Table of contents
Introduction
Ethereum blockchain fame has gone abroad, and the number of users of Ethereum keeps growing every day more than the transaction limit of Ethereum; this most times leads to congestion and an increase in the gas fee.
For Ethereum to reach global adoption, the scalability problem has to be solved; this is what gave birth to the rise of layer-2 solutions, which promise to make Ethereum more scalable and affordable for everyone.
Layer-2 solutions have come to solve ethereum scalability issues.
What is the Scalability Problem?
In May 2022, when Yuga labs launched the sale of their metaverse land on Opensea, because of the slowness of the Ethereum network, gas fees went up, and a gas war occurred; $100 million was spent on gas within an hour.
A lot of people lost money because the network was congested and could not process such a significant transaction within a quick time.
That was not the first time the Ethereum network was congested; it also happened in 2017. This alarming occurrence is an obstacle to Ethereum's global adoption.
If the whole world uses an ethereum network to process transactions, the network will be slower than a snail processing transactions.
However, Layer2 is the solution to this problem of Ethereum scalability. Layer2 transactions happen fast with a meagre fee compared to the Ethereum fee.
What are Scaling Solutions?
In blockchain technology, "scaling" refers to an increment in the system throughput rate, measured by the number of transactions performed per second.
The mission of scaling solutions is to boost transaction speed and increase transaction throughput without surrendering security or decentralization, which is the core aim of Ethereum.
What is Layer-1?
A layer-1 blockchain is a collection of technologies that enhance the fundamental protocol to significantly increase system scalability.
The blockchain itself is referred to as Layer 1. Without a central authority, transactions on the first layer are secure and designed to be perpetual, irreversible, and cryptographically protected. Examples of Layer-1 are Bitcoin and Ethereum.
What are Layer-2s?
Layer-2 scaling solution is a technology that aims at making Ethereum more scalable, fast, and affordable to everyone.
The Layer 2 blockchain handles the processing load and reports to Layer 1 for result finalization. Network congestion is decreased since most of the data processing work is transferred to this nearby auxiliary architecture, making the Layer 1 blockchain more scalable and less congested.
Why do we need Layer 2 solutions?
It helps to decongest the Ethereum mainnet, boost transaction rate, and assist in creating a better user experience.
It makes Ethereum available for everyone by lowering the gas fees for users. Gas fees are lowered because transactions are rolled up to a single transaction on the Ethereum mainnet.
Examples of popular ethereum layer 2 solutions are Immutable X and Polygon.
Types of Layer2 Solutions
1. Plasma
Plasma chains, often known as child's chains since they function as scaled-down versions of the Ethereum mainnet, are independent blockchains that anchor to Ethereum. These child chains unload transactions from the parent chain using a mix of smart contracts and cryptographic verification.
Plasma networks regularly communicate with the Ethereum main chain, each with its system for validating blocks and using its security to resolve conflicts when challenged by fraud proofs.
High throughput is possible with low transaction costs thanks to plasma chains. However, there is a liveliness requirement, chain withdrawals can take a while to account for difficulties, and only simple operations like token transfers and swaps are supported.
Plasma implementations for dApp integration are offered by several projects, including OMG Network and LeapDAO.
Pros
It enables high throughput and reduced transaction fees.
2. Sidechains
As its name implies, a Sidechain operates alongside the main blockchain but uses its consensus mechanism to confirm transactions. It is a hybrid of layer1 and layer2 solutions.
An example of a sidechain is called Liquid Network, connected to the Bitcoin main chain. Sidechains are a scaling alternative for Layer 2 blockchain technology, alongside state channels like Lightning Networks and smart contracts. A transactional chain that supports numerous transactions is known as a sidechain. It has a consensus system separate from the native layer.
In order to increase scalability and processing speed, the machine can be improved. The mainchain must now verify transaction records, uphold security, and resolve disputes.
State channels don't publicly record any transactions in the ledger, whereas sidechains do. A sidechain's security violation does not affect other sidechains or the base layer mainchain itself, either.
3. State Channels
A two-way communication channel between participants is referred to as a state channel. In other words, the speed of transactions is increased because there is no requirement for a third party, such as a miner, to confirm the transactions.
The procedure begins by using Multi-signature (multisig) to block off a section of the blockchain, enabling direct communication without the need to send anything to the miners. The final state of the channel is recorded in the blockchain once the transaction has been approved.
Examples: Bitcoin's Lightning Network, and Ethereum's Raiden Network.
Pros of Optimistic Roll-ups
Smart contract capability Fewer gas fees High Throughput Secured by Ethereum Mainchain
Cons
It takes a lot of time to process a withdrawal.
4. Optimistic Rollups
Optimistic rollups rely on fraud proofs, unlike ZK-Rollups. Simply put, aggregators broadcast the barest amount of information on Layer-1 and presume the accuracy of the information.
The main blockchain need not take any further action if the transaction is legitimate. The optimistic rollup does a fraud-proof in the event of a fraudulent transaction and penalizes the sender.
Arbitrum, Boba, Cartesi, Fuel Network, and optimism are a few examples.
Pros
Low gas fees Increased throughput Smart contract capability Security
Cons
Long withdrawal times. Potential incentive misalignment between network participants. The underlying Layer-1 could censor transactions.
5. Zero-Knowledge Rollups
Transactions that have been removed from the main blockchain are consolidated by zero-knowledge rollups (ZK-Rollups), which also produce a cryptographic proof called a SNARK (Succinct Non-Interactive Argument of Knowledge). The main blockchain just requires this verification, also known as validity proof, thereby decreasing the gas charge that users would have had to pay to process the complete data.
Immutable X, Polygon Hermez, and Starkware, for instance
Pros
Secure and decentralized Near-instant transfers
Cons
Hard to compute for smaller applications with less on-chain activity Not all ZK-Rollups offer Ethereum Virtual Machine (EVM) compatibility Transaction ordering can be influenced by a user.
At present, there are various applications of ZK rollup that you can easily integrate into your Dapps such as Starkware, Immutable X, Loopring, and Polygon Hermez.
Limitations of Layer2 Scaling
No single layer2 scaling solution can fulfil the Vision of Ethereum.
People still trust the layer-1 blockchain like Bitcoin and Ethereum more than any layer-2 protocol.
Conclusion
The scalability issue that blockchain networks are currently experiencing can be immediately solved with layer-2 scaling solutions, which may also serve as the foundation for all future blockchain applications. How decentralized these systems can be when used in conjunction with Layer 1 Blockchains will be the subject of intense debate.
As the ecosystem as a whole is more than the sum of its parts, various layer-2 solutions can coexist and function harmoniously to meet the evolving requirements of mainstream adoption, continuing to aid in the reduction of congestion and the avoidance of single points of failure as we move toward the Web 3.0 era.