Each time new technology is deployed on the market, it usually comes with specific problems that need to be addressed. And while some of them can be foreseen, others practically can’t.
This is precisely the case with the ultra-popular cryptocurrency Etherium, one of the largest smart contract platforms that propel the reforms in the banking sector to become a decentralized, digital space. But, unluckily, as Etherium or ETH became more and more popular, its blockchain network couldn’t handle all the traffic without implementing a drastic increase in transaction fees called ETH gas fees.
The good news is that Loopring is one of the crucial solutions to dilute ETH’s congestion and make the traffic flow at reasonable fees yet again, or at least until ETH completes its long-awaited ETH 2.0 upgrade in the second half of 2022. Put differently, the biggest issue facing ETH users is the extortionate gas fees, and this is where Loopring steps in. Here’s a quick breakdown of how Loopring works and how does it help make ETH gas fees cheaper for users.
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Why Is ETH So Expensive To Use?
Nowadays, most simple transactions where you would send Etherium from one wallet to another would cost anywhere between 5-15% of the total transaction, making ETH transactions very expensive indeed. This is precisely what makes ETH entirely fail its initial purpose of recreating traditional finance within the blockchain space. In that context, any bank of your selection would blush in embarrassment from setting such expensive fees.
The reason for these expensive gas fees that come with moving Etherium may be tracked in Etherium’s legacy, starting with the proof-of-work blockchain that is always energy-hungry and less scalable than others. In other words, the ETH’s network didn’t scale up sufficiently as more and more users began to move the currency. For that reason, the cost of transactions continuously rises. However, contrary to the proof-of-work blockchain, proof-of-stake blockchains offer better scalability, as demonstrated with Solana gas fees, which are drastically lower.
Currently, ETH finds itself in a transitory upgrade phase between the two mechanisms to secure the network, and for this reason, it has to resort to scalability solutions like Loopring.
How Is Loopring Making ETH Better?
The primary reason why any network gets congested is colossal data throughput. So, if you can picture ETH as a highway with heavy traffic congestion, you can think of Loopring like the high-speed train that runs above the highway. ETH’s blockchain is an L1 network, while Loopring is an L2 network, where the letter L stands for layer.
This is why Loopring and other scalability solutions are called Layer 2 scalability solutions. Loopring is also a zero-knowledge roll-up, an encryption algorithm that involves reducing the amount of data involved through the network.
In addition, because it’s a Layer 2 scalability solution, Loopring enhances the speed of transactions taking place on ETH by bundling them into single batches. Afterward, these are fed back to Layer 1, which is Ethereum’s main chain.
In that regard, Loopring’s developers have made a walkthrough tutorial on using it and how much you can save in gas fee costs. And, of course, making ETH more affordable is not the only purpose of Loopring, as it’s a network on its own, with its ecosystem of DApps and token.
Loopring’s LRC Token
In the end, just like all other DeFi protocols, Loopring has its own token, which is simply called LRC. The LRC token is how liquidity providers and developers receive their cuts when users use the Loopring network. Speaking of the token, the maximum supply for LRC tokens is 1.37 billion, 1.33 billion of which are in circulation.
In addition to buying them directly via wallets or crypto exchanges, you can also earn your portion of LRC tokens by staking them. Staking means you provide liquidity to the protocol, so if someone wants to swap LRC tokens, they will do so from the staked ones.
As far as LRC price goes, the token achieved its all-time-high price on November 10, 2021, at $3.83 per token. Today, the LRC price is somewhere around $1.05, with the further expectation of its rise as more and more DApps enter Loopring’s ecosystem.
By all means, there’s absolutely no guarantee that LRC’s price will rise in the future, as it could also quickly tumble despite what we’ve laid out in this article. So, like with any type of investment, always ensure to conduct proper research before parting with your funds, and never invest more than you can afford.
Final Thoughts On LRC
In the end, the best way to look at the LRC token is really as an infrastructural coin. Unlike meme coins which became pretty popular in the past couple of years, the LRC coin relies on long-term usability value. After all, ETH’s network definitely needs LRC to scale up its operations and remain affordable for users, so the future of the largest smart contract network in the world is heavily connected with the Loopring project.