What Is Optimism Crypto: A Layer 2 Chain Working Toward the Common Good
Key Questions Answered
- Optimism is a Layer 2 scaling chain that operates on top of the Ethereum blockchain to reduce congestion, transaction fees and processing time.
- The Optimism project is governed by a non-profit, the Optimism Foundation, which has pledged to work toward the development of infrastructure that “promotes the growth and sustainability of public goods.”
- Optimism is currently the second largest Layer 2 chain in terms of total value locked, behind Arbitrum.
Anyone who has spent any time in crypto will be familiar with Ethereum’s scalability problem–a lack of capability to process a high volume of transactions fast enough, resulting in high gas fees and slow processing times. In response to this, other blockchains termed “Ethereum killers” such as Avalanche, Solana and Fantom have risen to the challenge.
At the same time, some developers are taking a different approach to Ethereum’s limitations. Instead of directly competing with it as a different Layer 1 blockchain, as the above-named Ethereum killers are doing, Layer 2 solutions seek to complement the Ethereum ecosystem, by providing a “flyover” of sorts, taking the load off the main Ethereum net and thus alleviating congestion.
What Is Optimism? An L2 Scaling Chain
Optimism is one such Layer 2 (L2) chain, which means that it operates on top of the Ethereum blockchain (a Layer 1 chain), to help ease congestion and in turn reduce transaction costs and processing times.
Optimism uses optimistic rollup technology, which enables large volumes of transaction data to be “rolled up” into one batch of data on Ethereum, so that there is only one transaction fee to be charged. This way, transactions are processed quicker and cheaper, while relying on the security of L1 blockchains. It is called “optimistic” because transactions are considered to be valid until proven false.
Another value proposition of Optimism is its developer-friendly environment; those who have a vision for building a decentralized app (DApp) but do not have the necessary blockchain expertise can make use of Optimism’s developer toolkit. It claims to not only be compatible with the Ethereum Virtual Machine but equivalent to it, meaning DApps built on Ethereum can be seamlessly integrated with the Optimism network.
Optimism’s “philosophy” rests on the four core values of simplicity, pragmatism, sustainability and finally, optimism–the hope that one day, the world can have a truly decentralized Web.
Ever since it launched at the beginning of 2021, Optimism has grown rapidly to support an ecosystem of DeFi, NFTs, wallets, DAOs and tools. It currently ranks as the second largest Layer 2 solution, just behind Arbitrum, with over $545 million total value locked at the time of writing.
Who’s Behind Optimism?
Optimism is governed by the non-profit Optimism Foundation which aims to create “rails for highly impactful projects that don’t have a business model to succeed.” Those who hold Optimism’s token OP have voting rights via a two-tier governance system which decides on technical decisions related to Optimism, such as software upgrades, as well as public-goods funding decisions.
The Foundation has pledged to donate all profits toward the development of public goods. In line with this public-focused mission, the Optimism Collective was launched as a “large-scale experiment in digital democratic governance.” This Collective comprises communities, companies, and individuals who will work together towards a democratic, sustainable, and publicly-beneficial Web 3 future.
The $35 million Optimism Theft
At the end of May 2022, as Optimism was preparing to airdrop its first batch of tokens, 20 million of those tokens worth some $35 million were stolen. The tokens were supposed to go to market maker Wintermute, but a human error resulted in these tokens ending up in the hands of a hacker.
Wintermute admitted its mistake and took it upon itself to recover the tokens. Ultimately 17 million tokens were returned by the hacker after he reportedly sold one million tokens in exchange for Ethereum and sent two million of the tokens to Ethereum’s co-founder Vitalik Buterin.
The incident did not have any long-lasting impact on Optimism, apart from the loss of the three million tokens. Still, it serves to show the importance of exercising due diligence with crypto.
Optimism (OP) Crypto Price History
OP all-time price history (Source: CoinMarketCap)
After Optimism airdropped its first batch of tokens in end May 2022, the coin reached a high of $1.98, before correcting to $0.60 in June and July. Since then, it has correlated Bitcoin’s slow move back up above the $20,000 level, and is trading at $1.63 at the time of writing, with a circulating supply of about 235 million tokens for a market cap of $389 million.
For a project that only started at the beginning of 2021, Optimism has fared rather well. According to a post published by the Optimism Collective in April 2022, the Optimism chain has saved users over $1.1 billion in gas fees in processing over $17 billion in transaction volume, and donated over $1 million to public goods funding.
But while blockchain as an industry has seen explosive growth in the last few years, there is still a long way to go in achieving true decentralization for a more democratized internet. It will be interesting to see how projects like Optimism that make a bold pledge toward this vision rally the necessary resources to bring it to fruition.