypto bull run.