Layer-2 Solutions Explained

Layer-2 Solutions

One persistent problem of most blockchain networks is Scalability. This occurs when the amount of data running through a blockchain hits its limits due to insufficient transaction throughput. Layer-2 solutions provide a way out of this problem. 

Normally, a blockchain should be able to process an infinite number of transactions per second (TPS), also known as Throughput. The pioneer blockchain, Bitcoin, can only process about 3-7 TPS, while the traditional payment system, Visa, can process more than 20,000 TPS. 

Causes of Scalability Problem

The main cause lies in the operation of decentralised blockchain networks. Initially, for a blockchain to maintain decentralisation and privacy while ensuring enough throughput, it has to rely on a centralized platform for processing power. 

Why?

Decentralization of blockchain means each transaction must be accepted, mined, distributed, verified, and validated before being lined up to be added to the transaction block by the global network of participating nodes. This no doubt takes a long time and explains the long delay during transactions, thereby causing high gas fees.

Introducing Layer-2 Solution

Developers are working to solve scalability limitations without tampering with the blockchain’s decentralization and security. This will enable more transactions per second with faster processing times, without the need to increase block sizes. 

Layer-2 solutions make blockchain and cryptocurrencies more available and faster for everyone while maintaining convenience, security, and efficiency.

Layer-2 involves building a protocol or a secondary framework off the blockchain’s mainnet to process transactions of the network independently. 

This scaling solution increases throughput and reduces gas fees, while maintaining the decentralization and security characteristics of the original blockchain. Two prominent examples of layer-2 solutions are the Bitcoin Lightning Network and the Ethereum Plasma. Both strive to provide increased throughput to blockchain systems despite their peculiarities.

Layer-2 solutions built on respective blockchains to keep transactions secure, speedy, and scalable have advantages and disadvantages. Since the existence of different Layer-2 solutions, none has been able to fulfill throughput needs, reduced gas fees, heightened security, high scalability, and blockchain’s normal functionality. 

Layer-2 solutions involve building a protocol or a secondary framework off the blockchain’s mainnet to process transactions of the network independently. 

This scaling solution increases throughput and reduces gas fees, while maintaining the decentralization and security characteristics of the original blockchain. Two prominent examples of layer-2 solutions are the Bitcoin Lightning Network and the Ethereum Plasma. Both strive to provide increased throughput to blockchain systems despite their peculiarities.

Layer-2 solutions built on respective blockchains to keep transactions secure, speedy, and scalable have advantages and disadvantages. Since the existence of different Layer-2 solutions, none has been able to fulfill throughput needs, reduced gas fees, heightened security, high scalability, and blockchain’s normal functionality. 

Types of Layer-2 Solutions (Rollups)

Rollups are layer-2 scaling solutions that directly inherit the underlying security of the blockchain while performing transactions off the blockchain’s mainnet. Rollups offer 3 combined features different from other blockchain scalability solutions. They are

  • Process transactions off-chain to reduce gas fees and increase throughput.
  • Store data and proof of transactions on the mainnet, to maintain security.
  • The mainnet influences the transaction execution in layer-2 to maintain interoperability.

Overall, Rollups are important to increase throughputs, reduce gas fees, and maintain interoperability.

There are two distinct types of Rollups with different security management systems; 

  • Optimistic rollups assume transactions are valid by default and only run the computation.
  • Zero-knowledge rollups run computation off-chain and submit validity proof to the main chain.

Optimistic Rollups

Optimistic rollups are built as a parallel chain to the Mainnet. They don’t perform any computation to complete the transaction processing. Instead, they submit the new state to the mainnet, essentially authenticating the transaction.

Optimistic rollups transactions are written into the mainnet to optimize transactions by reducing the gas fees.

Advantages and Disadvantages of Optimistic Rollups

 

Pros  Cons
Low gas fees Long withdrawal time
Increased throughput Reprocessing if fraudulent transactions is suspected
Smart contract capability and smooth interoperability
Mainnet guaranteed security

 

Examples of Ethereum Layer-2 Optimistic Rollups: Arbitrum, Boba, Cartesi, Fuel Network, Optimism.

Zero-Knowledge Rollups

These Rollups perform cryptographic arguments on transactions off the mainnet to produce validity proofs for the transactions. ZK rollups only need validity proof instead of all the transaction data. This function decreases the processing cost of transactions due to less data being included.

 

Pros Cons
Near instant transfers Validity proofs are extreme for blockchains with less activity
Invulnerable to fraudulent attacks
Highly secure and decentralized

Examples of Ethereum Layer-2 ZK Rollups: Aztec 2.0, Immutable X, Loopring, Matter Labs zkSync, Polygon Hermez, Starkware, zkTube.

Conclusion

Layer-2 solutions have promising potential to completely solve the scalability issue in the blockchain space. They help blockchains maintain proper security measures while still being able to transact quickly and at little to no cost for users. This type of technological feature will surely encourage more people to leverage blockchain and its features.

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