This week we get a little technical and dig into the primary layer two challengers being built and deployed on the Ethereum main net. These protocols have several advantages over the Ethereum main net including increased transaction speed and lower transaction fees. Of course, they do have disadvantages as well.

Learn about what will help the Ethereum network continue to grow. And how you can buy your NFT on Opensea with NO transaction fees!!!

Hey everyone, no one on this podcast is a financial advisor and all information presented

on this podcast is for informational purposes only.

Hey, now that we've got the legal stuff out of the way, let's jump on in.

Welcome to the generational wealth with cryptocurrency podcast.

I'm your host McIntosh and we're going to be talking about layer two solutions for Ethereum

today.

Now my question you very likely may be asking is, what is a layer two solution?

When we're discussing cryptocurrencies, it's important to understand that there kind of

are different layers to the network.

So you've got what are called layer one solutions, Bitcoin would be an example of that.

Certainly.

Ethereum is another layer one solution.

A layer two solution is something that runs on top of, so to speak, or alongside a layer

one solution.

You could say that they work off chain off the Ethereum main net in this case, and they

are designed to provide both faster transaction speeds and lower fees.

So we'll be talking about a couple of different categories of layer two solutions.

The first one is what are called roll ups.

There are two types of roll ups.

There's both an optimistic and one that's called a zero knowledge roll up.

An optimistic roll up is just like it sounds.

It is optimistic that the transactions that handle are correct, that there's no fraud

going on.

What that means is that the optimistic roll ups provide very high transaction rates along

with very low transaction fees.

However, when you go to remove your money from your crypto, your coin, your token, from

that network, it requires you to basically be placed in holding.

You can't just immediately withdraw your asset.

The period is currently about seven days.

I think there's some work being done to lower that.

But in order to ensure that that fraud or malfeasance or whatever is not taking place,

it has to go through that process.

Zero knowledge roll ups on the other hand, they do not have that holding time.

They actually submit proof to the main network that their transactions are correct.

Because of this, they'll have a lower transaction throughput rate, a TPS, transaction per second

rate, because they're more computationally intensive.

So it is a trade off.

Yes, you can withdraw funds virtually immediately versus an optimistic roll up.

But on the other hand, it's basically a slower layer two.

What are some examples of optimistic roll up layer two networks?

Well, one is actually fairly new.

I don't know a whole lot about it.

So I won't be talking about it a whole lot.

But it's called Cartese.

It is optimistic roll up based.

And it is actually a bit different.

So I've never seen anything like this in the crypto ecosystem with Cartese.

It's kind of a hybrid model.

They're actually looking to enable access to what amounts to legacy stacks to software

that's running on Linux virtual machines, not directly tied to the blockchain.

It actually uses Python as a programming language, which is a very common programming language

in traditional software engineering.

But it's not to my knowledge used by any other by any other smart contract platform.

So that's an interesting little deal there.

I don't know a whole lot about it.

It does apparently address scalability and hydro transaction fees, plus it also allows

this off chain execution of your logic.

So I don't know, we'll have to see how that pans out.

It's a fairly interesting new idea.

It has a token called CTSI.

Arbitrum is another optimistic roll up based layer two solution.

I would have to say Arbitrum is one of the more popular ones.

It's gained a lot of traction in the last few months.

It works very well with Ethereum, Solidity, which is the contract programming language

for Ethereum is the same for it as well as Ethereum for both Arbitrum and Ethereum.

It lets you create new smart contracts very easily.

So with Arbitrum, actually, it doesn't have its own native token, at least at this point.

There are no plans for launching a native token.

And it also allows support for sidechain aggregation.

So we'll be talking about sidechain stuff here in a minute.

But it does work with technologies like Chainlink and a number of others.

One more actually optimistic roll up based layer two is actually called Optimism.

That was a clever little name play on optimistic, of course.

And again, you've got the holding period for when you withdraw your tokens.

But it works very well with Ethereum, again, using Solidity with some exceptions.

It's not quite the same, but it also works with user interfaces with wallets and with

layer two contracts.

