Ethereum (ETH) on the Optimism network: advantages and disadvantages

Layer 2 networks like Optimism have become a solution to reduce the load on the Ethereum blockchain, thereby increasing the bandwidth of the entire ecosystem.

How does Ethereum cryptocurrency work on the Optimism network?

ETH on the Optimism network is a wrapped token tied to the value of the original Ethereum cryptocurrency at a 1:1 ratio, similar to stablecoins like USDT or USDC. At the same time, unlike standard stablecoins, there is no risk of decoupling the value of the ETH token from the value of the underlying cryptocurrency, which, in this case, is ether.

ETH tokens are issued in Optimism when users transfer the original cryptocurrency from the Ethereum blockchain to the second-level network using an official bridge. In other words, the ETH cryptocurrency does not move directly from one network to another. In a transaction, the user sends the original ETH cryptocurrency to the Optimism Bridge contract address on the Ethereum network and, in return, receives an equivalent amount of ETH tokens on the Optimism network. This is similar to the process of receiving wrapped tokens.

Despite the similarity in name, ETH on the Optimism network is an entirely different asset from the original cryptocurrency. This means that the value of an ETH token in the Optimism network may differ from the value of the ETH cryptocurrency in its native blockchain.

ETH on the Optimism network, like on the underlying network, is used to pay for transactions as well as perform other types of transactions available on the DeFi market:

• Lending and collateralization;
• Trading;
• Liquidity mining and pharming;
• Participating in decentralized exchange offerings;
• Buying NFT and other digital goods.

Pros and cons of using ETH on the Optimism network

First of all, Optimism is one of the cheapest and fastest networks for transfers and other cryptocurrency transactions. Therefore, users can save money by transacting on Optimism's second-tier network instead of using the more costly Ethereum blockchain. This is especially true for complex transactions using smart contracts, such as exchanging tokens on a decentralized exchange or obtaining credit through lending protocols. These transactions can cost up to $10 or more on the Ethereum network, depending on how busy it is. In the Optimism network, for example, the cost of exchanging (swapping) tokens on a DEX exchange is less than a cent.

While Optimism's DeFi-ecosystem is not yet as mature as Ethereum's, and its liquidity is much smaller, it offers at least two advantages:

• Access to new liquidity pools that allow for higher returns;
• The possibility of airdrop when using the new DeFi protocols;

However, using ETH on the Optimism network has its disadvantages. One of these is the possibility of contract lock-in. As with Arbitrum, all original ETH coins are stored on the Optimism Bridge contract address. At the same time, the contract itself is controlled by a team that can suspend withdrawals at any time.

Thus, using ETH tokens on the Optimism network will be less secure than the original coins. In addition, the bridge contract can theoretically be hacked if they find a vulnerability, although the team can intervene and prevent the withdrawal of assets.

Another drawback lies in Optimism's security mechanism, which can make withdrawals from this network take longer than the same Arbitrum. However, this allows for better security as validators have enough time to prevent questionable transactions.

Nevertheless, users of the Optimism network need to have at least a small amount of ETH tokens, as they are used to pay commissions, and without them, it will be impossible to make any transactions.