According to the January 25 report from Flipside’s onchain data platform, Ethereum Layer 2 (L2) blockchains may initiate a battle where one of them offers the lowest transaction fees in 2024. This conflict could arise if a price surge occurs in 2024, increasing transaction fees for Ethereum and prompting users to seek alternative solutions.
Furthermore, increased competition in the L2 environment may result in smaller profits for projects, a better user experience, and a renewed interest in the governance tokens of that chain, such as OP, ARB, and POL. Ultimately, Flipside analysts believe that this competition will accelerate the adoption of blockchains compatible with the Ethereum Virtual Machine (EVM).
EVM stands for Ethereum Virtual Machine, a software that interprets and executes smart contract commands. Therefore, the existence of a decentralized application like Uniswap or Aave requires EVM to process information sent from their smart contracts.
Another catalyst for wider adoption of Ethereum L2 is the upcoming Dencun upgrade, scheduled for the first six months 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 can use these blobs to store transaction data, freeing up additional space in Ethereum blocks and increasing L2 throughput.
New Market Participants
Flipside’s report also addresses expectations that more blockchains will be launched in 2024 compared to the previous year. This could mean more blockchains with specific use cases taking advantage of the strengths of each network.
According to Flipside, these new chains will emerge to meet both new and existing demands, while Ethereum L2 may have to compete for user benefits, as there is still demand for new blockchains.
Additionally, the report emphasizes that these new blockchains are still relatively new in the period of price increase from 2020 to 2021. However, they have made significant developments in the past two years in terms of interaction and transfers between chains, making it easier for Web3 users to interact with multiple chains.
While most cryptocurrency users will continue to participate in a single chain, the report points out that the “crypto community, in general, will become more dynamic, flexible, and willing to move across different chains to leverage various opportunities.” Therefore, in addition to the competition within the Ethereum ecosystem, L2 may face increased external competition this year.