I think you will probably see a lot more with Optimism in the future.

My only concern about any of these roll up technologies that are optimistic based is

simply this period of time that is cooling off period, so to speak.

There are ways around it.

But if you do, then they're not truly what's called trustless, meaning you don't have to

worry about your funds.

So I don't know.

It's a compromise.

Anything in crypto, virtually anything in crypto is a compromise.

One day we'll talk about the three legs of a decentralized network, of a crypto decentralized

network and how you have to make compromises between those and how some of the...

It gives you a framework for looking at tokens, for looking at ecosystems and how...

Because they all make compromise.

They have to.

Slow transaction, highly secure.

High transaction fees, but it is secure.

We'll talk about all that.

So anyways, that's basically it for the roll ups.

There's others, but those are certainly the primary ones.

I want to talk about a side chain called Polygon, Polygon, which was previously known as Matic.

Some people do not include it as a layer two protocol.

I do.

It does not require... one of the characteristics of a layer two network is that it uses the

security features of the layer one, Ethereum in this case.

So it would rely on the Ethereum security as part of the layer two.

Polygon does not have to do that.

It can actually provide its own security, which maybe that's faster, but maybe it's

not as safe.

We don't know.

You do not have to do that.

You can rely on the Ethereum security features.

It depends on how you have it set up.

So anyways, I go ahead and include it.

It's certainly a very vibrant ecosystem.

It is a complete toolkit.

You have all your packages, all your tools, all your components that are needed to create

those instances.

And another nice feature of Polygon, it actually, to be honest, it's probably...

Polygon is becoming one of the most popular layer two solutions.

It is benefiting really from the delay of the Ethereum main net moving to ETH 2.0.

It is expanding very quickly, Polygon is.

And in fact, you can see the token for Polygon is Matic.

But in fact, you can see a very big example of the Polygon in use with OpenSea.

This is with the OpenSea NFT system.

This has been a fairly recent innovation for OpenSea.

OpenSea used to be Ethereum only, and as NFTs got super popular, you could chart the Ethereum

gas fees, the transaction fees for that OpenSea platform, and they just got astronomical.

Well recently, they allowed you to use Polygon, and if the transaction fees are anything,

it's not very much.

It's very, very, very minimal.

So when you're buying art that in some cases, maybe it's not very much, maybe it's only

10 bucks or $20 or less than 100, you're not paying these very high transaction fees.

So it helps create this frictionless process.

So that will only help that NFT market grow.

So there's a very interesting example.

There is another layer two solution called Peristate.

It is a Polkadot-based sidechain, so Polkadot is kind of the underpinnings of that.

So really, you could call it a Polkadot network, and it can provide a bridge into Ethereum.

So again, we're doing transactions off the Ethereum mainnet, which are taking place quicker.

They're taking place with less transaction fees, and then they get funneled back into

Ethereum.

Everything gets recorded into that Ethereum network with the Ethereum security and all

of that.

So Peristate is an alternative to the Ethereum virtual machine.

The Ethereum virtual machine is what powers the Ethereum network.

So you can build decentralized apps on Peristate through this Polkadot-based network.

And again, actually, one of the very interesting things about Peristate, they have what's called

a WebAssembly variant of that Ethereum virtual machine.

So WebAssembly is a common programming paradigm in the Web 2.0, 3.0 movement.

And so that helps a lot of people out as well.

Because of the speed and lower transaction fees of the Polkadot network, I think you'll

see good things coming with Peristate as well.

All right.

That's going to actually be it for now on the Layer 2 rollups.

I didn't want to dive in too deep on that.

Most people don't really need to know all the ins and outs.

Again, these are simply solutions that are looking to improve on Ethereum's transaction

rate or gas fee costs or both.

They do it in different ways.

You're going to see the different tokens out there.

Matic, for example, the Polkadot DOT token, you'll see those in use.

You may be interested in investing in those tokens if you think that they will do well

over the next year or two.

I don't know.

I do not own any of these, to be clear.

