Marc Andreessen is an Optimism investor. (Photo by Kimberly White/Getty Images for Fortune)
Ethereum is big and clunky. New layer 2 solutions promise to fix it. One is called Optimism, created ... [+] by Ethereum developers. It hasn't helped investors one bit. But crypto exchanges, others, say its a needed tool for making Web3 work.
When three ex-Ethereum ETH developers who built the Optimism OP blockchain in 2019 launched its own native token OP in May 2022, it was definitely no get rich quick scheme. If you could have shorted the OP token, you would have done well. OP fell 70% in its first 24 hours and is down 46% ever since. But OP is not for investors. This is for developers working on the Ethereum blockchain, creating decentralized apps for a Web3 future everyone is still waiting for and still being built. Word is that Optimism, the Layer 2 (L2) solution for Ethereum, is a hit with its target audience.
Moreover, crypto investors welcome it. They think it makes Ethereum better. Which was Optimisms goal all along.
"By making Ethereum more approachable and user-friendly, L2 solutions are cutting transaction costs and speeding up processing times, says From Zach Profeta, Senior Portfolio Manager for Sarson Funds in Indianapolis. Since Layer 2 networks still use ETH (the Ethereum token) for gas fees, increased adoption means higher demand for ETH. For those reasons and more, we are active in both Ethereum and emerging Layer 2 solutions like Base," he says, naming Coinbases own Layer 2 solution launched this year. Other L2s include Arbitrum ARB and Starkware (not tradeable).
L2 solutions provide faster smart contracts. Speed means less transaction fees, as well. Developers ... [+] are benefiting.
First, a brief explainer for those with Coinbase accounts who just invest in cryptocurrency but arent building dapps, or even know what a dapp is. (It stands for decentralized applications.)
L2 is needed to make Ethereum faster, and that keeps investors in ETH rather than selling for alternative blockchains like Hong Kong based Cardano ADA . The better L2s get, the more attractive Ethereum becomes. Better yet, Web3s future looks more attractive.
Optimism was built by Ethereum developers Jinglan Wang, Karl Floersch, and Kevin Ho. It is a roll-up scalable solution for Ethereum, which is a Layer 1 blockchain.
In short, Layer 1 blockchains are hard to build out so they are slower, expandable universes while Layer 2 blockchains are faster and more expandable and sit on top of the main chain, in this case Ethereum. There are two types of roll-ups. Optimism is one. Zero-knowledge rollups like Stark are the other ones.
These L2 chains store transaction data on the mainchain but move transaction activity to a sidechain. L2 chains take transactions out of the main network (mainnet) and process them off-chain, convert them into one single piece of data, and submit them back to the Ethereum mainnet. This makes them faster, and cheaper.
We have been using Optimism to build since it is hard to make derivatives-based financial products which require high throughput on Ethereum. We want faster transactions, says Gautham Santhosh, Co-founder of Dubai-based Polynomial Protocol, a decentralized crypto-derivatives trading exchange using the Synthetix protocol on Optimism.
Santhosh says Ethereum needs at least 13 seconds for transactions to settle. But using Optimism allows us to do it faster for our products and provide cheaper transactions with the same security of Ethereum, Santhosh says.
Optimisms open mainnet launched in December 2021. It is built on top of Ethereum.
Since then, Optimism has deployed over 7,000 contracts, on-boarded well over 300 thousand unique addresses, secured nearly $1 billion in value and facilitated nearly $20 billion in transactions, with around $24.5 million in revenue, the company said.
Aziz Kenjaev, former head of partnerships for the GammaX cryptocurrency exchange in Dubai (he left shortly after interview), said that the challenge for crypto exchanges is to offer a fast and cheap trading environment to users.
GammaXs business model and design was to go zero fee. For us, Arbitrum had a huge edge. Their transaction costs are lower than Optimism's. However, the Optimist's transaction fraud proof is faster than Arbitrum's. Both are optimistic rollups. Both of here to stay, and help dApp developers. The future of blockchain is fast execution with the lowest to imperceptible fees.
Marc Andreessen is an Optimism investor. (Photo by Kimberly White/Getty Images for Fortune)
Optimism stemmed from complaints about Ethereums slowness, which sort of came to a head in 2019. Optimisms developers created their first rollup design at that time.
They raised $3.5 million from Web3 investment firm Paradigm and IDEO CoLab Ventures.
Two years later, they have over $175 million in funding from Paradigm, and now from the Andreessen Horowitz a16z venture fund. That is run by internet pioneer and Forbes listed billionaire Marc Andreessen and investor Ben Horowitz out of Menlo Park, Calif.
Optimism has cumulatively saved users $2.69 billion in fees, 15.8 years of waiting for transaction confirmations, and currently secures $2.8 billion in onchain value, the company says.
They still are hard on themselves, saying on their blog page that no one has truly scaled Ethereum. And that includes us.
If Ethereum is ever to rival Google GOOG , for example, and take dapps to the masses, it needs internet-level scale and speed. No single blockchain today can offer that.
Optimism is dedicated to scaling Ethereum's technology and expanding its ability to coordinate people from across the world to build effective decentralized power structures, says Binji Pande, Developer Advocate at OP Labs, a global group of developers that work on Optimism that seem as dedicated to taking it to The Man as they are playing with computer code. We are building best-in-class software for running L2 blockchains.
Optimisms Ethereum Virtual Machine-like (EVM) architecture scales Ethereum applications without surprises, says Pande, meaning any developer who is familiar with building on Ethereum can build with Optimism's modular codebase, called the OP Stack, without needing to learn any new coding languages or have new technology requirements.
We have been developing products and applications on the Ethereum network since 2016, so we have seen the history of L2 implementation with our own eyes, says Ihor Kubalskyi, founder of QBEin, a blockchain development company in Tbilisi, Georgia.
What matters about L2 is the ability to group transactions the network bandwidth has increased with L2, and the cost of commissions for an individual user has decreased. Due to L2, Ethereum has become much more convenient and stable for real business processes. By moving some of our transactions to L2s, we can significantly reduce fees and improve transaction speed for our users.
Since Optimism launched its mainnet at the end of December 2021, Ethereums price in dollars has fallen 59.7%. L2 hasnt helped ETH enthusiasm among crytpo investors.
On April 22, Forbes cryptocurrency specialist Billy Bambrough predicted that bitcoin and cryptocurrencys in general were ready for a parabolic price move. Bitcoin BTC is up 7.6% since. Ethereum is up a little over 3%. Both are beating the Nasdaq.
On April 26, Bambrough called the end to the crypto winter. Both ETH and BTC rocketed on Sunday morning, but has since fallen down to April 9 levels.
*The writer of this article invests in bitcoin and Cardano.
More here:
For Cryptocurrency Investors, Optimism's Token Is A Bust, Yet Its Ethereum L2 Solution Is Not - Forbes