PART TWO: LAYER 2 CONSENSUS MECHANISMS: WHAT ARE THEY AND HOW DO THEY WORK?

Over a decade, these assets have contributed to a technological revolution that disrupted the financial world we once knew With a market cap of over $1 trillion, cryptocurrencies have established themselves as the new horizon for aspiring investors They provide a highrisk, high-reward investment paradigm that allows people to believe in financial freedom� At the same time, the already matured equities markets have seen their fair share of innovations� For example, stock trading apps like Robinhood and eToro have made equities more accessible to mainstream investors than ever That said, cryptocurrencies and stocks retain more than a few differences Understanding their dissimilarities is critical to deciding which asset(s) will suit you best

Stocks & the Stock Market

Robert Stone

Stocks, or equities, are financial instruments that represent fractional ownership of the company that issues its shares� Shares entitle holders to a portion of the corporation’s assets and profits relative to their holdings government agencies audit the company’s business, exchanges list the assets so stock market participants can speculate on their prices allowing them to grow without relying on loans or paying interest

Layer 2 Examples

The stock market is the collective marketplace where shares associated with publicly traded companies are bought, sold, and issued

Before stocks are publicly accessible, companies must go through a regulated process - the initial public offering (IPO) Then, after relevant ast week we went into a bit of depth about what layer 2 consensus mechanisms are, what they do, and how they work. We talked about Optimistic Rollups, ZK Rollups, and Validiums. I then discussed a bit about the contrast between layer 1 and layer 2 chains. Today I will finish up by explaining some of the more common layer 2's and what they do.

The market has two primary functions:

1 It gives companies a means to raise capital,

In general, layer 2s (which anyone can build), provide a greater range of options for end users as they harmonize with the Ethereum ecosystem� There can be a balance between the advantages of a layer 2 blockchain and the limitations of another layer 2

These are Some of the More Common Layer 2s:

General Layer 2s Defined

2� It offers investors the opportunity to share in a company’s profits. Investors can sell their shares at a higher price or access potential passive income through dividends

The general layer 2 project mirrors Ethereum's mainnet's performance and functionality, but with lower fees (gas). Here are a few examples:

Most stock trading activities are carried out through centralized or over-thecounter (OTC) exchanges Government agencies

(like the SEC in the US or the ESMA in the EU) regulate these financial activities Consequently, they provide a perceived “safe” environment where participants can transact with company shares and other eligible financial instruments control the issuance of cryptocurrencies� Instead, anyone can create a cryptocurrency, and exchanges can list them at their discretion

Issuance

Trading cryptocurrencies can be accomplished in a variety of ways:

investors own a part of the company they hold stock in� Conversely, cryptocurrencies don’t provide holders with a share of the business Instead, they’re speculative assets that can be traded in the open market

Stock exchanges can be either:

Physical, where traders buy and sell shares in person

Electronic, accessed solely through a computer

Finally, since stock exchanges list thousands of companies, a series of indexes, like the S&P 500 or Nasdaq 100, helps traders track the market’s performance

Cryptocurrencies & the Crypto Market

Cryptocurrencies are digital assets that use math to secure peer-topeer transactions without intermediaries While some cryptocurrencies are utility tokens, which offer a variety of functions, others will be classified as securities and subject to all the same regulations that stocks already are�

An investment contract is defined as an “investment in an enterprise with the expectation that profits will be generated by others ” Unlike stocks, government bodies don’t

ƒ Centralized exchanges (CEX) are platforms that facilitate crypto trading by matching buy and sell orders and taking a small fee for successful trades They allow users to trade for FIAT currencies in addition to other cryptocurrencies

Only companies that government agencies deem legitimate can issue stocks Stocks must follow strict regional regulations to get listed on an exchange When the initial number of shares has been sold, the company must apply to sell more, which could dilute its market value

In contrast, anyone can release a cryptocurrency without approval from any regulatory body Users must either do their own research or rely on trusted sources to determine a coin or token’s legitimacy