And this certainly isn't financial advice.

I have owned Polkadot in the past.

I actually think Polkadot is doing really well these days, and I think it can do quite

well in the future.

I think Polygon and the Matic token, I think they're a sleeper, to be honest.

$2 for that token with the possibilities that are there and the new innovation that's coming

along with the stuff like OpenSea and that kind of thing.

I think you could see that token take off.

Again, not financial advice, but these layer two protocols, they're going to be used to

bridge the gap between now and when the Ethereum network does become very scalable and performant.

These things are coming.

They will take time.

In terms of the scaling of the Ethereum system, they're working on something called sharding

that will help with that.

The performance stuff is a little more difficult to dive into.

Sharding will actually help that as well, but that's not the complete solution.

I do believe that you will see for years, probably, if not forever, for the foreseeable

future, maybe it would be a better way of putting it.

You will see these layer two solutions.

Some of them, such as Polygon and Polkadot, who are side change, they're going to go on

and develop on their own.

It's good that they're attached to Ethereum, but they can go off and do their own thing,

so to speak.

All right.

Now we're going to pick up with the news.

The podcast was slowed up by one day.

I recorded it on Sunday nights, like I normally do.

I sat down, went through all my notes, recorded for 40 minutes, and looked up, and I had been

on mute the entire time.

I was recording, but I was recording dead air.

I was just blank.

I had to re-record.

Well, interestingly, we actually had a news item pop up today, so Monday morning.

We'll get to that in just a bit.

That'll be the last bit of news, but I added one more item because of that delay.

Enjoy this.

First thing, another day, another ETF.

A week ago, we had our first ETF approved and launched.

This week, well, last week, we had another one approved, the Valkyrie Bitcoin Strategy

ETF.

Again, this is a futures-based ETF, just like the first one.

It had a pretty good launch, not as spectacular as that first one.

Not that surprising, but again, this is going to become boring.

It's going to become old news.

Oh, another ETF.

Oh, another public fund.

We're going to talk.

In fact, next, the first US public pension fund acquires Bitcoin.

Let me bring up this article real quick.

If I get this correct, this was very interesting.

In the US, this is actually the first time that this has happened.

I don't know if it's happened over anywhere else or not, but for the United States, it

is the Houston Firefighters Relief and Retirement Fund bought an undisclosed amount of Bitcoin.

It turns out, and they did this through a company called NIDIG, so they facilitated that purchase.

Turns out they actually, in total, bought $25 million worth of crypto, and I think it

actually said that there was two different coins, two different types of crypto, and

one of them would have been BTC.

I suspect the other one was Ethereum, but that's certainly a guess, but $25 million

worth of coin.

That's a great start.

I would love to see this with a lot of pension type funds and annuities and retirement funds

and this kind of thing, because frankly, I think in the long run, these will do a lot

better than some of the other offerings, certainly with some of the very traditional finance

type stuff with bonds and that kind of thing.

Annuities that are depending on the value of the US dollar, which I believe over the

long run, will devalue as it has proven to do over the last, well, quite a while now.

All right, next, so we had another thing, oh, talking about Polkadot a few minutes ago,

a big announcement there, which actually caused a little bump in their price.

Polkadot was started by one of the Ethereum co-founders.

After they left Ethereum, they went off and started Polkadot.

I'm going to read this, I think this is actually, I believe that this will cause quite a bit

of innovation in the Polkadot space.

So the Polkadot founder, whose name is Gavin Wood, excuse me, singular, announced that

they are putting $774 million in a development fund for Polkadot DeFi development.

They're actually putting a number of tokens, it's almost 19 million Polkadot tokens and

that will be used to fund projects that the network's governance believes is valuable,

the way the article puts it.

So there's a lot of money available there and there will be people who will come up

with ideas that right now we can't even think of and they're going to get money to go out

and do that if it's a good idea and the governance body believes that to be the case.

I don't know of any other fund, I know there's the other major blockchains, they do similar

things but not at this level, I've never heard of anything like this.

So this is I think a very good thing for the Polkadot network and will help it innovate.

