In the crypto space, Bitcoin, and Ethereum often settle every transaction on their network. Crypto natives described them as layer 1 chains. An effort to expand this chain to fulfill the full scalability feature of blockchain while maintaining transparency, speed, and decentralization led to the genesis of a layer2 scaling solution.
The scaling problems on a blockchain occur when the amount of data that passes through the blockchain ledger hit some limits. This often happens when too many transactions happen simultaneously and it is usually caused by insufficient computational resources that the blockchain in question faces. So to allow more transactions and faster processing times, a Layer 2 protocol is needed.
What is Layer2 scaling?
Layer 2 is a secondary framework that runs on top of existing blockchain protocol to improve the speed and efficiency of the work on blockchain. This scaling solution is an application that solves the blockchain transaction speed and scaling difficulties without affecting the main properties of the blockchain networks(Decentralization, transparency, and security). Layer 2 solution is the framework that gets built on top of the blockchain to improve scalability. The major examples of the layer2 solution are the bitcoin lightning network and the Ethereum plasma.
Bitcoin and Ethereum have been facing scaling limitations because they can’t process very large transactions per second. This is harmful to their long-term growth and to curb this dilemma, Bitcoin has adopted a lightning network as a layer2 solution for faster transactions and better scaling. Ethereum’s transaction speed was around 30 transactions per second due to its high adoption. In comparison, platforms like the Visa payment system can process about 150 million transactions per second. The Ethereum efforts to achieve a very high speed and better scaling threshold led to the introduction of layer2 solutions like Ethereum plasma, polygon, rollup, etc. These scaling solutions have their operation protocol and mechanism but they are developed to provide increased throughput to the blockchain systems.
Why do we need layer 2 solutions in blockchain?
According to the blockchain trilemma, a simple blockchain protocol can only meet two properties out of the three essential properties(security, decentralization, and scalability) a blockchain should have. A secure and decentralized blockchain will need help to achieve scalability off-chain. So as more people use the Ethereum network, more scalability demands are also rushing in.
The reason why a Layer2 solution in the blockchain is needed is mainly because of the scalability dilemma. Layer 2 is required to ensure faster transaction speed without affecting the security or decentralization of the chain. Failure to achieve this will nullify the core purposes of blockchain technology. So, a blockchain like Ethereum will rather seek a scalability solution from off-chain than allow the security and decentralization of its network to go to dust.
The use case for Layer2 scaling
In a broader sense, layer2 scaling solutions create a secondary protocol on blockchain, where transactions and processes can take place independently of the layer 1 blockchain. This is a process of sharing responsibility and this technique is known as the off-chain solution for scalability. This gives more stability, and focus and prevents congestion. For instance, the Polygon network(layer2) regularly communicates with Ethereum(layer1) by submitting a load of transactions to enjoy full decentralization and high security. Ethereum can provide this easily but will enjoy scaling benefits from polygon in return. This process allows layer 1 to be less congested and more scalable because of the transaction burden that layer 2 relieved. The main chain (layer1) does not need to pass through any structural change because layer2 is added as an extra layer to relieve the network congestion and achieve high throughput while maintaining the key feature of blockchain. In order words, the main chain provides full security and decentralization while the second layer(layer 2) will offer high throughput thereby achieving a more scalable network
What is the importance of layer 2 solutions?
The layer 2 solution is very important because it allows for scalability and increases transaction speed while maintaining the integrity of the blockchain. This scaling solution allows blockchain to maintain its transparency, security, and decentralization while trying to pull through the scaling dilemma. It helps reduce energy consumption, gas fee, and congestion.
Examples of Layer2 scaling solution
Bitcoin Lightning Network
This is an attached channel that performs blockchain operations and reports them to the main chain (layer 1). The network framework is the best used by bitcoin to allow faster transactions per second and scaling. Bitcoin lightning network takes transaction bundles from the main chain, does the needful and transfers them back. It improves scalability by providing instant payment, low transaction, and low swap.
This protocol consists of sidechains that are arranged in a tree-like structure. It uses secondary blockchains to assist the main chain in verification. This layer2 scaling is used by Ethereum to free up work and improve the scalability issue.
This layer2 solution is designed to speed and the scalability of the Ethereum smart contract. Developers can run unmodified Ethereum virtual machine contracts without altering the layer 1 security package.
These are one of the most preferred layer 2 solutions for scaling on the Ethereum network. Using Rollups allows users to enjoy a 100x low gas fee. It provides a framework that allows users to perform transactions off the main chain while their transaction record stays on layer1 for security. It helps to expand participation on the layer1 network and improve scaling. This framework application requires a roll-up smart contract for transaction execution and verification.
This is an Ethereum layer2 scaling solution that is EVM (Ethereum Virtual Machine) compatible. Operation on Optimism is fast, secure, and simple.Users can move their assets in and off the network using the optimistic Ethereum gateway. It creates an opportunity for a blockchain projects to meet their launch approval on time.
Polygon, formerly known as Matic, is a layer2 solution for the Ethereum blockchain. Polygon leverages different technologies to enhance Ethereum’s scalability. The technology algorithm is polygon proof of stake, polygon Hermes, polygon Zero, polygon miden etc.