Learn what a Layer 2 blockchain is, how it works, and why it's essential for improving scalability and reducing transaction costs in networks like Ethereum.
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Blockchain technology has been positioned as a revolutionary force owing to its capabilities such as decentralization, immutability, and transparency. Its unstoppable rise in popularity has brought huge traction to the realm of blockchain. However, as blockchain technology grows, its complexity is increasing exponentially.
As the technology matures, it suffers from low transaction rates and latencies in transaction processing, which hinders the scalability of the blockchain. To address this scalability issue, the layer 2 solutions were designed. Wondering what a layer 2 solution is? In this blog, we will be walking through the concept of layer 2 blockchain and focusing on its process and benefits. Let's get started.
The layer 2 blockchain is a secondary framework developed on top of the primary blockchain, also known as the layer 1 blockchain. This additional layer aids in enabling high transaction throughputs and achieving higher decentralization and security. This ultimately helps in improving the scalability of the base blockchain network directly.
Layer 2 blockchain is considered a scalable blockchain solution that improves the limitations of the layer 1 blockchain, which is primarily due to the consensus mechanism leveraged by the layer 1 network. The layer 2 blockchain is not a standalone solution but relies on the main chain, which tends to improve the performance of the layer 1 network by reducing the load on the network.
The layer 2 solutions surpass the conventional approach of the traditional blockchain networks and enable cheaper and faster transactions without making modifications to the architecture of the parent chain. The layer 2 solutions take the form of any off-chain solutions like Sidechains or Rollups to improve the scalability, which will be discussed later in this blog.
The layer 2 blockchain operates by offloading the transactions from the main chain to minimize the load and maintain network integrity. The layer 2 solution follows the process of bundling, where they bundle multiple transactions into a single one. Bundling the transactions helps minimize the interaction with the parent chain, which reduces congestion and speeds up processing time.
These transactions are managed in the layer 2 environment and then sent to the parent chain for final validation and recorded immutably. This process eventually diverts the congestion in the base chain, which reduces the transaction fees and improves the overall performance. This approach is carried out by maintaining security and significantly improving efficiency, thereby resolving the scalability issue.
The layer 2 blockchain leverages certain techniques to proceed with the operation, such as sidechains, state channels, rollups, etc. Each type has a unique approach that aims to improve the transaction speed and reduce the gas fees.
Layer 2 solutions bring numerous benefits that enhance efficiency, transaction processing times, and user experience while maintaining decentralization and security. Take a look at the key benefits of layer 2 blockchain solutions.
The core benefit of layer 2 solutions is that they significantly enhance scalability. The layer 2 solutions process transactions off-chain, which minimizes congestion and enables handling high volumes of transactions, leading to high transaction throughput. This eventually helps the blockchain network to scale efficiently.
The layer 1 blockchain generally has high transaction costs, while the layer 2 solution minimizes the transaction costs by offloading transactions from the main chain. This helps in alleviating the computational overhead that occurs in the layer 1 blockchain. This makes layer 2 the best option for blockchain development among developers and entrepreneurs.
The layer 2 blockchain emphasizes processing transactions away from the base layer. The layer 2 manages the transactions and sends them as batches to layer 1 for final validation, thereby minimizing transaction processing times. This helps to process the transactions quickly.
The layer 2 solutions are developed on top of the existing blockchain networks. This being so, most of the layer 2 solutions inherit the security of the base layer, which improves the overall security and decentralization.
The portion of transaction activity in layer 1 is diverted to layer 2, which helps to improve the overall scalability. This eventually helps in improving the user experience as users mostly prefer low transaction costs, a hassle-free process, and accessibility.
The layer 2 solutions are mostly designed in such a way that it is compatible with the existing blockchain network. Hence, this helps in deploying scalable applications and enables seamless integrations. This flexibility tends to improve the overall usability and performance.
The layer 2 blockchain solutions leverage diverse approaches intended to enhance the scalability and overall performance of the blockchain network. Now, let's take a closer look at the types of layer 2 solutions.
Rollups are one of the layer-2 solutions for the Ethereum blockchain. The principle behind rollups is bundling, where it bundles multiple transactions on layer 2 and ports them as a single transaction to the base layer by offloading the computational burden. The rollups are classified into two types such as: optimistic rollups and zero-knowledge (ZK) rollups.
Optimistic Rollups: Optimistic rollups assume that the transactions are valid by default and only verify and send proof to layer 1 when there is any dispute or fraudulent transaction. This helps in improving the transaction throughput, and this type of rollup is also known as fraud proofs.
