Most Recommended Layer 2 Ethereum Cryptocurrencies

State channels, Plasma, and rollups are the three main divisions used to classify layer 2 solutions. The Bitcoin Lightning Network creates two-way channels for users to transact fast and cheaply based on state channels. One of the original Layer 2 projects on Ethereum was Plasma, co-founded by Vitalik Buterin, which later developed into a rollup company called Optimism. State and Plasma can both be helpful on their own, but they are not capable of simulating all of Ethereum's features completely. Surprisingly, the problems with Plasma and state-channel might be resolved via rollups.

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The Layer 2 solution for Ethereum scalability with the greatest potential, both immediately and over time, is probably rollups. Rollups can be divided into two categories: optimistic rollups and ZK-rollups. They differ mainly in how network users decide if a new block brings the blockchain's state to the proper one. Until a block is disputed and proven to be untrue by any network participant within a challenge time, optimistic rollups assume that all blocks are legitimate.

Every block in a ZK-rollup must have a ZK-SNARK, a type of cryptographic proof, which verifies the new state is the correct one. A condensed version of the new state and the ZK-SNARK is relayed instead of sending the complete transaction data for each block to the main blockchain. The creation of ZK-SNARKs on Layer 2 for each block is computationally intensive, but the main network can swiftly verify them. Many think that ZK-rollups are the best long-term scalability solution for Ethereum since they are excellent Layer 2 solutions and Layer 2 solutions in general. They can significantly cut transaction fees and network congestion because they don't rely on difficulties like optimistic rollups.

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There aren't enough mathematical and programming proofs to address every aspect of smart contracts. The popular decentralized exchange (DEX) Loopring, however, already employs ZK-rollups to reduce transaction costs and increase speed for its users. Compared to Ethereum's mainnet, Loopring can process transactions 1,000 times faster and with much lower costs. For governance, staking for interest, and other purposes, Loopring has its own cryptocurrency.

Although some people refer to sidechains as Layer 2 technologies because they don't fully rely on the underlying network's security, many people consider them to be impure. They can have significantly lower costs and a lot higher transaction throughput than the main blockchain because they operate in parallel.

Most likely the largest sidechain, Polygon Network is well known for its low costs, high throughput, and astonishingly simple method of integrating Ethereum DApps. The utility token for Polygon Network, called Polygon (MATIC), is employed for transaction fees, staking, and governance.

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