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

Most centralized exchanges require users to KYC (know your customer) This procedure can be completed in a few minutes, but that isn’t the only step CEXs keep the private keys of the assets stored on their exchange The phrase “not your keys, not your coins” means that if you don’t hold your private keys, you don’t really own the assets that you may consider yours Moving coins or tokens from a custodial wallet to a self-custodial wallet can be compared to accessing a stock’s paper shares. The most significant difference is the absence of intermediaries required You don’t need to pay anyone to move your assets from a CEX to a self-custodial wallet Additionally, having access to your private key allows you to spend your crypto immediately and without restraint� You can transfer assets to your wallet in just a few minutes and remain in control of your funds at all times

Finally, the barrier to entry is much lower in cryptocurrency than in the traditional market Stock market investors must reserve considerable capital before they can participate

When determining a stock’s value, investment banks factor in the company’s physical assets and past performance, making valuations easily verifiable through fundamental analysis

In most cases, newlylaunched cryptocurrencies aren’t backed by established companies They have no historical financial data before their initial listing As a result, their values are more subjective, and their prices are readily manipulated with hype campaigns and innovation promises rather than historical data While it doesn’t come without increased risk, this allows cryptocurrencies to make astronomical gains in a short time, which is nearly impossible with stocks

Results In Lower Volatility

than many cryptos also means investors must wait longer to see significant ROI.

Concluding Words

Robert Stone

Market Maturity & Volatility

The stock market has been around since the 17th century, meaning it’s much more mature than cryptocurrency Given this advantage, stock markets have considerably higher volumes and offer a wide diversity of company shares Moreover, higher liquidity enables traders to buy and sell securities with tight spreads The stock market’s long history also 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.

By comparison, cryptocurrencies are still a nascent asset class� With only a decade of trading history, lower volume, and much lower liquidity, cryptocurrencies are highly speculative and extremely volatile For instance, where a 5% change in a company’s stock price is an extreme event, cryptocurrencies routinely swing by 10%+ in a single day

Layer 2 Examples

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

Many perceive the stock market’s lower volatility to mean that investing in securities is more stable and less risky than cryptocurrency However, recent events have shown that this isn’t always the case Furthermore, low volatility

These are Some of the More Common Layer 2s:

General Layer 2s Defined

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

Stocks and cryptocurrencies each offer advantages and disadvantages� In recent years, however, top cryptocurrencies have outpaced stock market returns by at least 10:1 This is without considering highly volatile cryptos that have gained 5000x or more The current bear market might be a once-in-a-lifetime opportunity to acquire some undervalued assets and prepare for an upwards cycle Whether the increased risk is worth your while is up to you to decide Final thoughts: You don’t have to choose just one