Topic: The Rise of Layer 2s Could Spell End for Altcoins (opinion) (Read 209 times)

Dash's recent delisting via bittrex aligns with that. As do other recent events. A unified and coordinated front across multiple spectrums usually indicates an agenda of some type is being pushed. It would appear they're endorsing crypto assets they believe they can use or control. While simultaneously throwing shade at crypto assets under the control of others, not affiliated with them like dash. To centralize and consolidate markets as is so common in this day and age.

I don't agree with Yago's analysis or think what he said was valid. Only wanted to take the time to acknowledge his attempt was much better than Jamie Dimon's. He came at it from a smart angle that was much less obvious than the majority of attempts.

Ethereum's partnerships with microsoft and JP morgan could be its main saving grace atm.

Two layer systems that would make it off-chain would cause a big spike in "debt" like banks do. It is not going to be named debt, but if you could wrap anything you want and call it the real thing without actually owning the real thing, that is not going to end up very well. Look at banks for example, do you really think that they have enough money in their accounts to cover for everything they do?

Two layer systems that would make it off-chain would cause a big spike in "debt" like banks do. It is not going to be named debt, but if you could wrap anything you want and call it the real thing without actually owning the real thing, that is not going to end up very well.

edan yago has been saying this for 5+ years. IMO, he's overly focused on this idea that all value must converge on one cryptocurrency---bitcoin.

he never expected ethereum to blow up like it did. he expected rootstock to emerge way ahead of it. it flopped instead.

i don't trust his read on the market. he's biased. he puts his anti-altcoin politics first and foremost, which IMO clouds his judgment re where the market is actually headed as a whole. he's telling us what he wants to happen, not what is actually gonna happen. with his track record, there is a big difference.

Interesting read. One of the smarter and more informed opinion pieces I've had the pleasure of reading.

He contends blockchains will lose prominence in a paradigm shift towards off chain layer 2 applications. And that alts whose unique blockchain features are their main claim to fame will fall by the wayside as a result of them being less suited to survive and thrive in an off chain world.

The idea that the better product wins in the end is probably right most of the time, however it is not always true, even if an altcoin had smarter developers and proceeded to include features that bitcoin did not had, what it is stopping the bitcoin developers to add the same functionality in the future denying in the process any reason for people to hold that coin in the first place?

This is why I do not hate altcoins as some other users do, altcoins are a sandbox where many features can be tested without affecting bitcoin and see if anything is worth to add to it, so if a coin really wants to beat bitcoin and become the leader of the market or at least survive as an independent coin then they need to have features that the developers of bitcoin cannot replicate.

I think with the quantum computing being developed now we would have to see " which one of them survives"
We need forks , we need subtle development over the years!! It is very essential now. I am really excited to see what development will happen in BTC and ETH, how secure the network will be and how much of a threat quantum computers really are.

To me, my favourite idea is the community that has the most good and active developers is the one that's going to see the most adoption. It could be bitcoin, eth or a few other coins. It might take a while for others to notice though which are more secure and more readily developed/forked.

Traders and investors could second this analysis as some alts are not maintaining pace with BTC ascension to $30k.

~snipped article https://www.coindesk.com/rise-of-layer-2s-altcoins-like-ethereum ~
Interesting read. One of the smarter and more informed opinion pieces I've had the pleasure of reading.

He contends blockchains will lose prominence in a paradigm shift towards off chain layer 2 applications. And that alts whose unique blockchain features are their main claim to fame will fall by the wayside as a result of them being less suited to survive and thrive in an off chain world.

Traders and investors could second this analysis as some alts are not maintaining pace with BTC ascension to $30k.

This seems like a good topic for discussion. How do you see things?

To me, my favourite idea is the community that has the most good and active developers is the one that's going to see the most adoption. It could be bitcoin, eth or a few other coins. It might take a while for others to notice though which are more secure and more readily developed/forked.

Phase 1 of the Bitcoin journey is complete. Over the past 10 years we have seen the Bitcoin network rebuff questions as to whether it would survive as a concept. Today, we see the bitcoin cryptocurrency gaining monetary premium as prominent institutional investors identify it as the ultimate inflation hedge. As we transition into 2021, observers are turning their attention to what a financial market built around the world’s first cryptocurrency will end up looking like.

The talk of the town over the past year has been focused on the potential of decentralized finance (DeFi) for digital assets and financial smart contracts, protocols and applications built on Ethereum. A development with equally promising potential to shake up crypto markets are layer 2 technologies, the overlaying network of services that expand on a blockchain’s capabilities.


This year has seen the rollout of the first layer 2 projects. In fact, Ethereum co-founder Vitalik Buterin himself has stated that layer 2 is now the roadmap for Ethereum, and by extension other blockchains, too. This means that other scaling solutions, or ways to improve a blockchain’s functionality such as tokens – application specific bits of code – could become obsolete.

Will the success of layer 2 developments mean the demise of altcoins?

2020: The high watermark for altcoins

In the beginning there was only Bitcoin, and it did something quite remarkable – it created value out of nowhere. The Bitcoin blockchain had been designed to create only one thing – bitcoin. As others jumped onto this alchemist bandwagon, a multitude of alternative coins were created that were meant to function in a specific application like health care, identity or gaming. In reality, almost all of these projects ended up going nowhere.

