A Beginner's Guide to Layer 2 Networks

Up until recently, Rainbow and many other blockchain projects have only been compatible with Ethereum—the world's public decentralized ledger. Ethereum is extremely secure and highly reliable, but it isn’t always well suited for speed and efficiency.

Additionally, transaction costs can be quite high at times, making it unfeasible for many people to use it. Because of this, the Ethereum ecosystem has started to create additional layers that are compatible with Ethereum and support its load. Here at Rainbow we call these extra layers "Networks", but you might also hear people call them Layer 2s and Sidechains.

We currently support these networks:

What does this mean for you? It means inexpensive and instant transactions. On a network like Polygon, you might only pay $0.0005 in comparison to a $5 transaction on Ethereum.

But what exactly are Networks, how do they work, and what are the differences between them?

Sidechains vs Layer 2’s

There are 2 basic types of Networks: Layer 2s and Sidechains.

sidechain is a totally distinct and separate blockchain that is compatible with Ethereum. It uses a different consensus mechanism than Ethereum and has its own security measures. Sidechains also tend to be more centralized than Ethereum. Assets can be moved back and forth between a Sidechain and Ethereum using a “bridge”. Polygon is an example of a Sidechain, and it's the first one we're supporting in the Rainbow app.

Layer 2 networks on the other hand are not separate blockchains. Instead, they combine large quantities of transactions off-chain (off of the Ethereum blockchain) before then submitting them bundled together on-chain, thus relying upon the same security and consensus mechanism as Ethereum.

Optimism is an example of a Layer 2 network, and it's the first one being added natively to Rainbow. Optimism is called an "optimistic rollup" because it "assumes the best" and defaults to submitting the minimum amount of information required with each bundle of transactions. In the case of fraud or dispute, additional information and documentation are then provided.

Which is better?

Every network is different, and each comes with its own set of strengths and weaknesses. There isn't a single solution that can do everything, so you may find yourself wanting to use multiple networks depending on what you're trying to do.

For example, if you're wanting to distribute a lot of NFTs to many different people, it might make sense to use a Sidechain like Polygon.

If you like Ethereum because you trust its consensus mechanism and security, then Layer 2 networks might appeal to you more than a Sidechain because they are tied more closely to Ethereum.

How do you use networks?

In order to get started with Networks, you'll need to first send assets to the Network of your choice using its Bridge. The Bridge’s website will walk you through the process.

Once you have assets on the Network, you can then send them to friends, buy collectibles, use compatible apps, and much more. All while benefiting from the inexpensive and near-instant transactions.

Purchasing an NFT Using Polygon

As an example scenario, if you wanted to buy an NFT from OpenSea that is on the Polygon network, these are the steps you would take:

1. Obtain some Matic, the native currency of the Polygon blockchain. You can get Matic by swapping for it within Rainbow or by purchasing it from a crypto exchange like Coinbase or Gemini and then sending it to your wallet. 

2. Go to the Polygon Bridge and send the Matic to the Polygon Network. 

3. Connect your wallet to OpenSea using the Polygon Network.

4. Choose the NFT you want to buy and confirm the transaction within your wallet!

Using Uniswap on Optimism

If you want to start swapping tokens and avoid the high transaction fees of Ethereum, there is an early version of Uniswap on Optimism with a limited number of tokens. Here's how you could get started using it:

1. Go to the Optimism bridge which is called the Gateway and deposit some ETH.

2. After the deposit is finished, go to Uniswap and connect your wallet using the Optimism Network.

3. Start swapping!

Using QuickSwap on Polygon

QuickSwap is a decentralized exchange similar to Uniswap, but it runs on the Polygon Network. You can make fast and cheap token swaps using it. Here's how:

1. Obtain some Matic, the native currency of the Polygon blockchain. You can get Matic by swapping for it within Rainbow or by purchasing it from a crypto exchange like Coinbase or Gemini and then sending it to your wallet. 

2. Go to the Polygon Bridge and send the Matic to the Polygon Network. 

3. Connect your wallet to QuickSwap using the Polygon Network.

4. Start swapping!

Important notes:

  • Never send an asset on a Network like Polygon or Optimism to a wallet address that doesn't support it.

  • Sidechains typically have a different cryptocurrency that is used for gas fees rather than ETH. For example, Polygon's native currency is Matic. You'll need at least a small amount of Matic to do anything on the Network.

  • Withdrawals from some Networks like Optimism back down to Ethereum can take up to 1 week. Be aware of this as you plan your activity!

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