Which one is correct?
They are both baked from a high poly object with a bevel modifier onto a low poly object with no beveled edges. #1 is smooth shaded before the bake, while #2 uses autosmooth. Both objects use padding between UV islands where the ‘beveled’ edges are to prevent artifacts from interpolation of normals on those edges.
I expect the method used for #1 will give me artifacts when used on more complex objects, especially if I bake at a lower resolution or downscale the texture size. How can I bake using method #2 without getting those edge artifacts?
Hmm, I guess method #1 doesn’t give you what you want at all. The smooth shading will give you a normal map, with, well, smoothed normals, as can clearly be seen. Or do I get this wrong?
In fact, I never was happy with the results of baking from one object to another. These artifacts in #2 are quite triggering some ugly memories. It is simply that there isn’t a foolproof method to automatically map locations between two surfaces.
But if in your case #1 does the mapping between the objects nicely, why not go for it? Why would you expect more artifacts from that? You would have to obtain the desired kind of normals (which, as said, I assume aren’t the smoothed ones), which can be done with some emission shader trickery.