There was one notable exception. Ethereum, and its provision of smart contracts provided real functionality even if the results of its open system are dubious. Its native currency, ether, is the second-most popular cryptocurrency after bitcoin and it is rapidly growing. Ethereum’s first “killer app” was the initial coin offering, a way to create more tokens.

However, with the rise of DeFi in 2020 Ethereum’s technological flaws have come into relief.

Ethereum is notorious for being incredibly slow, expensive to use and inefficient to the point where it is sometimes difficult to even get a transaction in. Progress has been frustratingly slow on Ethereum 2.0, the blockchain upgrade designed to address these issues. As a result, Ethereum developers in 2020 turned to layer 2.

Arise, layer 2

This year, the technologies around layer 2 have matured dramatically. On Ethereum, this has taken the form of DeFi projects being built on rollups (off-chain aggregations of transactions inside an Ethereum smart contract) consisting of both Optimistic rollups and zero-knowledge proofs or ZK-Rollups. When performing transactions on a rollup, the only confirmations made on Ethereum are in aggregate, meaning that for the vast majority of transactions Ethereum’s native currency doesn’t need to be involved at all. Such a move significantly alters the importance of the underlying chain.

On Bitcoin, DeFi applications are being rolled out on Lightning network and sidechains such as RSK. 2020 was also the year that interchain solutions such as Polkadot, NEAR and Cosmos went live, effectively as layer 2 solutions for Bitcoin and Ethereum connected via “blockchain bridges.” For instance, Sovryn, a decentralized bitcoin trading and lending platform, takes advantage of Bitcoin layer 2 technology while deploying a bridge to the Ethereum ecosystem. Keeping its native currency as bitcoin and giving primacy to stablecoins results in a solution that is faster, cheaper, more secure and easy to use. What this means is that the primacy of the “chain” is diminishing fast.

Fragmentation

Until now the success of a blockchain lay with the number of people willing to believe in its mission. Buying into an initial coin offering or a token was similar to betting on that particular chain succeeding against competitors in a crowded marketplace.

Layer 2 solutions represent a fragmentation of the chain-first approach. Because there are so many layer 2 methods and systems, and no clear way for the ecosystem to coalesce around any one of them, the fragmentation we have seen this year will worsen. While layer 1 systems like Bitcoin and Ethereum have built-in interoperable standards, layer 2 does not. The implication is that the network effect will no longer be in the chain but in the assets. Look at bitcoin and tether in 2020. Both have migrated massive value across chains because the tokens themselves are the focal point, not the chains.

IN FACE LAYER 1 IRRELEVANCY, THESE ALTCOINS WILL BY NATURE LOSE THEIR JUSTIFICATION TO EXIST.

As fragmentation accelerates, exchanging value will increasingly rely on interoperable or “cross-communication” solutions. The various different rollups will eventually need to subscribe to a common set of standards, and those standards will be the tokens or assets, rather than the chains. In this new world, altcoins will be at a severe disadvantage when up against the likes of bitcoin and stablecoins. This is because up until now altcoins have been based on the promise of a chain with unique properties. Their existence has been predicated on the idea that they would be the native currency for a chain that would gain in importance.

In other words, the value of these currencies is derived purely from the fact they are the “native currency” of a chain with unique features. In face layer 1 irrelevancy, these altcoins will by nature lose their justification to exist. Monetary premia will accrue instead to the things to which monetary premia traditionally accrues, which is broad acceptance and deep liquidity.

This trend towards irrelevance will include ETH. People have assumed ETH as an altcoin should be valuable, because Ethereum is popular. But something strange has happened on Ethereum in that there is as much value on the Ethereum chain in the form of bitcoin, stablecoins and other tokens, as in ether.

The dollars and bitcoin on the Ethereum chain effectively provide the ability to transfer value without the need for ETH. Smart contracts can easily be ported to a different chain when transferring tokens over on a bridge (which is what happens whether you’re moving to RSK, Polkadot or a rollup). What we will begin to see is the breakup of the Ethereum ecosystem in a world where two notably bigger currencies, dollars and bitcoin, are accepted and liquid forms of value transfer. The primacy of ETH is unclear, it’s future uncertain.

What's coming

Looking forward, it is expected that fees on Ethereum will very soon become so high that new and current users alike will be pushed out. Some of them will abandon DeFi and self-sovereignty altogether and go to exchanges. Some will migrate to layer 2 in the form of rollups. And some will take advantage of the interoperability provided by “bridges” via RSK, Polkadot or Cosmos.

The fragmentation of the smart contract space is expected imminently. Instead of consolidating around the different base layer blockchains, a consolidation will occur around assets.

Tokens will flourish more than ever, but the nature of these tokens will change. Rather than trying to capture a monetary premia, tokens will represent other types of asset classes such as equity and debt in the form of crypto bonds and derivatives.

What we’re going to realize in 2021 is that the decentralized monetary system is effectively represented only by bitcoin and stablecoins. That’s it – they’ve won that game. Now that the game is over the next challenge is going to be the decentralization of the financial layer, and the creation of financial tokens will play an important part in that. For bitcoin, we are at the end of the beginning.

No longer a proto-money, bitcoin is becoming the reserve currency of the future of finance. For altcoins we are at the beginning of the end. Bitcoin is no longer limited to a single chain, and the theory of chain specific currencies is being debunked.

https://www.coindesk.com/rise-of-layer-2s-altcoins-like-ethereum