Since 2015, Ethereum has faced two very prominent issues; gas fees and scalability. Both issues, i.e., high fees and traffic congestion, show just how successful Ethereum has been over the years. However, that success came with a price. The growth started becoming a significant problem for the currency, and if it were to survive, it had to come up with a solution – quick.
As developers joined heads, they eventually came up with several solutions such as Sidechains, Plasma, Channels, and Rollups, with one of the most prominent ones being the Layer-2 (or L2) solutions. After all, Ethereum had to make its highly congested systems (such as its decentralized exchange and Yield Farming) accessible to the general public again.
Developers have come up with several Layer 2 Ethereum solutions, and we will discuss them here in detail and compare them to help you understand which one suits your needs better. However, before that, let’s go over some basics.
What Is Layer 1 & Layer 2 in Crypto?
Layer-1 in crypto constitutes the main architecture on which a blockchain is based. All solutions designed for layer one help improve the base protocol of the currency based on said blockchain, making the system more scalable in the process. However, there is only so much that the first layer can scale before becoming congested, increasing transaction fees and time. The Ethereum mainnet is a layer-1 architecture.
Layer 2, on the other hand, is a very broad term that encompasses the whole overlaying network lying on the underlying network (i.e., on layer 1). Think of it as the blanket that you snuggle under at night to feel warm, cozy, and safe.
The goal of layer 2 is to help the currency or application on the blockchain scale. This second layer takes over all the transactions taking place on the Ethereum mainnet (layer 1) to use the robust decentralized security model used by the mainnet to its advantage. Since the transactions are ‘sourced’ to the second layer, they end up being much faster, therefore decreasing the transaction costs and improving the user experience for several DApps.
Take the example of Bitcoin and Lightning Network, two market favorites right now. Bitcoin itself represents a layer-1 network since it hosts the architecture itself, while Lightning Network is a layer-2 solution for Bitcoin.
Now that we know what layer 1 and layer 2 in crypto are, let us consider some solutions out there and what they entail.
Although there are many layer-1 solutions out there, the two most common ones include consensus protocol changes and Sharding. These solutions improve the base protocol itself and have helped Ethereum scale considerably over the past years.
The biggest benefit boasted by layer-1 solutions is that they can host the architecture completely without needing any further updates. However, as mentioned above, the approach doesn’t offer as much scalability on its own.
Ethereum Layer-2 Scaling Solutions
The two common Ethereum layer 2 solutions include:
These channels are two-way communication channels between different people on the blockchain (i.e., participants), letting them interact on the blockchain. Normally, participants would have had to interact on a different platform, off the blockchain. The goal here is to reduce the time it takes for a single transaction and reduce the dependency of currency holders on a third party.
Whenever two participants want to interact on a State Channel, the layer-2 Ethereum solution seals off a portion of the layer via a smart contract or multi-signature (depending on the model chosen by participants). Once sealed, it is dedicated to said interaction and has no other parties involved – not even the miners. The two parties are free to directly interact with each other, negotiate terms, and conduct the transaction.
Once the transaction is done and the channel’s state has been changed, the new state is saved and added to the blockchain, marking the completion of the transaction. The most popular Ethereum layer 2 project using a state channel solution is the Raiden Network.
Raiden allows participants to run smart contracts through their channels and utilize Hashed Timelock Contracts (HTLCs) to execute them.
Another Ethereum layer-2 scaling solution is OmiseGO or OMG. It is based on a nested blockchains solution called Ethereum Plasma. In this system, the base blockchain sets rules for the system it generates and then lets the entire layer run independently.
The only point at which the blockchain directly takes part in any operation is resolving a conflict. This is achieved by creating different blockchains and ‘nesting’ them on top of each other. Every level will be connected to each other, creating a hierarchy of parent-child connections.
During operations, the parent will first delegate tasks/work to its children chains, which will further delegate it down the chain, and so on. This process will continue until the last chain available executers the action and sends the result to the parent chain.
Since they distribute the workload, nested Ethereum layer 2 solutions are known to be extremely stable, reliable, and exponentially scalable. While performing even the most complex functions, the nested blockchain solution does not change the underlying protocol in any way.
What Is Sharding?
Sharding is a layer-1 scalability solution to enhance ETH 2.0’s scalability. The system uses a Proof of State (PoS) mechanism for consensus and involves breaking down large transactions and computational load into small ‘shards,’ making it easier to process.
What Are Rollups?
Rollups are smart solution protocols that use both layer 1 and layer 2 to offer immense scalability to the platform. It breaks transactions down into two parts; data and execution. Whenever a transaction is posted on the blockchain, it rollups execute the transaction on layer 2 and post the transaction data on layer 1.
This way, rollups inherit the security properties of layer 1 by executing transactions on the more secure layer and storing proof of transaction on it. At the same time, it achieves the versatility and scalability offered by layer 2 since transaction data from layer 1 is posted on the second layer. Every rollup requires an operator to stake a bond in the contract.
Benefits of rollups include reduced fees, allow anyone to participate, and offer fast transactions.
Types of Rollups
Based on the security model used, a rollup can either be a Zero Knowledge rollup or an Optimistic rollup.