Zero-Knowledge Rollups: The zero-knowledge rollups follow the core approach of rollups by batching multiple transactions off-chain and transmitting them to layer 1 and verifying them through cryptographic proofs. This helps to process the transactions quickly, and they are referred to as validity proofs often.
Sidechains are independent blockchains that often operate in parallel with the parent blockchain through a two-way bridge. Sidechains function similarly to layer 2 solutions, where their primary aim is to enhance the scalability of the main blockchain. Sidechains differ in structure and have their own consensus mechanism. Sidechains have their own security model and also come with customization ability, which can be tailored to specific features without affecting the parent blockchain.
State channels aid in minimizing the on-chain transactions by enabling users to interact with each other directly off-chain. The initial state is recorded on the main chain, and the other transactions are recorded offline until a certain point, and then verified on the main blockchain when the final state is completed. As most transactions are processed away from the main chain, it helps to speed up the process, minimize transaction costs, and boost efficiency. State channels are highly beneficial for low-value transactions such as micro payments.
Plasma is the layer 2 solution for the Ethereum blockchain network, which handles transactions off the main chain by creating child chains, also referred to as plasma chains. These plasma chains process the transactions independently and submit the final state to the layer 1 blockchain. This, in the end, helps in diluting the network usage and enhances the overall scalability. Plasma is suitable for micro transactions, and one of the disadvantages of plasma is the lengthy and time-consuming withdrawal process.
Validiums are one of the scaling solutions for the Ethereum network, which operates similarly to zero-knowledge rollups. Validiums process the transactions and stores the transaction data off-chain. As the transaction is stored off-chain, the layer 1 blockchain has minimal on-chain storage, and this tends to improve the overall scalability.
Here, we will examine some of the popular layer 2 blockchains that empower blockchain networks to mitigate the scalability concerns and improve the performance.
Polygon is a popular layer 2 blockchain platform that addresses the scalability issues of the Ethereum network. Polygon stands out with a fast processing time of 2.1 seconds, low transaction fees of $0.01, and the proof-of-stake consensus mechanism.
Arbitrum is one of the layer 2 blockchain solutions for Ethereum to alleviate its scalability pitfalls. Arbitrum is the popular choice for Ethereum as it is EVM-compatible, employs low transaction fees, and facilitates seamless integration with Ethereum.
Avalanche is one of the popular blockchains that is now offering layer-2 solutions with its central subnets. Avalanche subnets can be opted for as a layer 2 solution owing to the independent operations, network congestion, and cross-chain transfers.
Immutable X is a layer 2 solution that emphasizes enhancing the scalability of NFT transactions on Ethereum. It leverages zk-rollups to process transactions off-chain, and this helps in enabling NFT transactions with minimal fees.
Loopring is the first zk-rollup that operates on Ethereum's top layer of the blockchain to handle the scalability issues. Loopring stands out as the best choice owing to the trading support it offers, individual market cap, and high throughput.
The layer 2 blockchain plays a pivotal role in offering scalability, cost efficiency, and faster transactions. However, they come up with limitations that affect the blockchain performance. Let's explore some of the limitations of the layer 2 blockchain.
The layer 2 solutions mostly depend on the security of the layer 1 blockchain. Cyber attacks that target the main blockchain will eventually affect the security of the layer 2 solutions. This impacts the integrity of the layer 1 blockchain.
Deploying the layer 2 blockchain solutions is complex, and it involves technical challenges. This is because layer 2 solutions should be deployed by balancing the scalability, compatibility, and security. Hence, there should be a deeper understanding of the main blockchain's technical architecture.
The lengthy withdrawal process is one of the limitations of the layer 2 solutions. When the user initiates withdrawal from the base blockchain, security gets tightened, which leads to a time-consuming withdrawal.
In essence, the advancements in the layer 2 blockchain solutions show immense possibilities in settling the blockchain's scalability concerns. With the maturation of the layer 2 solutions, there is a low chance of high transaction costs and low transaction throughputs. Also, the integration of new-age technologies in the layer 2 solutions will tend to bring a new dimension to the blockchain networks.
The layer 2 solutions will contribute to the long-term sustainability of the blockchain networks, balancing decentralization and security. The potential of the layer 2 scaling solutions is driving increased uptake among businesses to lead a decentralized digital economy.
Are you keen on leveraging layer 2 blockchain solutions for your blockchain project? Join hands with Maticz, the leading blockchain development company that excels in offering layer 2 blockchain solutions, empowering businesses to foster greater scalability and better performance. Maticz is equipped with skilled blockchain developers who navigate the complexities in your project and deliver layer 2 solutions. We are a trusted blockchain development firm that extends its expertise across diverse industries and delivers blockchain excellence.
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