Why Layer 2?
It’s no secret that Ethereum has scaling problems, and there’s growing opinion that its fees can render it close to unusable for many people. This comes at a time when interest in NFTs is higher than ever (the problem is, after all, one of scaling), and it might be advantageous when onboarding people into NFTs to avoid the impression that they’re only for the rich and crypto-fabulous.
Ethereum 2.0 should solve this but Ethereum 2.0 isn’t yet with us, so there is enormous demand for an immediate scaling solution. There’s a lot to be said for other Layer 1 protocols such as Cardano and Solana, but then, are we really going to abandon Ethereum altogether?
If instead we wanted to build on top of and improve Ethereum then there are Layer 2 solutions, and prominent among these you’ll find Immutable X, a product well worth diving into.
What is ImmutableX?
As mentioned, Immutable X is a Layer 2 protocol built on the Ethereum network, meaning that you get the security and reach of Ethereum, but you cut out the gas fees and the congestion.
Essentially, transactions are taken off-chain (to Layer 2), but the underlying platform (Layer 1) remains the same, meaning you’re still connecting back to the Ethereum mainchain.
Among Layer 2 solutions, you’ll also come across names such as Arbitrum and Optimism, both of which look useful. One difference between these and Immutable X is that they use optimistic rollups, rather than Immutable X’s ZK rollups.
This is where it gets technical but if you want to go deeper, then it’s interesting to read up on the details.
However, as NFT adoption becomes more mainstream, keep in mind that the majority of collectors and traders aren’t overly concerned about technical distinctions and will never check under the hood. Most people simply want platforms that are trustworthy, inexpensive and frictionless, and Immutable X goes some way to addressing those needs.
How is it used?
If you’re already set up with a MetaMask wallet then you just need to go to the Immutable X website, connect MetaMask, and click through the process from there to set up your Immutable X wallet.
After that you’ll need to transfer some funds across to your new wallet and you’re all done. Currencies supported are ETH, the native IMX token, USDC, and also the GODS token (from the Gods Unchained game) and the GOG token (from the Guild of Guardians game).
There is also the option to purchase ETH, IMX and USDC directly with your credit card through Moonpay.
Marketplaces and connections
Immutable X is actually a coming together of two organizations: Immutable, who were formerly a gaming outfit called Fuel Games, and Starkware, a blockchain startup building Ethereum scaling solutions.
Immutable’s flagship blockchain game is Gods Unchained, and looking through the Immutable X marketplace, it’s gaming oriented compared to something like OpenSea.
Token Trove is an Immutable X marketplace that’s aimed squarely at gamers.
You can also trade Immutable X NFTs on Mintable, while OpenSea integration was announced last year and is in the pipeline, but hasn’t yet happened.
On the whole, Immutable X looks likely to be a key player in the rapidly expanding blockchain gaming space, powering productions such as Illuvium and Ember Sword (which moved across from Polygon), while also partnering with the world’s leading esports organization, ESL.
If you want exposure to the NFT market without all that pesky business of buying NFTs, then you can do so by getting hold of the various tokens that power different arms of the NFT world.
In the case of Immutable X, that would mean the IMX token. At the time of writing it’s ranked as the 112th cryptocurrency by market cap, so there’s plenty of room for growth.
Is it a good long-term hold? Going on the strength of the partnerships and connections that Immutable X has established–and of course the power of the technology itself–it certainly could be. But that also depends on whether or not potential pitfalls are avoided.
Obstacles for ImmutableX
- When Ethereum 2.0 comes along there could plausibly be no further need for Layer 2 solutions. However, it’s far from clear exactly when Ethereum 2.0 will be ready to go.
- Competition from other players, including the various so-called Ethereum killers. No-one can accurately predict who will thrive, but what you can do is try out the competitors, see how they feel, assess whether they’re bringing in developers, users and collaborations, and then place (or spread) your bets accordingly.
- Immutable X currently charges sellers a 2% fee. That’s negligible compared to Ethereum’s gas fees but still, it means Immutable X is not entirely without transaction costs.
- Wider fluctuations in the NFT world – All of these scaling solutions would ultimately come to nothing if–just theoretically–everyone lost interest in and stopped buying NFTs. I don’t think that will happen, but there must be corrections (and they could at some points be severe) as markets don’t heat up at this pace forever.
That said, NFT technology appears to be a core part of the coming web3 transition, and so looking to the longer term, Immutable X should certainly be on your radar.