How Layer 2 Scaling Is Transforming the Global Payments Landscape

If you're a DeFi native, you will understand the unique pain of gas fees. As crypto continues to become more popular, congestion and network traffic result in higher fees and slow transaction times.

Fortunately, Layer 2 solutions are here to improve scalability, privacy, and other characteristics of the underlying blockchain. Their emphasis on scalability enables them to perform thousands of transactions per second. 

This makes L2s the perfect tool for transforming the payments landscape, especially pertinent as the crypto world demands more robust and user-friendly off-ramp solutions for users around the world.

Arbitrum, Ethereum's Layer 2, is one of the key networks which is well-positioned to address many of the issues facing the most active crypto degens. Let's see how - with a real-world use case of the first core banking system built entirely on Arbitrum as an example.

Scalable, Decentralized, Fast

Arbitrum has experienced a high level of growth since last year, but a surge was seen right after the airdrop of their native token ARB.

How does it work?

"Put simply, people and smart contracts ask Arbitrum’s blockchain to do something by placing transactions into the chain's ‘inbox’. Then Arbitrum processes it and outputs a transaction receipt. How Arbitrum processes that transaction—what determines its ‘chain state’—is decided by the transactions in its inbox," as is stated on Decrypt.

The key features of Arbitrum which make it great for decentralized finance protocols are:

1. Scalability - by processing transactions off-chain and then submitting them to the Ethereum blockchain, layer 2 solutions can significantly increase the number of transactions that the network can handle. This can lead to faster confirmation times and lower transaction fees.

2. Speed - competitively fast, Binance research states that "Arbitrum One has recently shared its latest performance report, demonstrating how it surpasses the Ethereum network in terms of total transactions processed. According to the report, Arbitrum One protocol processed a total of 1.26 million transactions in a week, while the Ethereum network processed just 939,000.," which is impressive!

3. Decentralized - Arbitrum is the first EVM rollup technology to achieve the second stage of decentralization. The Arbitrum Foundation announced the launch of DAO governance for the Arbitrum One and Arbitrum Nova networks, a massive leap forward in the decentralization of the two networks.

A real-world use case & the transformation of crypto payments

Fiat24, a Swiss fintech company governed by Swiss banking law, has introduced a decentralized application (DApp) to address these
challenges. The platform, operating under a Swiss fintech license, integrates the benefits of Layer 2 rollup blockchain Arbitrum in an attempt to revolutionize the global payments landscape. 

Through Fiat24’s DApp (accessible via its signature NFT), customers are able to use the crypto assets stored in their MetaMask or any other non-custodial crypto wallet to buy a Starbucks coffee, making their tokens instantly available for spending anywhere that Visa® is accepted.

Chief Technology Officer of Fiat24, Nico Buechel, commented: “I believe that Arbitrum has achieved great things over the past couple of years and it is very inspiring to see the growth that the team at Offchain Labs have achieved. Arbitrum offers several benefits and there are many reasons why we chose to build on it rather than any of the other possible chains available.”

More Layer 2s Strive to Improve Crypto Payments

Two significant examples of layer 2 solutions are the Bitcoin Lightning Network and the Ethereum Plasma. Despite having their own working mechanisms and particularities, both solutions are striving to provide increased throughput to blockchain systems. 

Whether they use payment channels (conducting multiple transactions off-chain and settling the final outcome on the layer 1 blockchain), sidechains (independent blockchains that are interoperable with the main blockchain), state channels (allowing parties to engage in multiple transactions and smart contract interactions without involving the main blockchain until the final settlement), or Rollups (Layer 2 constructions that bundle multiple transactions into a single transaction on the main chain), several Layer 2 solutions are actively addressing payment issues in the cryptocurrency space.

By moving most transactions off-chain or aggregating them on the main chain, layer 2 solutions provide enhanced user experiences while still leveraging the security and decentralization of the underlying layer 1 blockchain.

Arguably one of the more impactful opportunities to see the cryptocurrency sector really take off, Layer 2's like Arbitrum are paving the way for mass adoption and increased usability. And, at the end of the day, that's all that we want to see - a digital asset class not just for Hodling, but also for spending.

This story was distributed as a release by fiat24 under HackerNoon’s Brand As An Author Program. Learn more about the program here: https://business.hackernoon.com/brand-as-author