Pulling Back The Layers of L2 Scaling in Blockchain Networks

Layer 2 scaling solutions?have become increasingly popular in the?cryptocurrency?industry as the demand for?scalability?and efficiency continues to grow. These solutions aim to overcome the limitations of the?base layer, such as high?transaction fees?and network?congestion.?

However, there are several different approaches to Layer 2 scaling?in?blockchain?networks, each of which has its own unique advantages and disadvantages. This article aims to highlight the importance of Layer 2 solutions and compare various types available in the market.

What Are Layer 2 Solutions??

Layer 2 solutions are?protocols?or frameworks built on top of?existing blockchains?to enhance scalability and transaction throughput. Unlike traditional blockchains, Layer 2 solutions offload most of the computational work to an additional layer, reducing the burden on the main chain while still ensuring security and?decentralization.?

These solutions achieve scaling by processing thousands of transactions off-chain and then bundling them into a single transaction on the?main chain. In other words, L2 solutions make sure that the mainnet handles critical aspects of decentralization,?data availability, and security while they divert the transactional burden onto their parallel network, de-congesting the mainnet in the process.?

Why Are Layer 2s Important in Cryptocurrency??

Layer 2 scaling solutions are crucial for the growth and adoption of cryptocurrencies. The underlying blockchains, such as?Ethereum?(ETH), often face congestion and high transaction fees, making them impractical for widespread usage.?

Layer 2s alleviate these issues by enabling faster and cheaper transactions, improving the user experience and incentivizing more active participation in the blockchain ecosystem. This allows the robust decentralized security standards of blockchains like?Bitcoin?(BTC) and Ethereum to become accessible to a wide range of?decentralized applications?(DApps) that are finding adoption.?

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Different Types of Layer 2s?

Several types of Layer 2 solutions have emerged, each with its own unique approach to scaling blockchain networks. Here are some of the more popular ones:

1. Optimistic Rollups

Optimistic Rollups are Layer 2 solutions that prioritize scalability without compromising on the decentralized nature of the blockchain. They operate by?executing transactions off-chain?and then producing?cryptographic?proof that is submitted to the main chain.?

In an Optimistic Rollup, the majority of the transaction processing occurs off-chain, in what is referred to as the “rollup” or “commitment chain.” This allows for faster transaction confirmation times and reduces the burden on the underlying blockchain network.?

The key concept of Optimistic Rollups lies in optimistic assumptions and?fraud proofs. Transactions processed off-chain are assumed to be valid, and any potential fraud is detected and challenged through the fraud proofs mechanism. If a fraudulent transaction is identified, the system falls back to the main blockchain to resolve the dispute and punish the malicious actor.

Optimistic Rollups offer several benefits, including scalability improvements by allowing more transactions to be processed off-chain, lower costs for users due to reduced fees, and improved speed of transaction processing. Additionally, they maintain compatibility with existing?smart contracts and Dapps without requiring significant modifications.

However, Optimistic Rollups also have certain limitations. Since the rollup chain is not fully decentralized and relies on the main blockchain for dispute resolution, there is a small delay before transactions can be considered final. Additionally, the security of the off-chain transactions depends on the correct functioning of fraud proofs.

2. ZK Rollups

ZK Rollups, also known as?Zero-Knowledge Rollups, are layer 2 scaling solutions that aim to improve scalability and reduce transaction costs by processing transactions off-chain and then creating succinct proofs that are submitted to the main blockchain for verification.

In a ZK Rollup, a set of transactions is aggregated and processed off-chain by a set of?validators. Instead of including all the details of each transaction, the validators?generate a compact proof, also known as a ZK-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) or ZK-STARK (Zero-Knowledge Scalable Transparent Arguments of Knowledge) proof.?

This proof provides cryptographic evidence that the transactions are valid without revealing any sensitive information. The proof is then submitted and validated on the main blockchain.

Using ZK Rollups, the main blockchain only needs to verify the validity of the proofs, significantly reducing the computational load and increasing transaction throughput. The main blockchain acts as a “data availability” layer, ensuring the integrity of the off-chain transactions.

Some benefits of ZK Rollups include increased scalability, reduced transaction fees, and?improved privacy. By aggregating multiple transactions into a single proof, ZK Rollups allow for a much higher throughput compared to processing transactions individually on-chain.?

However, ZK Rollups do have certain challenges and limitations. For one, generating and verifying ZK-SNARK or ZK-STARK proofs can be?computationally intensive?and may require specialized knowledge.?

Furthermore, the setup and maintenance of the ZK Rollup system also require a level of trust in the validity of the off-chain transactions. If a?malicious actor?successfully creates an invalid proof, it could potentially compromise the integrity of the entire rollup.

