Ethereum’s Scalability Challenge and the Birth of Optimism
Ethereum is one of the largest names in blockchain, famous for introducing smart contracts and decentralized applications (dApps) that have reshaped the digital asset space. However, as more people use Ethereum, it’s been hit with a common issue: growing pains.
What does that mean?
Well, the busier Ethereum gets, the more congested and costly the network becomes, ultimately leading to high transaction fees and slower processing times. Think of it as a popular concert venue with only one entrance, eventually, the line just gets too long and congested.
To address these issues, developers have explored solutions that could improve Ethereum's performance without requiring an entirely separate blockchain. They then developed Layer 2 solutions. These are protocols designed to run on top of Ethereum's main network, or Layer 1, to offload some of the transaction load. The most prominent Layer 2 solution is Optimism, a protocol built to provide faster and cheaper transactions while leveraging the security of Ethereum's network.
Let's learn more about Optimism below!
What Is Optimism?
Optimism is a Layer 2 scaling solution created to help Ethereum work more smoothly. It doesn’t replace Ethereum; it works alongside it, tackling its scaling issues while maintaining Ethereum’s security perks. Optimism uses a technology called “Optimistic rollups” to handle transactions faster and at a lower cost.
Think of Optimism as a lane on a busy highway built just for high-speed vehicles. Instead of clogging up the main road (Ethereum), transactions can move into this “express lane” and drive by faster. This makes it possible for Ethereum to serve a larger crowd without slowing down the entire system.
Optimism has caught the attention of top DeFi platforms like Synthetix and Uniswap, which rely on it for smoother, faster operations.
How Optimism Works
The magic behind Optimism lies in “Optimistic rollups.” This process takes multiple transactions, bundles them together, and records them on Ethereum’s mainnet in one go. By handling transactions in batches, Optimism reduces the number of interactions with Ethereum’s main chain, making everything run faster and cheaper.
The “Optimistic” part? These rollups assume transactions are valid unless someone disputes them within a week by submitting a “fraud proof.” It’s similar to something like an “honor system” for the blockchain, if everyone agrees that transactions are valid, then great! But if there’s suspicion of a bad transaction, people can flag it. This keeps the system secure without the heavy lifting involved in verifying each transaction upfront.
Optimism also features the Optimistic Virtual Machine (OVM), which allows Ethereum-compatible smart contracts to run with little adjustment. For developers, this makes it easy to shift their existing Ethereum projects onto Optimism without a ton of rework.
The OP Token:
Launched in May 2022, the OP token is the governance token for Optimism, which means it lets holders have a say in how the protocol evolves. With OP, Optimism rolled out a unique community-focused governance structure known as The Optimism Collective.
Token holders participate in votes on things like upgrades, incentives, and fund allocation. The governance setup has two branches: the Token House (which oversees technical decisions and rewards) and the Citizens’ House (which manages public goods funding and supports community-beneficial projects through non-transferable NFTs).
Buy and Sell OP in a Tax-Advantaged Crypto IRA
For those interested in buying and selling OP, you can do so in a Crypto IRA at iTrustCapital. A Crypto IRA allows for tax-deferred or tax-free growth*, making it possible to hold OP and benefit from any future appreciation without the immediate tax impact typically associated with crypto trading.
Click here to learn more about Crypto IRAs
*Some taxes may apply.
DISCLAIMER
This article is for information purposes only. It does not constitute investment advice in any way. It does not constitute an offer to sell or a solicitation of an offer to buy or sell any cryptocurrency or security or to participate in any investment strategy.
iTrustCapital is a digital asset IRA software platform. It is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not associated with and has no direct relationship with OP. iTrustCapital is not affiliated with and does not endorse any particular digital asset, precious metal or investment strategy.
Cryptocurrencies are a speculative investment with risk of loss. Precious metals are a speculative investment with risk of loss. Cryptocurrency is not legal tender backed by the United States government, nor is it subject to Federal Deposit Insurance Corporation (“FDIC”) insurance or protections. Clients do not receive a choice of custody partner. The self-directed purchase and sale of cryptocurrency through a cryptocurrency IRA have not been endorsed by the IRS or any regulatory agency. Historical performance is no guarantee of future results.
Some taxes and conditions may apply depending on the type of IRA account. Investors assume the risk of all purchase and sale decisions. iTrustCapital makes no guarantee or representation regarding investors’ ability to profit from any transaction or the tax implications of any transaction. iTrustCapital does not provide legal, investment or tax advice. Consult a qualified legal, investment, or tax professional.
iTrustCapital makes no representation or warranty as to the accuracy or completeness of this information and shall not have any liability for any representations (expressed or implied) or omissions from the information contained herein. iTrustCapital disclaims any and all liability to any party for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising directly or indirectly from any use of this information, which is provided as is, without warranties.
© 2024 ITC2.0, Inc.
All rights reserved.