The Importance of Layer 2 Protocols in the Cryptomarket

The Lightning Network is considered by many as Bitcoin's best chance at returning to the days of instant transactions and minuscule fees.  Bitcoin has been suffering from scalability issues since 2015 when adoption began to reach record levels.  The Bitcoin blockchain is designed to handle 6-7 transactions a second and in the early days of BTC, this was more than enough but today, scalability is a huge concern.

Enter the Lightning Network

The Lightning Network is layer 2 protocol in that the computations are done off of the blockchain and then the results are recorded when the transactions are complete.  Not only does this solve BTC's scalability issues but it also opens the door for some new functionality to be added to the world oldest cryptocurrency.

Why Layer 2 Protocols are Revolutionizing the Cryptospace

The Lightning Network is Giving BTC Users More Functionality

Layer 2 protocols are enabling 1st generation coins such as BTC to harness the newest technology in the market.  Ethereum is the second largest cryptocurrency in terms of market cap and it is best known for its smart contract capabilities which today, are the backbone of the ERC-20 token community. The fact that Ethereum was able to offer this unique feature at a time when BTC wasn't also helped ETH to grow into its current market share.

BTC Smart Contracts

Lightning Network enables BTC users to utilize Smart Contract technology on the BTC blockchain and while the process is nowhere as easy as with ETH, it is still an awesome addition to see applied.  The prestigious university MIT recently revealed that they had been pioneering how to add complex smart contract functionality to BTC with great success and in public statements, university researchers explained how they incorporated the use of Oracles to automate BTC smart transactions based on a third-party’s input.

Oracles are third-party trusted inputs that can be used to trigger BTC Smart Contracts.  They enable BTC users to create active Smart Contracts that can monitor outside conditions such as stock prices, weather, or anything you desire.  In this particular experiment, the weather was used to initiate a small transaction on the BTC blockchain.

Layer-2 Protocols are Nothing New

Layer 2 protocols are nothing new in the cryptospace and some of the oldest coins in the market have been employing this unique technology with great success.  Below are some perfect examples of how layer-2 protocols have helped the cryptospace develop.

DASH DSTX

DASH utilizes a layer-2 protocol called DSTX to provide users with additional anonymity.  DASH is fungible meaning; coins are not individualized and can, therefore, be swapped out randomly.  The DSTX protocol allows a DASH user to utilize the PrivateSend feature.  When this feature is activated all the DASH in the transaction is sent to the DSTX layer and anonymized before being sent back to the blockchain and onto the receiver.

Ethereum Raiden Network

The Raiden Network Provides ERC-20 Tokens with a Layer 2 Protocol.

The Ethereum network utilizes the Raiden off-chain protocol to accomplish near instant transactions. Raiden is compatible with all ERC-20 tokens and this technology is already being used in a number of decentralized exchanges such as IDEX which allows users to exchange their ERC-20 tokens anonymously and in a Peer-to-Peer fashion.

Neo Trinity

The popular cryptocurrency NEO now has a layer-2 option known as the Trinity protocol which enables NEO to handle cross chain transactions.  This Layer 2 solution is designed to allow users to convert NEP-5 (NEO Tokens) to ERC-20 tokens.  On March 24th, Trinity's CEO made a public statement in which he confirmed the successful swamp and spoke on the game-changing technology.

Step up to the Next Layer

The future of Crypto is stacked and cryptos that are incorporating layer 2 protocols are seeing growing adoption.  Layer 2 technology opens the door for BTC to regain some lost market share in the coming months as the Lightning Network completes its BETA testing stage and hopefully in the future, there will be even more functionality added to the world’s original crypto.

What do you guys think?  Can Layer-2 protocols take crypto to the next level?  Let us know in the comment below.