Over the years, the blockchain network has faced issues ensuring maximum scalability, decentralization, and scalability. These issues have come to be known as the blockchain trilemma.
Layer-2 scaling solutions or L2 technology enables Layer-1 (L1) blockchains to overcome their limitations and achieve infinite scalability. In this DroomDroom learning guide, we discuss everything one needs to know about Layer-2 scaling solutions.
The blockchain trilemma is a theory that states only two of three attributes are perfectly possible with blockchain networks with respect to security, decentralization, and scalability. I.e a blockchain must sacrifice one of the three to achieve the full benefits of the network. In many cases, scalability has been the most affected.
The rise of Layer2 solutions has helped blockchains overcome their scalability limitations and enabled achieve maximum throughput while still paying attention to decentralization
What are Layer-2 Scaling Solutions?
Think of a layer-1 blockchain as a major airport that manages a constant flow of incoming and outgoing flights. As the airport becomes increasingly popular and congested over time, someone build regional airports to ease the burden and congestion on the major airport.
These regional airports ease the burden on the main hub by handling some of the air traffic locally. This decentralized approach helps optimize the overall air travel system, making it more resilient and efficient. A Layer-2 scaling solution acts like the regional airports.
Layer-1 chains are the foundational layers of a blockchain. Due to their congestion, layer-2 blockchains act as an overlay network for taking transaction data off the chain. Some of the technologies that a layer-2 scaling solution utilizes include:
- State channels
- Plasma Chains
- Rollups
Plasma Chains
Ethereum founders Vitalik Buterin and Joseph introduced Plasma Chains as a framework for creating high perfomance and scalable decentralized applications. Another name for plasma chains is child chains. I.e tinier copies of Ethereum’s mainnet.
Rollups
Rollups are a Layer-2 scaling solution that addresses scalability limitations by bundling and processing transactions off-chain. The rollup then submits the processed transactions back to the blockchain. As the name suggests, the solution rolls up transactions to reduce the cost of verifying transactions and execution. There are two types of rollups, optimistic and zk rollups.
State Channels
State channels are a Layer-2 scaling solution for lifting the transaction burdens on a Layer-1 solution by allowing participants to conduct part of their transactions off-chain. A state channel is more convenient for multiple parties that interact with the blockchain frequently.
Why Do Blockchains Need a Layer-2 Scaling Solution?
The growing popularity and significant liquidity of layer-1 blockchains, despite their scalability and speed limitations, have spurred the development of layer-2 solutions. Examples include the Ethereum-based Polygon blockchain and the Bitcoin-based Lightning Network.
These Layer-2 scaling solutions, or L2s, facilitate the validation and processing of numerous low-value transactions on parallel blockchains. The resulting records are subsequently transferred to the main blockchain, or mainnet, thereby guaranteeing immutable and secure recording.
Initially, the term was meant to refer specifically to Ethereum scaling solutions. Layer-2 solutions emerged to address demand surpassing the blockchain’s original capacity of 1+ million transactions per day.
Currently, these auxiliary blockchains are broadening their applications, aiming to enhance the end-user experience through increased transactions per second, reduced gas fees, and the guarantee that all completed transactions remain immutably on the mainnet.
By entrusting the mainnet with crucial facets such as decentralization, data availability, and security, L2 blockchain solutions successfully shift the transactional load to their parallel networks, alleviating congestion on the mainnet.
This addresses the scaling challenges that layer-1 blockchains face. At the same time, the L2 solutions ensure that robust decentralized security standards remain accessible to the increasingly prevalent decentralized applications (DApps) in today’s landscape.
Layer 1 vs. Layer-2 Scaling Solutions Blockchains
While efforts are underway to enhance the scalability of blockchains such as Bitcoin and Ethereum through layer-1 scaling solutions like consensus protocol changes and sharding, these initiatives remain an ongoing process. Still, several projects are actively developing user-friendly solutions to address the challenges associated with scalability.
These efforts aim to tackle the “scalability trilemma,” a term coined by Ethereum founder Vitalik Buterin. This term refers to the persisting challenge in distributed ledger technology networks where achieving decentralization, security, and scalability simultaneously among nodes validating transactions remains an unresolved issue.
The effectiveness of these efforts is still under evaluation, but layer-2 solutions are already demonstrating their potential to enhance transaction speeds and reduce fees. This progress is vital for two things: scaling the blockchain ecosystem and unlocking the potential of the ecosystem for groundbreaking tech.
Many DApps have incorporated these solutions, enabling unprecedented experiences in gaming, Decentralized Finance (DeFi), and the Metaverse. Additionally, these solutions are reshaping conventional sectors such as finance, corporate governance, auditing, and various others.
Despite the benefits, it’s essential to assess how these blockchains validate transactions in alignment with specific use cases. A thorough examination of the potential for validators on the layer-2 blockchain to engage in fraudulent activities is crucial. Nevertheless, the constant development of new layer-2 scaling solutions indicates a dynamic landscape that will persistently draw attention, both in terms of praise and critique.
Conclusion
The continued growth and adoption of blockchain technology have underscored the significance of rapid transaction speeds, lower transaction costs, and the need for maximum scalability. Layer 1 blockchains have committed themselves to implementing numerous upgrades and changing their consensus mechanisms through efforts like sharding.
Sharding is the process of splitting a blockchain into convenient partitions for maximum agility, perfomance, and throughput. One blockchain that has demonstrated the power of sharding is Ziliqa, which was the first public blockchain to utilize the technology. However, other blockchains that have leveraged the scaling possibilities of sharding include Ethereum, Polkadot, and Cardano among others.
Study the role of Ethereum’s sharding mechanism in driving the perfomance of blockchains.
The evolution of L2 blockchains is poised to naturally deliver even swifter transaction times and unprecedented cost reductions. These inherent advantages, combined with the increasing prevalence of L2 blockchains, are certain to fuel the emergence of robust decentralized applications, particularly within the DeFi space.
Furthermore, as developers continue creating more bridges between various diverse L2 blockchain platforms, users will gain access to enhanced blockchain interoperability. Hence, paving the way for new possibilities in areas like digital asset trading.
Consequently, L2 scaling solutions will be instrumental in fostering a multichain environment where the ecosystem will maintain sustainable growth without compromising the foundational principles of security, decentralization, and scalability that define blockchain technology.
Moreover, the crypto industry must unite as a whole to continually innovate, and engage in collaborative efforts to introduce L2 scaling solutions and DApps that facilitate the global transition to a decentralized economy.
