What Is Optimism, the Ethereum Layer 2? • Benzinga

Missed out on the airdrop and want in on the action? You can buy OP tokens on Crypto.com!

Optimism is the hottest new token in the cryptocurrency space. It will be the main governance token for the top Layer 2 network, Optimism. OP is being airdropped to its users, donors, decentralized autonomous organization (DAO) voters and users of its top Layer 2 technology competitors.

Check out Benzinga’s guide on the Optimism Airdrop here to see if you are eligible.

Overview of Optimism

Scaling has been the top hot-button issue in the cryptocurrency space for years, ever since transaction fees on Ethereum started to skyrocket. Optimism is a Layer 2 network, a kind of blockchain built on top of another blockchain (called a Layer 1 network) to speed up transactions and reduce fees. 

Brilliant developers have come up with many different ways to build Layer 2 networks. The team behind Optimism, The Optimism Foundation, invented one of the most important kinds called rollups. Rollups move a large majority of transaction data and computation off the Layer 1 chain. This solution might seem like it’s just moving the problem to another less-trusted blockchain, which sacrifices security and decentralization. However, rollups still publish a small amount of state data (transactions, account balances) to the safer, more decentralized Layer 1 network to be validated. Assuming the rollup is built correctly, it should be almost as secure as the Layer 1 chain. 

Rollups fall into two categories: optimistic rollups (developed by the Optimism Foundation) and ZK (zero-knowledge) rollups. They mostly work the same way, but they use different proofs to validate transactions in the rollup. Optimistic rollups assume that every transaction is valid, and they rely on network participants to submit fraud proofs to roll back invalid transactions. ZK rollups use complicated cryptographic proofs called ZK proofs to validate every transaction one by one. ZK proofs are extremely fast and secure but are much harder to build and especially difficult to generalize. Until ZK rollups can be developed further, general-purpose optimistic rollups like Optimism will likely reign as the top Layer 2 rollup chains. 

Why Do People Use Optimism?

Many investors will buy OP to bet on the success of the Optimism network. The token will only have one main use beyond price speculation. It’s the governance token for the Optimism protocol. However, the governance system is different from most blockchains and decentralized applications. They generally look like shareholder votes for public companies but with a touch more decentralization. Anyone who wants to make a change or addition to the protocol (mostly the developers themselves) submits a proposal detailing it. The proposal is then voted on by token holders and if it passes, it is implemented.  

The Optimism Foundation believes that these kinds of simple token governance fall apart because of misaligned incentives and excessive centralization. Instead, it decided to split its governance between two co-equal chambers: the Token House and the Citizens House.

The Token House (made up of OP holders) will vote on project incentives, protocol upgrades and treasury funds. The Citizens House will be made up of holders of a special non-transferable non-fungible token (NFT). It will mostly vote on retroactive public goods funding. It is not yet known exactly how the Foundation will distribute citizenship, only that the Token House and the Citizens House will be involved in the process. 

Optimism History

The Optimism token is extremely new, but the Optimism blockchain has been out for about a year. The Optimism Foundation has been around for a lot longer than that too. It was born out of one of the first Layer 2 technologies called Plasma. Plasma was created by two of the most important developers in the cryptocurrency world: Vitalik Buterin, the visionary and co-founder of Ethereum, and Joseph Poon, the co-founder of the Bitcoin Lightning Network Layer 2 protocol. It took a few years for the Optimism Foundation to build the Optimism network. However, soon after it launched in 2021, it got one of the top apps on Ethereum, Uniswap, to port over. Since then it has slowly improved its network and attracted more applications and users. 

Where to Buy Optimism (OP) Tokens

Optimism is available on quite a few major trading platforms, despite how new it is. The best exchanges that offer it are Coinbase Global Inc. (NASDAQ: COIN), Crypto.com and Binance. Before you can start trading, you will need to set up an account and verify your identity if you haven’t already. Generally, this process requires your address, driver’s license (or other valid I.D.) and Social Security number. As soon as your account is verified, you should be able to deposit fiat currency (USD, EUR) or another crypto and start trading.

Optimistic Rollups vs. Other Layer 2s

The Optimism Foundation essentially invented rollups, but it’s far from the only working Layer 2 network. Optimism isn’t even the only chain using optimistic rollups. Optimism’s main competitor is Arbitrum, a similar network that managed to launch about a month earlier. In that short period, Arbitrum was able to gain a slight advantage over Optimism, even though there aren’t many noticeable differences between them.  

The first-mover advantage can be extremely important with similar networks or platforms. The top NFT trading platform is the best example of this in the crypto sphere. It has fewer features than it has major bugs, and it crashes much more often than its competitors; however, it hasn’t been dethroned. 

Luckily for Optimism, it has a better chance of overthrowing its competitors. Its new governance token will likely help attract developers and a larger user base to the network, especially because it was airdropped to so many prospective users. The networks that have the best applications will naturally beat out the competition.

A major reason for Ethereum’s success is that a vast majority of blockchain developers build their apps on it, which attracts tons of paying users. There is a diverse range of modern Layer 2 technology, but the user experience for each of them is almost identical. Transactions are often less than $1 each and process extremely quickly. The only thing that really matters is what a user can do on the network. If Optimism can bring in the best developers, it will likely be able to overtake Arbitrum and other Layer 2 chains with ease.

How to Store Optimism Safely

Hardware wallets are by far the safest way to keep your cryptocurrencies and NFTs safe. The top hardware wallet brand in the world, Ledger, also is one of the only ones that supports OP so far. Ledger offers three main models: the Nano S, the Nano S Plus and the Nano X. The Nano S is the most popular hardware wallet, and it’s all you need to secure your cryptos and NFTs. The Nano S plus adds more storage space for more applications and a larger screen. The Nano X has the same larger screen but also has Bluetooth functionality for seamless on-the-go use.

All Ledger models have the same certified secured chip that randomly generates, encrypts and safely stores your wallet’s private key. Without the private key, no one can access your wallet, no matter how hard they try. Ledgers support more than 1,000 different cryptocurrencies from multiple different chains including Bitcoin, Ethereum, Dogecoin, XRP, all ERC-20 tokens and many more. Before you can use your Ledger to store OP, you will need to connect it to a MetaMask wallet and add the Optimism network. Check out Ledger’s easy in-depth guide on how to connect here. 

Is OP a Good Investment?

Optimism has a great chance of attracting many more app developers and users with OP. The timing of the airdrop was an interesting choice and may work in its favor. The crypto market is still down heavily, and OP has been able to keep much more of its attention than it would in a bull market. Watch to see if more of the top applications on Ethereum start porting to Optimism. It would likely be the best signal for OP’s success.