As blockchain networks continue to gain popularity, they run into scalability problems that limit their widespread adoption and effective operation. Fortunately, developers have developed a technology called Layer 2 scaling solutions to address this problem.
This scaling solution aims to increase the speed and capacity of blockchain networks while maintaining their security or decentralization. Here, we’ll explore Layer 2 scaling solutions and explain what they are, how they work, and why they’re essential.
Scalability Challenges in Blockchain
As we all know, blockchain is a distributed digital ledger that can securely record transactions. However, it has difficulty scaling, which slows down the processing of transactions. The term “scalability” in the context of blockchain refers to the network’s ability to process an ever-increasing number of transactions efficiently.
Developers create traditional blockchains like Ethereum with a focus on privacy and decentralization. While essential to the networks’ security, this focus has limited their potential scalability. This restriction is most apparent when network traffic is heavy, and users must endure longer processing times and higher prices.
For instance, there is a limit on the number of transactions each block can hold on the blockchain. The blockchain can become clogged up, like a traffic jam, as more people try to use it. As such, it takes longer to confirm transactions as the number of pending transactions grows.
However, there is a sign of progress since most developers are exploring layer two scaling solutions for blockchain networks. The new approaches they provide to scalability could hasten the technology’s general adoption.
What Are Layer 2 Scaling Solutions
The goal of the techniques and technologies that make up Layer 2 scaling solutions is to increase the scalability and effectiveness of blockchain networks without making any changes to the core blockchain protocol (Layer 1).
These solutions operate “on top” of the primary blockchain to speed up and reduce the cost of transaction settlement. The basic concept is to handle some subset of the network’s transaction volume on a secondary layer that is more efficient and versatile than the primary chain.
Once the secondary layer transactions are complete, it records the results on the main blockchain, making the system secure and unchangeable. Think of all the transactions as cars on a congested highway (the Layer 1 blockchain). Layer 2 solutions are similar to creating a system of express lanes (off-chain or sidechain solutions) or implementing more sophisticated traffic management (Plasma, Rollups, state channels) to reroute traffic from the main road.
This reduces traffic, speeds up and lowers the cost of transactions, and protects the primary highway (Layer 1). Overall, Layer 2 scaling solutions are similar to adding more infrastructure layers or “lanes” to a blockchain to process more transactions, improving the network’s speed and efficiency.
Types of Layer 2 Scaling Solutions
It is essential to know the different types of scaling solutions when exploring layer 2 scaling solutions for blockchain networks. These include:
- State Channels
- Rollups
- Plasma
- Sidechains
State Channels
State channels enable several off-chain transactions between two or more parties without broadcasting those transactions to the network at large. This eliminates the need for extensive processing by significant blockchain networks.
They function similarly to encrypted chat rooms, allowing users to conduct numerous transactions outside the blockchain. Participants can communicate while the channel is open without costly and time-consuming on-chain transactions. The Lightning Network, a Layer 2 protocol built on top of the Bitcoin blockchain, is a good illustration of the use of state channels.
You can process multiple transactions off-chain using the Lightning Network without having to notify the entire network. The Bitcoin blockchain’s scalability, settlement speed, and transaction costs all benefit significantly from this development.
Rollups
It is possible to reduce transaction fees by using rollups, systems that handle transactions on a Layer 2 blockchain before transferring them back to the main chain. With rollups, hundreds of transactions are recorded on the Layer 2 chain all at once before being “rolled up” into a single transaction.
Think of the main blockchain as a highway where traffic jams frequently cause automobiles (transactions) to sit for long periods and cause drivers to pay hefty tolls (transaction fees).
Using a Rollup is like constructing a separate, faster highway (the Rollup layer) beside the main one. Rollups permit transactions to occur off-chain or in a different, faster lane rather than processing all of them on the main highway at once.
