Despite the shortcomings of layer-1 blockchain, layer-2 was rolled out with much fanfare. Market-based research seems to suggest that distributed ledger technology (DLT), such as layer-2 smart contracts, carry the potential to distribute financial services among the most unbanked population. It is believed that their application can help drive global mainstream cryptocurrency adoption, despite being at a nascent stage of development and adoption.
Insights provided by Valuates Reports, a market research-based platform, showed that the global smart contracts market is expected to reach $315.1 million in 2021 to $1460.3 million in 2028, at a compound annual growth rate (CAGR) of 24.2%. “Layer-2 solutions are the future of efficient blockchain based financial infrastructure. Protocols such as Polygon, Arbitrum, Optimism, among others, aim to work towards scaling Ethereum and making it faster and efficient in processing transactions through the use of Zero Knowledge (ZK) rollups, sharding, state channels or side chains. These scaling solutions aim to break the 100,000 transaction process system (TPS) barrier, which currently exists on most blockchains,” Arjun Khazanchi, co-founder and chief legal and strategy officer, Rooba.Finance, a digital asset management platform, told FE Blockchain.
Experts believe that use of layer-2 smart contracts in cryptocurrency adoption can provide a transactional capacity base, which can be utilised in various user-based applications. According to Nasdaq, an American stock exchange, blockchains are expected to become more scalable as the technology behind layer-2 solutions. It is believed that the evolvement in shard chains and rollups will make decentralised finance (DeFi), non-fungible tokens (NFTs), among others, more accessible to users on account of reduction in transactions costs.
“Layer-2 smart contracts have multiple advantages that include scalability, reduced carbon footprint and decreased fees. Bitcoin and Ethereum are believed to be working on layer-2 solutions to increase their transaction speed which can be beneficial for them in the long run,” Prashant Kumar, founder and CEO, weTrade, a cryptocurrency-based platform, stated.
Reportedly, platforms such as Uniswap, dYdX, Curve Finance, QuickSwap, among others, have started to make use of layer-2 scaling solutions. The Global X Blockchain and Bitcoin Strategy exchange-traded fund (ETF) aims to make investments in companies which can benefit from the growing adoption of blockchain, including companies in digital asset mining, blockchain and digital asset transactions, blockchain applications, blockchain and digital asset hardware, and blockchain and digital asset integration.
Moreover, it is expected that the future of blockchain-based transactions is dependent on the success of layer-2 smart contracts-oriented solutions, and that the potential of underlying blockchain could be unlocked for usage in traditional finance.
“I believe that layer-2 smart contracts can benefit cryptocurrency exchanges. Layer 2s bundle the multiple off-chain transactions into a single layer-1 transaction. This reduces the data load and reduces the overall fees. Along with that, these projects also improve the user experience and expand the scope of DeFi applications. Due to such utilities and convenience, adoption of cryptocurrency assets and digital currencies can become easier,” Punit Agarwal, founder and CEO, KoinX, a cryptocurrency taxation platform, highlighted.