A beginner’s guide on blockchain layer-2 scaling solutions. The introduction of blockchain technology in 2009 with Bitcoin was primarily driven by the need to create a decentralized, insecure database for transparent transactions. Bitcoin was developed due to the requirement of a local token for usage in network transactions. The layer-1 blockchain’s slow transactions and lack of scalability have become more evident as the ecosystem has expanded significantly. Third-party layer-2 protocols use Bitcoin and Ethereum as L1 blockchains, magnets, or principal chains. The proof-of-work (PoW) consensus process used by layer-1 blockchains reduces the scalability of blockchain networks due to the high computational resources needed to generate transaction blocks.
Layer-1 blockchain transaction or gas fees increase as transactions per second drop. Layer-1 blockchains process and confirm transactions on their blockchain; hence, consensus technique modifications should be handled carefully. Ethereum proposes transitioning from PoW to PoS for scaling. Sharding is used to reach 100,000 transactions per second, which reduces processing and energy utilization but is still not optimal. Financial applications are especially prone to centralization since PoS consensus designs provide the most significant stakeholders” validation authority.
Why is it essential to have a Layer-2 Blockchain Network?
Layer-2 blockchain solutions, such as Ethereum’s Polygon blockchain or Bitcoin’s Lightning Network, have emerged due to the popularity and liquidity of layer-1 blockchains despite their scalability and performance limitations. These layer-2, or L2 blockchain, systems handle thousands of low-value transactions after validation on parallel blockchains and send records to the mainnet for immutability.
Layer-2 solutions were created to meet demand beyond the blockchain’s 1+ million transactions per day capabilities due to more outstanding transactions per second and reduced gas rates. End-user experiences improve with mainnet, and secondary blockchain guarantees that all transactions are securely stored.
L2 blockchain solutions decongest the mainnet by shifting transactional load to a parallel network and ensuring decentralization, data availability, and security. This addresses the scaling issue with layer-1 blockchains like Bitcoin and Ethereum while providing rigorous security rules for rapidly growing decentralized applications (DApps).
Layer-2 Scaling with Ethereum Rollups
Rollups, which aggregate many transactions into one mainnet transaction, are secure due to Ethereum’s core. The method layer-1 blockchain keeps transaction information and divides it into two groups. To begin, Optimistic Rollups are a distinct blockchain that operates independently of Ethereum, saving consumers computational costs.
Condensing hundreds of transactions into a smaller number of cryptographically valid ones, zero-knowledge Rollups (zk-Rollups) are computed off-chain using validity proofs and then uploaded to the Ethereum mainnet. Since zero-knowledge Rollups only need validity proof to validate a block, they are much faster than Optimistic Rollups, which require all transaction data to validate a block.
Layer-2 cryptography is widely used in today’s Polygon and utilizes zk-rollups. It allows for the near-instantaneous movement of cryptocurrency funds from a layer-2 to a layer-1 chain. Optimistic Rollups are more secure, decentralized, and suitable for applications with low on-chain activity because transaction data exists on the layer-1 blockchain. To facilitate Optimistic Rollups on the Ethereum network, they are fully EVM and Solidity compatible.
Overview of Alternative Popular L2 Scaling Solutions
Sidechains function independently from Ethereum with their consensus methods and in parallel over a two-way bridge. Developers can easily create DApps on these sidechains to test the Ethereum mainnet. Centralized protocols and distinct consensus mechanisms make sidechains, not layer-2 blockchains.
State channels, or payment channels, are bidirectional blockchains that hold crypto assets in a smart contract on layer one and generate signed tickets. Immediate payment of off-chain Lightning Network transactions is possible on the Bitcoin mainnet. Raiden Network is a state channel that executes smart contracts using Ethereum. Plasma networks employ fraud proofs like Optimistic Rollups to resolve conflicts while staying linked to Ethereum. When unrelated customers transact quickly for cheap gas prices, they are preferred. Blockchains ease arbitration, but cashing out may take days and cost more.
Nested blockchains are like plasma blockchains but add a layer of connected blockchains. Nested blockchains provide jobs to child chains, with the mainnet deciding what they should do. Validiums, like zero-knowledge rollups, are cyberattack-resistant and allow rapid blockchain withdrawals. Even for low-throughput purposes, they need a lot of processing time and money.
Layer-1 vs Layer-2 Blockchains
Several projects are working on user-friendly alternatives to layer-1 scaling methods. Like consensus protocol updates and sharding, attempting to scale blockchains like Bitcoin and Ethereum. Both strategies are attempts to solve the “scalability trilemma,” a dilemma in distributed ledger technology networks. Here, nodes cannot simultaneously achieve decentralization, security, and scalability (a term used by Ethereum co-founder Vitalik Buterin).
Despite doubts about their long-term viability, layer-2 solutions allow transaction speeds and pricing, ideal for bringing more people into the blockchain ecosystem. Numerous decentralized applications (DApps) leverage these technologies to innovate in fields as diverse as gaming. Decentralized Finance (DeFi) and the Metaverse, as well as more conventional ones like finance, corporate governance, and auditing. These blockchains must be Equal against layer-2 blockchain validator fraud. There will always be people who enjoy discussing layer-2 scaling solutions’ pros and cons.