There are two types of rollups, namely;
- Optimistic rollups
- Zero-knowledge rollups (or ZK-rollup)
Optimistic rollups
With optimistic rollups, Ethereum users can run smart contracts off-chain without notifying the main network of every transaction. Since all transactions in an Optimistic Rollup must settle on Ethereum, this layer provides a layer of security.
However, there is a catch, as these Rollups “optimistically” assume that all transactions are genuine and require a seven-day verification test before you can withdraw funds to the Ethereum main chain. This method lessens the burden of calculation and gas costs on the main chain. Some examples include Arbitrum, Optimism, and Boba.
Zero-knowledge rollups (or ZK-rollup)
In contrast, zk-Rollups perform transaction aggregation off-chain and subsequently submit cryptographic evidence (zero-knowledge proof) to the blockchain’s first layer, guaranteeing the transactions’ authenticity via cryptographic means.
They provide great efficiency and scalability by shifting most computations to a separate, off-chain system. In a Zero Knowledge Proof, the person proving can demonstrate to the verifier that a statement is true without disclosing any details about the statement.
Developers can use this to increase privacy on the blockchain by allowing them to confirm transactions without disclosing potentially private data. Using cryptography and mathematical proofs, zk-Rollups offer solid assurances of safety. Some examples include zkSync, StarkWare, and Loopring.
Plasma
The Ethereum network’s scalability problems are the focus of this Layer 2 scaling solution. With Plasma, people can handle most off-chain transactions while keeping a secure connection to the main blockchain.
Plasma is a platform that allows numerous chains, called child chains, to be connected to a parent chain (the Ethereum main chain) and then run smart contracts and process transactions independently.
Most transactions and other actions occur in these offshoots of the main blockchain. Each child chain periodically updates the parent chain with a summary of its recent operations or evidence of its validity. This condensed version of events on the child chain covers all the bases and is much easier to read.
It’s a means to improve the efficacy of blockchain networks without sacrificing security or trust and without centralization. The fact that anyone can dispute the consensus reached in the summaries delivered to the main chain makes Plasma so secure. If they find a problem or disparity, they can file a complaint.
Sidechains
This refers to a separate blockchain network that runs with the primary blockchain. It can have its features and features, and it has its consensus method, making it useful in various contexts. In this way, blockchains from multiple networks can communicate with one another and trade assets.
However, as the Layer 1 chain does not protect them, sidechains must implement their security through a consensus method, such as Proof-of-Stake (POS) or Proof-of-Work (POW), at their own expense. The Liquid Network for Bitcoin and Polygon (MATIC) for Ethereum are both well-known examples of sidechains.
Challenges Faced by Layer 2 Scaling Solutions For Blockchain Networks
- Security Concerns
- Decentralization
- Interoperability
Security Concerns
Protecting users’ money is a top priority when deploying Layer 2 solutions. However, the off-chain or sidechain mechanisms on which layer 2 solutions frequently rely are a potential security risk. It is essential to transfer assets or data from Layer 1 to Layer 2 securely and reliably to comply with smart contracts.
Decentralization
One of the fundamental principles of blockchain technology is to maintain decentralization. Layer 2 solutions might compromise decentralization to scale, as seen with centralized sidechains. It is, therefore, important for developers to find an appropriate balance between scalability and decentralization.
Interoperability
The importance of ensuring interoperability between various Layer 2 solutions and Layer 1 chains is rising as the blockchain ecosystem develops. It is a technical challenge that demands established protocols and collaboration between projects. This protocol ensures that assets and data can move smoothly between Layer 2 networks and the underlying Layer 1 chain.
Conclusion
Regarding solving the scalability issues that have prevented blockchain’s widespread adoption, layer 2 scaling solutions are a huge step forward. These solutions allow for more possibilities because of the increased speed, decreased costs, and enhanced energy efficiency they provide.
In addition to improving transaction times and reducing transaction fees, rerouting network traffic also increases scalability. Furthermore, developments in Layer 2 technologies may pave the way for new blockchain applications that are now impractical due to scaling concerns.