Vitalik Buterin, co-founder of Ethereum, calls this the blockchain scalability trilemma. If blockchain scalability is enhanced, it cannot maintain its security and decentralization.
Scalability limitations arise because blockchains are tasked with too many things. Therefore, layer 2 technology emerged to reduce the workload that must be executed by the main blockchain.
Types of Layer 2 Blockchain
To understand how layer 2 works, we must understand the different types of layer 2 blockchain solutions.
Rollup
Rollups are layer 2 scalability solutions that enable blockchain networks to process large numbers of transactions off-chain while maintaining the security and decentralization of layer 1.
This is done by collecting multiple transactions off-chain and submitting them to layer 1 as a single batch, thereby reducing the load on the main blockchain network.
There are two main types of rollups:
- Optimistic Rollup: Operates on the assumption that all transactions are valid by default. Optimistic rollups do not check the validity of transactions individually. Checks only occur if there is a challenge from another user during the challenge period.
- Pros:
- Faster transactions
- Easier implementation
- Compatible with existing Ethereum smart contracts
- Cons:
- Longer withdrawal times due to the challenge period
- Potential for false challenges
- Relies on game theory for security
- Zero-Knowledge (ZK) Rollup: Uses cryptographic proofs called Zero-Knowledge Proofs to validate off-chain transactions. These proofs are collected to the layer 1 blockchain.
- Pros:
- Near-instant transaction finality
- High security
- Improved privacy
- Cons:
- More complex implementation
- Creating cryptographic proofs requires high computing power
- Not always suitable for all types of applications
State Channel
A two-way communication channel within a blockchain network. State channels allow two or more parties to transact directly off-chain via a private communication channel.
State channels are particularly useful for applications that require regular interaction between the same two parties, such as gaming, micropayments, and real-time services.
Sidechain
Technically, sidechains are not built on top of layer 1 blockchains. Sidechains function as independent blockchains that run parallel to layer 1. Sidechains and the main blockchain are connected via a two-way bridge.
With this bridge, users can transfer assets between the main chain and the sidechain. In addition, sidechains have their own consensus mechanism that is separate from the main chain.
Plasma
A scalability solution for the Ethereum blockchain. Plasma facilitates high-volume transactions outside the main blockchain by using a series of small, independent chains called Plasma chains or child chains.
Technically, child chains are smaller replicas of the main Ethereum blockchain. Each child chain is a smart contract that can be customized for various use cases.
Each side chain functions as an independent blockchain with its own rules and consensus, but all are still connected to the main chain.
Examples of Popular Layer 2 Blockchain Solutions
Here are several examples of layer 2 blockchain solutions that improve the scalability and efficiency of the main blockchain.
Arbitrum
An example of an optimistic rollup used on Ethereum. With Arbitrum, transactions can be processed faster without compromising security and decentralization.
zkSync
An example of a layer 2 solution that uses zk-Rollup. zkSync uses zero-knowledge proofs to verify transactions.
Optimism
An optimistic rollup solution focused on Ethereum scalability. This technology offers low transaction fees, making it suitable for the Ethereum blockchain, which generally incurs high gas fees.
Immutable X
Immutable X uses zk-Rollup to enable NFT transactions without high gas fees. This solution is suitable for developers who want to create and develop NFTs in an environmentally friendly manner.
Metis
An optimistic rollup solution for developing dApps (Decentralized Applications) with low costs and high scalability. With Metis, launching applications on the Ethereum blockchain is faster and easier.
StarkNet
A zk-Rollup solution to improve Ethereum's scalability through off-chain computation. StarkNet can handle more transactions per second, allowing large-scale blockchain applications to run efficiently.
Loopring
Loopring is an example of a layer 2 blockchain solution that uses zk-Rollup for DeFi (Decentralized Finance) application development. This layer 2 solution plays an important role in supporting various DeFi protocols, including decentralized trading and payments.
Also Read: Understanding Layer 2 Blockchain: A Scalability Solution for Web3
Benefits and Challenges of Layer 2 Blockchain
Benefits of Layer 2 Blockchain
The implementation of layer 2 provides many benefits, such as:
- Increased blockchain scalability
- Increased transaction volume
- Reduced transaction costs
- Increased flexibility in application development
- Reduced workload on the main blockchain
Challenges of Layer 2 Blockchain
On the other hand, layer 2 blockchain solutions face several challenges, including:
- Potential security risks because transactions occur outside the main chain
- Requires large computing power
- Some layer 2 solutions have slow withdrawal processes
- Complex implementation and integration with layer 1
Conclusion
Layer 1 blockchain is the main foundation that maintains decentralization and security. However, layer 2 plays an important role in improving scalability and efficiency.
The need for blockchain scalability to accommodate the increasing volume of transactions and users has led to the emergence of various layer 2 solutions. These two layers work together to build a secure, transparent, and fast decentralized ecosystems.
Blockchain, both Layer 1 and Layer 2, is a crucial foundation in the development of Web3. Learn more about Web3 in the article Understanding the Web3 Ecosystem and Its Key Components.
