The Ethereum blockchain has grown to be a decentralized network that facilitates trading activities, creation of open permissionless networks, and building of dApps hence, this has stretched Ethereum’s capacity to its limits.
The development of Layer 2 was geared towards enabling the network that operates on another blockchain to process more transactions while increasing security and enhancing decentralization. This huge step is giving rise to great innovation and significant changes to create novel solutions that offer more benefits to the users.
Layer 2 scaling solutions are set to increase scalability without tampering with the original decentralization or security that is integral to the original blockchain.
What are Layer 2 Scaling solutions?
They are networks that use a particular blockchain protocol to improve scalability and efficiency while the mainchain protocol is unaffected.
Layer 2 solutions help transfer a certain portion of a blockchain protocol’s transactional burden to another blockchain that will handle the network’s processing and reports back to the main blockchain to finalize its results. By doing this, the other blockchain network becomes less congested — and ultimately more scalable.
Layer 2 is majorly designed to increase the amount of work that can be accomplished efficiently and speedily on various blockchains.
Examples of Layer-2 solutions
Sidechains
This is a transactional chain that is used for large transactions. Its blockchain network is tied to the main chain through a two-way channel. Sidechains use an already established technology and complex transactions with EVM compatibility.
Sidechains are less decentralized and depend on their consensus mechanisms different from the original chain which can be utilized for scalability and speed.Because of its architecture, the principal role of the mainchain is to maintain its overall security, resolve disputes and confirm batched transaction records.
Nested blockchains
A nested blockchain operates on another blockchain by assigning tasks to control the overall parameters, while auxiliary chains execute transactions. Its architecture involves the main blockchain that sets parameters for a wide range of networks, while executions are undertaken on an interconnected web of secondary chains.
An example of the layer 2 nested blockchain infrastructure is the Plasma project. It utilizes the Layer-1 Ethereum protocol to facilitate cheaper and faster transactions. Plasma chains enable high efficiency and scalability at a low cost per transaction. Only token transfers and swaps are supported.
State channels
State channels are payment channels that facilitate communication between a blockchain and off-chain transactional channels to improve the overall transactional capacity and speed. They manage more complex interactions like a game with a simplified payment system between two participants.
State channels have high transaction scalability at a very low cost, making them ideal for micropayments.
Although, the time and cost used to set up and settle channels are not so good for one-off payments and funds have to be locked up in open payment channels.
Rollups
Rollups are smart contracts on the Ethereum mainnet and they are used as a rely between the mainchain and Layer 2.
There are two types of rollups:
Optimistic Rollups and ZK-rollups.
1. Optimistic rollups
Optimistic rollups do not run any computation by default and they offer up to 100x scalability improvements, which will increase further with the introduction of Ethereum sharding in the future. Optimistic Rollups are secure and decentralized.
They also assume that transaction data submitted to the Ethereum network is correct and valid. For every invalid transaction, there is a dispute resolution.
They are EVM and solidity compatible and they can handle anything done on Ethereum layer 1.
2. ZK-rollups
ZK-rollups or Zero-Knowledge rollups, do not have any dispute resolution mechanism; smart contracts maintain the state of all transactions on layer 2, and can only be updated with validity proof. Because they only need the validity proof, it is quicker and cheaper to validate a block hence, it requires less data and less gas.
ZK-rollups seems to be a promising of layer 2 scaling technologies while addressing their challenges
Examples of ZK-rollups
zkSync: zkSync offers a trustless protocol with low-cost payments on Ethereum using ZK-rollup tech, scalability, help to crypto wallets and defi platforms. ZK-rollups-based layer 2 DEX ZKSwap offers zero gas fees and high transaction efficiency by transforming the future of the AMM model.
Loopring: Loopring is an open-sourced, audited, and non-custodial exchange and trustless payment protocol. zkRollup guarantees that assets are all under users' control with a100% Ethereum-level security guarantee. It also allows scalability, payment on Ethereum, efficiency, and low-cost trading.
StarkWare: With the use of STARK technology ( a group of cryptographic proofs that are zero-knowledge, succinct, and transparent), StarkWare improves scalability, privacy, and post-quantum security.
List of Notable Ethereum Layer 2 Solutions
Polygon
Polygon PoS is a layer 2 scaling solution that achieves an outstanding transaction speed and cost savings by processing transactions via side-chains while the POS ensures asset security with the aid of a robust Plasma bridging framework and a decentralized network of Proof-of-Stake (PoS) validators.
Polygon is one of the most popular Ethereum layer 2 solutions that is expanding its network, by collaborating with significant partners such as Mogul Productions, Umbrella Network, Kambria Open Innovation and Graphlink
Polygon's network native token is Matic.
Arbitrum
Arbitrum is a Layer 2 scaling solution for Ethereum, that offers a unique combination of trustless security, compatibility with ethereum, and scalability. Arbitrum supports sidechain aggregation of transactions, also known as the rollup technology. The partners of Abitrrum Chainlink, OKEx, RENVm and many others.
Its security is rooted in Ethereum, to ensure correct Layer 2 results, run unmodified EVM contracts and unmodified Ethereum transactions, and move contracts’ storage and computation off of the main Ethereum chain, for greater scalability.
Parastate
ParaState is a multi-chain smart contract network that bridges the application and developer ecosystem between Substrate, Polkadot, Ethereum, and other networks that have high-performance Ethereum compatibility.
The highlight of Parastate known as EWASM is a WebAssembly variant of EVM. EWASM is built to foster execution speed, support existing tools, improve hardware support, improve language portability, and access large WebAssembly communities and ecosystems.
Optimism
Optimism is an Ethereum scaling that can offer improvements in the affordability of transactions. It also ensures greater improvements in transaction speed for Ethereum users.
As a standalone blockchain, it is designed to be an extension to Ethereum. It is easy for developers to create Solidity smart contracts capable of running on its blockchain. Optimism's strategic partners are Ethersan and Rubicon.
Optimism directly points out it's a collaboration with Synthetic and its platform will allow users with SNX tokens to place their stakes on optimism Layer 2 solution. It allows the interaction of off-chain codes such as UIs and wallets with layer 2 contracts on its blockchain.
Gnosis Chain
The Gnosis chain formerly known as the xDAI chain provides users the ability to transfer stable value free of speculative concerns, volatility, or FUD. Gnosis chain formerly known as xDAI partners are Chainlink, Ramp Network, Unifty, CardStack, HOPR, Ankr, SushiSwap, and others.
Gnosis is also a sidechain on Ethereum, that supports the processing of transactions at faster speeds and reduced costs. Gnosis chain utilizes a Proof-of-Stake (PoS) consensus mechanism for native xDAI stable tokens users to stake, pay for fees and carry out transactions.
Concluding thought
The next big thing in utilizing blockchain networks is Layer 2 solutions. The ecosystem is greater as one and different layer 2 solutions can exist and work together to increase the demands of mainstream adoption, and help reduce congestion to prevent failure as we transition into the world of Web 3.0 fully.
Notwithstanding, Layer 2 scaling solutions are still early to becoming the key to the future of blockchain.
