Blockchain and cryptocurrencies have plugged Africans into a global financial system. Thanks to decentralized technology, individuals can send money within Africa and across the globe, store and save in less inflationary currencies, and even build wealth by participating in a myriad of crypto-economic activities such as Defi, trading, and operating crypto businesses. While crypto has unlocked a huge potential for financial inclusion and economic empowerment for Africans, technological and economic limitations of Layer 1 blockchains threaten this utopia. Since its inception, 3 major problems that have threatened the adoption and usage of crypto by many people, especially those in Africa are High cost of transaction(Gas fees), Scalability(Limited capacity to process many transactions), and privacy. For many Africans, the high cost of transactions is a major barrier. Fortunately, this has been a problem that crypto builders have worked on for several years, and there’s great news. The days of high-cost of transactions are almost behind us. And it’s thanks to Layer 2s. Heck, you can even call them rescue chains. Read on and you will understand why!
Before diving into Layer 2, it's essential to understand Layer 1. Layer 1 refers to the base layer of a blockchain network, such as Ethereum or Bitcoin. It represents the fundamental protocol and defines the rules and structure of the blockchain. As indicated earlier, these layer 1 blockchain struggle greatly in the face of real and high adoption. For instance, Bitcoin processes 7 transactions per second while Ethereum can only process thirty (30) transactions per second. Meanwhile, gas fees can spike to $62 and $83 on Bitcoin and Ethereum respectively, making these chains unusable. Blockchains need to evolve for faster transaction processing which will positively affect user experience, be scalable (can accommodate new users without breaking), facilitate rapid and frequent transactions without delays or bottlenecks, and integrate with systems, applications, and payment processors without causing disruptions or slowdowns. And this is what L2s do!
Layer 2 is a supplementary layer built on top of Layer 1. It operates independently but relies on the underlying Layer 1 for security. The purpose of Layer 2 solutions is to alleviate the burden on the main blockchain, enhancing its scalability without compromising security.
Using Off-chain scaling and State channels techniques, Layer 2 solutions can move transactions off leading chains like Bitcoin and Ethereum and process multiple transactions at a time. This helps de-congest layer 1, improves user experience, and significantly reduces transaction costs.
This reduction in transaction costs is perhaps why Layer 2 solutions are revolutionary, especially for adoption in developing countries in Africa. They make blockchain tech more accessible and affordable, empower local entrepreneurs to build more cost-effective solutions for consumers, and enable more financial inclusion in the region.
While there are many L2 solutions for different blockchains such as Lightning for Bitcoin, Arbitrum, Polygon, Zksync, and many others for Ethereum, Optimism has emerged as one of the most useful and promising L2s in the crypto space.
Optimism is a Layer 2 scaling solution for the Ethereum blockchain that aims to address the scalability limitations and high transaction costs of the Ethereum network. It achieves this by leveraging an approach called Optimistic Rollups. Let’s look at the various composition of Optimism.
Optimistic Rollups: it is the core technology behind Optimism. This technology allows multiple transactions to be executed off-chain and then rolled up into a single batch. This batch is then submitted to the Ethereum mainnet as a single transaction. This drastically reduces the amount of data that needs to be stored on-chain, leading to lower transaction fees and higher throughput.
Execution and Consensus Separation: Optimism separates the execution of transactions from the consensus mechanism. In traditional Ethereum, every transaction is executed on every node, which is a time-consuming process. Optimism, however, allows transactions to be executed off-chain on the Optimistic Ethereum network, while the Ethereum mainnet (Layer 1) only stores and manages the consensus data.
Fraud Proofs: Optimism uses a system of fraud proofs to ensure the security of transactions. When a batch of transactions is submitted to the Ethereum mainnet, it goes through a challenging period. During this period, any observer can challenge the validity of the batch by providing proof that a transaction in the batch was executed incorrectly. If a batch is successfully challenged, it is rejected, and the party that submitted the fraudulent batch is penalized.
Smart Contract Compatibility:
A unique feature of Optimism is its compatibility with Ethereum smart contracts. This means that developers can deploy existing Ethereum smart contracts on Optimism without modifications. This is a significant advantage as it allows for the easy migration of DApps to the Optimistic Ethereum network.
One unique thing that differentiates Optimism from other L2s is its vision and attempt at solving large-scale coordination problems by retroactively funding projects and public goods with the most positive impact for the collective good. It’s a concept that has evolved into a movement.
Imagine a world where everyone is awarded profit proportional to their positive impact. Distribute your software package for free, and get paid proportionally. We can call this powerful equation the “fairness ratio,” where impact = profit.
Ethers Phoenix is a lore on what it means to exist in worlds where mutual and early cooperators who contribute to and create better public goods systems get rewarded. In Ethers Phoenix, cooperation and coordination for the greater good can be a reality, as long as we remain optimistic.
This is Ether’s Phoenix: the angel who rewards you for summoning it, a kind of reverse Roko’s Basilisk. It is an algorithm that rewards the early cooperators who created the conditions for public goods funding to prosper.
To raise Ether's vision from the ashes, Optimism commits 100% of profits made from its centralized sequencer towards the development and funding of the Ethereum Protocol. Not only is Optimism making decentralized solutions like Ethereum more affordable and accessible within Africa, but it’s also the main layer 2 network committed to regenerative economic ideals, an idea that could be very beneficial to Africa’s prosperity and future.
How does it do this?
Through retroactively funding projects and builders who build contribute to the growth of the network
Through retroactive airdrops
Since it first announced its mission toward retroactively funding public goods in 2021, Optimism has undertaken two RPG funding rounds and retroactively funded hundreds of projects and builders who have contributed to the development and usage of the network. In its first round, about 10 million OP (Optimism's native token) were successfully allocated to builders. Thanks to its governance mechanism and community members,
Learn more about how the network is governed
By embracing Layer 2 solutions like Optimism, Africa can unlock its vast potential, allowing its people to participate more actively in the global economy and building a brighter, more optimistic future for the continent. As long as the vision of cooperation and contribution to public goods is nurtured, Africa can embrace blockchain technology to foster inclusive growth and make a lasting impact on its socio-economic landscape. The journey has just begun, and the road ahead is filled with immense possibilities for Africa's economic vibrancy and resourcefulness to thrive in the global landscape.