3. Sidechains

Sidechains are?separate chains that run parallel?to the main blockchain, allowing for increased transaction throughput and scalability. These chains can have their consensus mechanisms and rules while still being interoperable with the main chain, enabling assets to move between the two chains.

The main purpose of sidechains is to address the limitations of the base blockchain, such as scalability, privacy, and flexibility, while leveraging the security and decentralization of the parent blockchain.?

Some key benefits of sidechains include scalability, customizability,?interoperability, and enhanced privacy. Sidechains can also be designed for specific purposes, such as gaming, financial applications,?supply chain management, or identity verification.?

It’s worth noting that the security of sidechains is interconnected with the main blockchain. Validators or auditors play a crucial role in ensuring the integrity and trustworthiness of the sidechain’s operations, and users must trust that the parent blockchain will accurately reflect their actions on the sidechain.

4. State/Payment Channels

State and payment channels are off-chain arrangements where multiple participants can conduct numerous transactions without involving the main chain for each transaction. These channels allow users to interact privately and at a much higher speed, settling the final state on the main chain only when necessary.

State channels allow participants to conduct multiple transactions off the main blockchain, only recording the final state of those?transactions on the blockchain. This means that only a transaction’s initial and final state is stored on the blockchain, avoiding the need to process each transaction on-chain.?

Payment channels, a specific type of state channel, are used for conducting recurring or multiple transactions between two parties. Instead of each transaction being processed on the blockchain, the participants open a payment channel where they can conduct several transactions off-chain. The final state of these transactions is then recorded on the blockchain, ensuring security and?transparency.

State/payment channels work by leveraging smart contracts and?cryptographic techniques?to facilitate off-chain transactions. They require participants to lock a certain amount of cryptocurrency in the channel, ensuring that any fraudulent behavior can be punished. Participants can update the state of the channel by creating and exchanging signed messages, which are valid until either party decides to close the channel and settle the final state on the blockchain.

5. Plasma Chains

Plasma chains are Layer 2 solutions that enable the creation of?interconnected?blockchains called child chains. These child chains handle a subset of transactions off-chain and submit the summary to the main chain periodically.?

The Plasma framework uses a combination of on-chain and off-chain computation to enable secure and efficient processing of transactions. When a user wants to interact with a Plasma chain, they deposit their tokens or assets into a smart contract on the main chain.?

From there, they can transact within the Plasma chain,?executing smart contracts, making transactions, and other operations. These transactions are recorded on the Plasma chain, but the final state is periodically committed back to the main chain, ensuring security and preventing fraud.

Plasma chains offer several advantages, including increased scalability, reduced fees, faster transaction processing, and improved privacy. The main chain can handle a higher throughput and accommodate more users by offloading a large portion of transaction processing to sidechains.

Although Plasma chains have the potential to significantly improve blockchain scalability, there are still challenges to address, such as data availability, mass exits, and network?synchronization.?

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6. Validiums

Validiums are a blend of zkRollups and optimistic rollups. They execute computations and verify transactions off-chain, ensuring high scalability. However, unlike zkRollups, Validiums trade privacy guarantees for scalability, making them suitable for scenarios where?privacy concerns?are less significant.

Most Popular Ethereum L2 Scaling Solutions

Here are some of the most popular Ethereum Layer 2 scaling solutions currently available:

1. Starkware:?Starkware?employs zkRollups technology?to deliver massive scalability and cryptographic proofs on Ethereum. It is suitable for applications like?decentralized exchanges, NFT marketplaces, and more.?
2. Optimism:?Optimism is an Optimistic Rollup solution that ensures high scalability while preserving the decentralization and security properties of Ethereum. By leveraging the?Ethereum Virtual Machine?(EVM), Optimism offers compatibility with existing Ethereum applications, making it easier for developers to adopt and migrate their projects to Layer 2.
3. Arbitrum:?Arbitrum?also utilizes Optimistic Rollup technology to scale Ethereum. It provides near-instant transaction confirmation and significantly decreases gas fees. Arbitrum achieves this by bundling multiple off-chain transactions into a single on-chain proof, increasing Ethereum’s capacity and processing speed.
4. Polygon:?Polygon,?formerly known as Matic, is a Layer 2 solution that employs a combination of Plasma chains and sidechains to scale Ethereum. It provides a unified framework for building and connecting Ethereum-compatible blockchains, enhancing scalability while maintaining a high level of security.

The Bottom Line?

Layer 2 scaling solutions play a key role in addressing the?scalability challenges faced by blockchain?networks. By offloading most transactions onto secondary layers, these solutions enhance throughput, reduce transaction costs, and improve overall scalability.?

There are a number of different approaches to Layer 2 scaling in blockchain, with two of the most popular ones being Optimistic Rollups and?ZK Rollups. There are also other less-known L2 types, which come with specific upsides and downsides.?