What are Zero Knowledge Rollups?
These rollups are also known as ZK-rollups. Whenever a transaction is posted, ZK rollups transfer the computational load off-chain, submitting a validity proof to the chain in the process. These ‘roll up’ numerous transactions into one ‘roll,’ transfer them off-chain, and create a cryptographic proof on layer 1 that’s known as a Succinct Non-interactive Argument of Knowledge (SNARK).
Yes, that’s a weird antonym.
While all this is happening, the ZK-rollup smart contracts maintain every transfer in the roll onto layer 2, updating it further with a validity proof (only the rollups need the validity proof, not the transaction data itself).
ZK rollups are much quicker and cheaper since they include less data. There is no delay in moving funds from layer to layer, either, since everything has already been verified.
However, not every blockchain parent and child supports EVM (Ethereum Virtual Machine), and if the rollup is used on a chain with very little activity, it may end up being costly.
What Are Optimistic Rollups?
Then there are more widely used rollups, the optimistic rollups. These rollups assume that the transaction is valid by default, meaning that there is no need for validation (hence the optimism). This rollup directly computes all data and requires separate fraud proofing in the event a challenge is introduced.
These rollups are mostly parallel to the main Ethereum chain, sitting on the second layer (layer 2) of the blockchain. This position makes the rollup much more scalable and convenient for the system since it doesn’t have to do any computation by default. Instead, whenever a transaction is posted, a new statement is proposed to the mainnet, which is then calculated.
After calculation, the optimistic rollup system writes transactions to the main Ethereum chain in the form of calldata, a read-only byte that holds transactional information. These bytes are arranged by the system and optimized to improve space usage, further reducing gas costs and making the system more cost-effective.
Normally, Ethereum offers slower and more expensive computation, but with the optimistic rollup solution, processing speed can improve by ten to one hundred times; this increase in speed is mimicked by a proportionate range of scalability, transaction size, and number.
If you are looking to optimize the solution further, the system allows shard chain integration to speed up transactions and handle more data. This integration is particularly useful for areas/merchants where disputes over transactions are common.
Which Is The Best Ethereum Layer 2 Solution?
Now that we have gone over the different Ethereum layer 2 projects, let us compare some of the most popular ones out there and help you better understand which one suits you more.
|Feature||Optimistic Rollup Solution||Matic (Polygon)||zkSync||Harmony|
|Target Audience||Blockchain developers||Blockchain developers||Blockchain developers||Blockchain developers|
|Mission||Scaling Ethereum, increased speed, reduced transaction costs||Increasing speed and reduced transaction costs||Scaling Ethereum, Creating a user-centric ZK rollup solution||Scaling Ethereum, scaling Ethereum apps, scaling cross-chain finance|
|Support Availability||Online||Business Hours||Business Hours||24/7|
|Official Training Availability||Documentation||None||Documentation||Documentation|
|Integrations||EthereumQuickNode||EthereumK-Display ViewCovalentQuickSwapQuickNode||Ethereum||EthereumAPI3AscendEXBilaxyBinanceCoinDCXGate.ioHitBTCHuobiKuCoinMetaMaskWazirXMeth WalletTrust WalletGuardaChangellyEXMOBitcoinLedgerSimpleSwapMXCPROBITAnd more.|
Should I Cross The Bridge to A Side Chain, Or Wait for Other Options?
There are several comprehensive cross-chain infrastructure solutions (such as Avalanche and Cosmos), there is one very important element that remains unaddressed in the crypto world; moving digital assets from one chain to another and use DApps more efficiently without having to change platforms for everything. And that’s where blockchain bridges come into play.
Sidechains have been implemented as layer 2 Ethereum solutions for quite a while now and have been allowing cryptocurrencies to interact with one another, thanks to their scalability and versatility. Think of these as service lanes running across a highway. Should you take them?
There are risks and benefits for driving on the highway and the service lane alike, and just like that, the mainnet and sidechains have their own set of features as well. Since all the traffic is on the highway, service lanes can be much faster in congested areas, but when the highway is smooth, or there isn’t that much traffic, the service lane won’t be able to compete with the smooth highway road.
Another reason why sidechains present themselves as an attractive idea is highway tolls. Yes, the route is long, the road might not be as smooth, but you have to pay less from going from city to city.
The mainnet is much more secure compared to side chains, though. For layer 2 options to be more secure, you will have to wait a bit. We recommend that if you choose to go with side chains, maintain a strategy and know when to pull out.
Rollups – The Much-Needed Upgrade
All this might sound a bit confusing, but as the number of threats and exploits towards cryptocurrency increase, it is important that faster, securer solutions are devised; however, that’s not all the industry needs right now.
Since 2020, the number of crypto owners has skyrocketed, and as the industry boomed, scalability became a major issue, particularly for Ethereum. That is precisely why layer 2 rollup solutions were devised.
However, choosing the best Ethereum layer 2 solution requires a lot of back and forth, especially since many solutions haven’t been released yet. What do you think about these rollup solutions? Should we switch to whatever is available, or should we wait for other solutions and see which is best? Are you ready to roll up your sleeves and get your hands dirty? Connect with us on Telegram and let us know!