Oh, and finally, the item that did come up today, early this morning, so MasterCard came

out and said that any of the banks and merchants on its payment network will be able to integrate

crypto and I say crypto, not Bitcoin.

Now that remains to be seen what that really means, but integrate crypto into their products.

So we're talking about wallets, Bitcoin wallets, credit cards, debit cards, you can earn reward

in different crypto, you could earn it certainly in Bitcoin, you could earn it in other things

and even they're going to tie in loyalty programs.

So airline and hotel points can be converted into Bitcoin.

It remains to be seen how this actually rolls out, but understand you have one of the largest

financial networks in the world, MasterCard, right?

And they are wholeheartedly embracing crypto.

That is pretty awesome.

And as I've watched the market today, I actually think it's fascinating that the market for

Bitcoin, especially hasn't jumped.

It's almost like, oh, well, I think we're almost getting to the point.

Look, in 2017, if this were to come out, this would have caused a huge jump in the Bitcoin

price at whatever point it was at, at that point.

These days it's almost like, oh, another news item, okay, carry on.

And that's not necessarily a bad thing, but only it is in the sense that, I mean, it's

almost like this stuff is earth shaking and yet it's almost like, oh, yawn, whatever,

move on.

So to finish things off, I have to bring up my web mail, which I have right here.

I got an interesting note from a listener.

And if you'd like, you can send me a message at mcintosh.fintech.gmail.com.

That's m-c-i-n-t-o-s-h.fintech.gmail.com.

But Mitch sent me an email.

He said, hi, McIntosh, the podcasts are awesome.

They're both interesting and useful.

Keep up the great work.

I've started investing in crypto recently and as someone new into the space, the information

you've provided has been very timely and easily digestible.

Maybe not today, Mitch, sorry.

This was a hard topic.

It was very timely and easily digestible, very timely and easily digestible, which in

the crypto market isn't always the case.

Thanks again.

Mitch, I really appreciate that.

I really strive for that.

This podcast is targeted for beginners, for mid-level people, not looking for necessarily

experts.

I'm certainly not looking for people who are trying to live and die by day trading.

I think for most people, that's a mistake, honestly.

I think they would be better off just investing and holding, maybe doing a very minimal amount

of movement.

We talked last week with our bear podcast, in fact, what to do during a bear market.

One of the options there might be to try and sell near the top and then buy back in at

the bottom.

But I'm always looking at DCA.

I'm always looking at no matter what the price is, I'm just continuing to invest, invest like

a 401k, right?

One of the biggest mistakes I made in 2017, 2018, I made a decent amount of money during

that run up and then at the top, I froze like a deer in the headlights.

It's indescribable at this point.

It is what it is.

I didn't sell my crypto, I just held it, which I guess maybe the worst thing would have been

to sell it and then never buy any back.

But I held it and then I didn't buy any during the downturn and it makes me sick how much

I lost unrealized profits, so to speak, certainly.

But I could have a lot more tokens of Bitcoin, of Ethereum, whatever I chose and I didn't.

I didn't buy during those couple of years.

So I missed a huge opportunity.

I don't want you to miss that.

Not to reiterate that last podcast, but I talk about it during the bull market because

you need to prepare right now for what you're going to do during the bear market.

What are you going to do during the downturn, no matter how bad it is, right?

So if you didn't catch all that, if you missed that one, go back and listen to it.

You may need to listen to it twice.

You know, again, you guys have any questions, feel free to send me a message, mcintosh.fintech.com.

I'm on Twitter at mcintosh.fintech.

I really am actually working on setting up a website with a domain, with some real email,

that kind of thing.

I just, I really haven't had time, but it's on my to-do list.

It actually moved to the to-do list.

So that's a good start, right?

And when you're sending me an email, like Mitch here, if you don't want to, your name

said just say, Hey, you know, keep me anonymous, whatever, I'll certainly respect that.

I don't think Mitch mind, I'll never use somebody's last name anyways, just as a point of reference.

So thanks a lot.