Ethereum’s Scaling Race: Which Layer 2 Crypto Is The Best Buy Right Now?

In recent years it has become clear that Ethereum (ETH -0.75%) has experienced significant growth. However, as a result of becoming one of the most popular blockchains in the world, the network has been plagued by slow transaction speeds and costly fees. This extreme congestion has created a demand for efficient layer 2 scaling solutions.

Layer 2 scaling solutions are built on top of the Ethereum blockchain to enable faster and cheaper transactions while maintaining the blockchain’s decentralization and security features.

There are currently a handful of layer 2 scaling solutions that aim to solve Ethereum’s problems. But the top three today – and also those with the most long-term potential – are Arbitration (CRYPTO:ARB), Optimism (OP)and Polygon (MATIC -0.71%).

Each of these solutions works slightly differently, and as such has its own advantages and disadvantages. Let’s see what sets these competitors apart and perhaps deserves your hard-earned money.

The team 2 breakdown

To start, it should be clarified that all these Layer 2 solutions are trying to achieve the same thing: Make Ethereum faster and cheaper. For the most part, they all use similar processes, but vary slightly in how they actually scale up Ethereum.

These differences can be highly technical and are probably better saved for a conversation another day, but the key factor to understand is that all of these solutions present trade-offs depending on what they prioritize.

For example, both Arbitrum and Optimism use rollups, which combine groups of transactions into a single transaction. But Arbitrum does it in a way that is a little slower, but still dramatically cheaper than Optimism. Looking at Polygon, the method of using a sidechain to process transactions makes it less decentralized than Optimism or Arbitrum.

However, Arbitrum and Polygon have robust compatibility with Ethereum, making them good options for developers looking to create decentralized apps.

Each solution has its own advantages and disadvantages, but to really understand which ones are most in demand, we can look at some statistics.

By the numbers

To quantify each solution, it can be useful to compare simple metrics such as speed and transaction costs since these are essentially the two reasons why there is a demand for a Layer 2 solution.

Polygon is capable of processing as many as 65,000 transactions per second while maintaining low fees that typically range between $0.1 to $0.5 depending on the transaction size. Arbitrum allows 40,000 transactions per second, with fees ranging from $0.5 to $0.7. Optimism has the capacity to process up to 2000 transactions per second, and fees are slightly higher compared to Arbitrum and Polygon, ranging from $0.6 to $0.9.

Other statistics – such as the number of wallets, number of transactions and total value locked – can also help paint a clearer picture of the Layer 2 landscape.

When it comes to the number of wallets and the number of transactions, the race is really not even close. Polygon simply dominates. While Optimism lags significantly behind Arbitrum and Polygon, Arbitrum is gaining some ground on Polygon thanks to its recently released token that came out in March.

The other metric to consider is Total Value Locked (TVL). You can think of this as a way to measure the value each solution supports in decentralized applications. The larger the TVL, the more valuable the solution. Surprisingly, Arbitrum has the highest TVL among these three, coming in at around $2.2 billion. Polygon follows at $1.1 billion, and Optimism is third with $920 million.

The front runner

Considering this combination of statistics, it is clear that Polygon and Arbitrum provide developers and users with a valuable solution. Both have proven use, which is reflected in several sets of statistics.

An investment in both might be plausible, but if there’s one Layer 2 solution that deserves your money, it’s probably Polygon. It has a friendly developer environment, controllable usage and the best: a host of partnerships with some of the world’s most recognizable brands.

In the last year or so, companies have included JPMorgan Chase, Starbucks, Disney, Nikeand Meta platforms have all used Polygon in different ways to facilitate new blockchain-based business models.

With its price still down 62% from its all-time high, Polygon appears to have significant long-term potential, just the kind of thing investors should be looking for.

If there is one downside to Polygon, it would be its higher levels of centralization. If decentralization is a priority, Arbitrum seems to be the best choice. However, with the new token only a few weeks old, I personally would like to see Arbitrum build more of a track record.