The Ethereum blockchain needs Layer 2 systems to help deal with “cost and throughput inefficiencies,” even though the scaling products themselves can reap revenue from the network as they become “competitive rather than complementary,” cryptocurrency exchange Coinbase said ( COIN) in a research report Monday.
“It is possible that the second layer will become the application layers that host the bulk of economic activity while Ethereum exists exclusively to store transaction data,” David Duong, head of institutional research at Coinbase, wrote in the report.
Layer 1 network is the core layer or core infrastructure of blockchain. Layer 2 Refers to a group of off-chain systems or discrete blockchains built on top of the first layer. a decentralized application (dapp) is a digital application that uses blockchain technology to keep user data out of the hands of the organizations behind it.
The report said that the future of Layer 2 could be a “zero-sum game” because Layer 2 which houses the majority of dapps could “power up the entire Ethereum ecosystem.” There are about 68.9 billion dollars in Total value insured On Ethereum, compared to $5.2 billion across Layer 2, the report said.
While TVL at Layer 2 is relatively small, the implementation of Zero Knowledge Ethereum Virtual Machines (zkEVM) It looks more achievable and could lead to “significant pulling power” in second-tier growth, the memo said.
Coinbase says that if more user activity goes to Layer 2 and those blockchains need their own tokens to enable transactions, it could reduce mask to Ethereum auditors, reducing their revenue. This could reduce the complexity on the platform and increase the amount of Ether (ETH) in circulation, potentially damaging the price of the cryptocurrency. The report said the drop in auditors could have a negative impact on the overall security of the network.
For now, transactions on the Ethereum mainnet will provide a solution for users who need or value “over-the-speed security,” the report said, noting that losses in cross bridge chain The loopholes reached $2 billion this year.
The memo said that more activity accumulating on a Layer 2 app would reduce congestion and fees on Layer 1 and could lead to better price discovery for ETH.