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ethereum's layer 2 (L2) blockchains could start a war over which of them offers the lowest cost fees in 2024, according to a Jan. 25 report. crypto-user-report-copy” target=”_blank” rel=”noopener noreferrer”>report by on-chain data platform Flipside. This dispute could occur if a bull run begins in 2024, which would increase transaction costs for ethereum and cause users to look for alternatives.
Additionally, a more competitive environment for L2s could result in smaller margins for projects, better user experience, and renewed interest in those chains' governance tokens, such as OP, ARB, and POL. Ultimately, Flipside analysts believe that this war will accelerate the adoption of EVM-compatible blockchains.
EVM stands for ethereum Virtual Machine, which can be simply understood as the software that translates and executes smart contract commands. Thus, the existence of a decentralized application like Uniswap or Aave requires an EVM to process the information sent from its smart contracts.
Another catalyst for broader adoption of ethereum L2 is the Dencun upgrade, coming in the first half of 2024, which will introduce “blobs.” Blobs are transactions capable of handling large amounts of data and can be attached to ethereum blocks. As a result, L2 will be able to use those blobs to store transaction data, freeing up more space on ethereum blocks and increasing L2 performance.
New market entrants
The Flipside report also mentions expectations for more blockchains launching in 2024 than during the previous year. This could mean that more blockchains with specific use cases will take advantage of each network's advantages.
Those new chains will emerge to meet new and existing demand, and ethereum L2s might have to fight for user interest as there is still appetite for new blockchains, according to Flipside.
Furthermore, the report highlights that new blockchains were still relatively new during the bull run observed between 2020 and 2021. However, those chains have made significant progress in the last two years with respect to cross-chain interactions and transfers, which which makes it easy for Web3 users to interact with multiple threads.
While the majority of cryptocurrency users will continue to interact with a single chain, the report notes, “the broader crypto community will become more mobile, flexible, and willing to move across different chains to take advantage of various opportunities.” Therefore, in addition to their war against the ethereum ecosystem, L2s may face more external competition this year.
